Author: Rebekah Stovall

Bi-Weekly Geopolitical Report – The New Era of Higher Defense Budgets (March 28, 2022)

Posted on by Rebekah Stovall

by Patrick Fearon-Hernandez, CFA | PDF

The Russia-Ukraine war has transformed the world in the blink of an eye.  We think the war and its aftermath will reverse much of the economic globalization of recent decades and cleave the world into two or more blocs with only limited interplay.  We believe sanctions on Russia will discourage many central banks from seeing the U.S. dollar as their preferred reserve currency.  We see an isolated Russia being forced into an even tighter relationship with China, where it will be the junior partner.

Now that it’s easier to see the geopolitical and military threats from authoritarian leaders in China, Russia, and beyond, we believe the war has also ushered in a new era of high defense spending.  We expect that countries around the world will now invest much more in national defense than they have in decades.  This report examines the implications of higher defense spending within NATO and the potential ramifications for investors.

Read the full report

Don’t miss the accompanying Geopolitical Podcast, available on our website and most podcast platforms: Apple | Spotify | Google

Bi-Weekly Geopolitical Report – The Ukraine War and the Path of Globalization (March 14, 2022)

Posted on by Rebekah Stovall

by Bill O’Grady | PDF

There are decades where nothing happens; and there are weeks where decades happen.

̶ Vladimir Lenin

Over the coming weeks, we will be analyzing the impact of the war in Ukraine.  Clearly, the situation is highly fluid[1] and projections on how the future will be affected by the war must be tempered with the fact that conditions will certainly change.

In this report, we will focus on the economic sanctions and their effects on globalization.  As the conflict has evolved, Western nations have moved quickly to implement serious sanctions on Russia that will likely have far-reaching effects not just on the Russian economy but also on global trade and investment.

Our report begins with the sanctions on the Russian Central Bank and the impact on its foreign reserves; the discussion includes an analysis of Russian policies designed to accumulate reserves.  From there, we project how reserve managers address the risk unveiled by the sanctions, including how nations view trade and development.  Using this information, we examine how this change will affect globalization and what impact these changes will have on the economy, inflation, and markets. A look at the role of cryptocurrencies is also included.  Finally, we close with potential market ramifications.

Read the full report

Don’t miss the accompanying Geopolitical Podcast, available on our website and most podcast platforms: Apple | Spotify | Google

[1] For comments on how the war is unfolding, we recommend monitoring our Daily Comment.

Bi-Weekly Geopolitical Report – The Turkish Experiment (February 28, 2022)

Posted on by Rebekah Stovall

by Bill O’Grady | PDF

Don’t miss the accompanying Geopolitical Podcast, now available on our website and most podcast platforms: Apple | Spotify | Google

The Turkish economy is being roiled by spiking inflation and a sharp decline in the Turkish lira (TRY).  The orthodox response to such a macroeconomic crisis is austerity.  Fiscal and monetary policy become tight; taxes are raised, or spending is cut, or both occur and interest rates are increased.  The goal is to depress domestic demand because the root cause of these problems is usually a persistent current account deficit.  Reducing domestic demand usually leads to a reduction in the current account deficit.

Turkish President Erdogan has adopted a heterodox response to the current crisis.  He has fired numerous officials of the Central Bank of the Republic of Turkey (CBRT) over the past two years who insisted on raising interest rates to address the aforementioned problems.  Since July 2019, when Erdogan relieved Murat Cetinkaya of the governorship of the CBRT, he has installed three governors in less than three years.  Erdogan believes that increasing interest rates leads to higher inflation on the idea that increased borrowing costs will be applied to prices.  This position is at odds with the normal prescription for addressing an inflation and currency crisis.

In this report, we will begin with a review of the basic economics of savings balances and how current account deficits are created and funded.  From there, we will provide an examination of Turkey’s current economic situation.  The next section will deal with the government’s response.  We will close with market ramifications.

Read the full report