Author: Rebekah Stovall
Bi-Weekly Geopolitical Podcast – #10 “Going Nuclear with North Korea” (Posted 5/23/22)
Bi-Weekly Geopolitical Report – Going Nuclear with North Korea (May 23, 2022)
by Thomas Wash | PDF
At nearly 5,000 nuclear warheads, Ukraine had one of the largest nuclear arsenals in the world on its territory. If Ukraine hadn’t transferred those weapons to Russia in 1996, it is unlikely that Moscow would have invaded. North Korea believes it is facing a similar threat which is why it has fought to maintain its nuclear program.
In North Korea’s first nuclear test in 2006, the bomb generated the equivalent of a 4.7 magnitude earthquake. In its next attempt in 2009, the bomb was four times stronger. The bombs tested in 2016 and 2017 each yielded more power than the atomic bomb dropped on Hiroshima in 1945. In short, North Korea clearly has the ability to develop and produce its own nuclear weapons. The country’s ability to deliver a nuclear weapon against the U.S. or any other adversary is less clear, but a flurry of recent tests suggests it is making incremental progress in its missile technology.
This report will focus on North Korea’s nuclear program and the implications for the rest of the world if North Korea is capable of striking the U.S. with a nuke. We start with a brief history of the country’s nuclear weapons program and discuss how the rest of the world has tried to denuclearize the country. Next, we examine North Korea’s current military capabilities and potential threats to the global order. As usual, we conclude with the potential impact on financial markets from these events.
Don’t miss the accompanying Geopolitical Podcast, available on our website and most podcast platforms: Apple | Spotify | Google
Asset Allocation Bi-Weekly – #75 “The FOMC Speaks” (Posted 5/16/22)
Bi-Weekly Geopolitical Podcast – #9 “Parsing the World’s New Geopolitical Blocs” (Posted 5/9/22)
Bi-Weekly Geopolitical Report – Parsing the World’s New Geopolitical Blocs (May 9, 2022)
by Patrick Fearon-Hernandez, CFA | PDF
For more than a decade, we at Confluence have been tracking and writing about the waning commitment of the U.S. to its role as global hegemon. We’ve shown how U.S. retrenchment and protectionism have helped erode globalization. Factors like deregulation, falling transportation costs, improved technology, and easing geopolitical tensions following the end of the Cold War may have promoted political and economic integration for decades. Now, however, governments across the globe are erecting barriers to trade, investment, and migration, leaving authoritarian strongmen emboldened to assert themselves. The latest example of that has been Russian President Putin’s invasion of Ukraine.
Amid these developments, we’ve argued the world will fracture into at least two main political and economic blocs: a U.S.-led bloc consisting mostly of liberal democracies and a China-led bloc of mostly authoritarian states. This report discusses which nations are likely to join each bloc, which will merely lean toward one bloc or the other, and which may try to stay neutral. Based on our predicted makeup of each bloc, we describe their differing political, economic, and financial characteristics. As always, the analysis also includes ramifications for investors.
Don’t miss the accompanying Geopolitical Podcast, now available on our website and most podcast platforms: Apple | Spotify | Google
Asset Allocation Bi-Weekly – #74 “The Tale of Two Surveys” (Posted 5/2/22)
Bi-Weekly Geopolitical Podcast – #8 “The Russians Respond” (Posted 4/25/22)
Bi-Weekly Geopolitical Report – The Russians Respond (April 25, 2022)
by Bill O’Grady | PDF
In mid-March, we wrote a report detailing the effects of financial sanctions on Russia. And now, about six weeks later, we are seeing the response from Russia. As we noted in our earlier report, Western sanctions on Russia were extensive. Although something similar was deployed against Iran, never before had such sanctions been used against a major country.
The initial response from the financial markets was swift; the ruble (RUB) plunged. However, over the past couple of weeks, the RUB/USD has recovered all of the initial losses. It should be noted that some of the recovery is due to capital controls as Moscow has made it very difficult to move money out of Russia. Exporters who acquire hard currency are required to turn 80% over to the Russian Central Bank. The bank also lifted interest rates to 20%, yet recently reduced its policy rate to 17%. But perhaps the most radical action the government has taken is to demand payment for energy in RUB.
In this report, we will begin with examining the concept of money and the complications that international trade creates, including a discussion of the reserve currency concept. Using this construct, we will apply it to the specific case of Russia. Our contention is that the dollar/Treasury reserve system is, at best, being tested, and at worst, unraveling. We will also include comments about emerging reserve currency blocs and conclude with potential market ramifications.