Economic Blowback from Russian Sanctions

Warren Strauss is a dear friend and a wise man in the world of finance and investment. He sent me the following the other day with no thought that I would publish it. I asked his permission and he gave me the greenlight.

We are in a brutal bear market. If the last bear market of length was 2000-2002 (2 1/2 years) , then this one has the makings of much worse.  How much worse is hard to say.

Here are the reasons this is likely to be worse:
1.  Structural Hot Inflation–this is the result of current US Domestic policy restricting mining, drilling for natural resources on US Federal land, off shore drilling, and inhibiting projects that facilitate movement and storage of oil, natural gas, and natural gas liquids, and mining for important minerals such as copper, platinum group metals, nickel, lithium.  I shouldn’t have to explain this, but the policy limits production, which limits available supply, which causes prices to rise.  The remedy for high prices would be to reverse the restrictive mining policies, which has a snowball’s chance in a hot climate somewhere.  The president is encouraging mining and drilling in other parts of the world (rules for thee, not for me) such as Venezuela, Mideast and bring those carbon fuels here which is pathetically hypocritical, and decreases our self reliance and independence and sends our citizens $ to foreign nations who are hostile to our nation.

2. FED Policy Reversal The FED has been steadily reducing interest rates to zero since 2008 and further, has been creating funds to finance the explosion, yes explosion, of US Treasury debt from $4 Trillion in 2000 to $30 Trillion today.  This is almost irretrievable to repair. A. 2000 saw Fed Funds at 5%.  Today Fed Funds are 1.0%.   B. 2000 saw Treasury 10 year at 8%, now the Treasury 10 year is 2.8% C. 2000 Treasury Debt to GDP ratio was 20%, today it is 120%

3.  Global instability, from Eastern Europe and from China aggression into Hong Kong and Taiwan
A big problem for our self reliance and independence, is that a substantial amount of our useful technology is purchased from geographies where a hostile regime controls the factories.  This is the case in China itself, as well as Taiwan.   There is a risk of supply limitations and a real risk that the hardware has imbedded code which can cause harm to users in the US and the western world, raising the risk of cyber insecurity (which is the prime use of cryptocurrency for ransom payments) as well as hard functional insecurity, such as the electric distribution grid, or the cellular grid, or the banking grid.
Worse, western policy reaction to Russia’s special military operation in Ukraine has made the inflation worse by trying punish Russia with boycott policies and sanctions.  Now that EU allowed itself to become dependent on Russian energy, without Russian oil and gas, the EU is desperate to replace Russian supply, and energy transfer infrastructure takes several years to build out.  So EU is back to burning dirty energy such as coal, etc., and at a high cost.  This hurts the lower income class the most.
There will be a tremendous shortage of natural gas for the coming winter heating season, which will either keep current domestic and global prices for natural gas elevated at current levels or cause further rises.    We can’t say for sure, but the demand will be there for sure. And China is ready to pounce on Taiwan with little consequence from the West.

4.  A strange fraud may be emerging in Social Media regarding how Advertisers have been billed for advertising products or services to phony bot accounts.   It is very likely that advertisers will be scrutinizing their previous payments and future payments for advertising threatening the business models of social media companies.  If so, and I strongly suspect it to be so, the projections for revenue and profit growth for social media companies will be remodeled, contributing to a decline in actual value, not just perceived value.   It could be the current valuations for social media companies are still over valued and sharp declines for their stock prices are “in the cards” for the next several quarters.

There are more risks such as destructive tax policies, domestic civil unrest, clash of domestic ideologies, assault on the US Judiciary and continued gross voting fraud, as well as , public health policy built on false assumptions simply for imposition of infringement of liberties.

I cant’ think of a period in my life (born 1952) more dangerous than now.  Even the Cuban Missile crisis did not have as many different threats from as many different sources.  It was a perceived existential threat from nuclear power, Russia, to set up a nuclear threat right near our boundary.  Looks familiar to me today with NATO setting up aggressive forces at Russia’s border and promoting the idea since 2020 of admitting Ukraine to NATO.

The only stock risk I can understand to be useful now is to own the production of domestic of US Domestic natural gas, whether it is for domestic consumption, or export for consumption in Europe, etc., as Liquified Natural Gas.  That would be the base upon which to discover opportunities of sensible risk for investment growth to me.   Somewhat similarly useful are producers of copper, nickel, steel, iron ore, platinum group metals, gold (of course), silver and phosphate fertilizer to alleviate the coming food shortages.  If it comes out of the ground, it worth examination.

Stock markets have experienced optional or voluntary liquidation so far.   Just wait until the bear market gets into its stages preceding to and into the Involuntary liquidation, or “forced selling.”   This is when financial leverage destroys its own wealth.  Today we still hear irrational platitudes of encouragement to remain invested.   These platitudes have no fundamental justification by allure naive to hope for positive returns being just “around the corner.”

In 2008, many households were afraid to open their period statements from their 401K plans, or their investment manger statements.  Today, households are still accessing their accounts online with hope for improvement.

The 1970’s TV show, The A TEAM, featured Mr T’s forceful emphatic toned voice expressions, such as “There will be Pain” or “I pity the fool…” have now become relevant again today for those who are willing to be intelligent and use their aptitude for self preservation.


Thanks for sharing!