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What Does The Ukraine Dilemma Mean For Our Economy?

By Jason LaBarge l Financial Advisor and President, LaBarge Financial


Let’s talk about Ukraine. A few nights ago, I watched a television show on Showtime called “The Putin Interview.” It’s a four-part documentary where Oliver Stone interviewed Russian President Vladimir Putin. I didn’t know anything about Vladimir Putin other than what I have heard from the mainstream media. What I learned about him you might find surprising.


There is a pro and a con for everything, and the way I see it, one of the benefits to a dictator is that he or she can take a long-term view and implement a long-term plan that leaders of Western democracies, like those of the United States, cannot. Our presidents win the election, and they are almost immediately required to start planning the next one. Biden is Putin’s fifth U.S. counterpart! Think about that. Putin has been in control since President Bill Clinton was in office! That kind of time affords you freedom, and I found in the interviews, Putin could think in terms of decades and not in terms of four-year increments. Clearly, one of those long-term plans was Ukraine.


I don’t have the bandwidth to understand fully why Putin is doing what he is doing, but clearly, he has been planning this for quite some time as evidenced by stockpiling gold, equipment and armaments. The real question here, however, is how this impacts us here in Maryland. Unfortunately, it’s difficult to say how we are directly impacted, but certainly the last month in the market has revealed that the response is negative to all of this.


Fortunately, we have seen this movie before. This is not the first country Putin has invaded. In 2014, Putin invaded Crimea and while the market responded negatively initially as well as during the campaign, just 12 months later in March 2015, the S&P was up 15 percent. To compare that to an American military action, the S&P was up almost 30 percent a year after the Gulf War in 2003, according to Reuters. Clearly our local markets respond better to U.S. campaigns than they do international campaigns, but either way the market responds positively to military actions historically. Does that mean that past performance is an indication for future results? That is yet to be determined.


The indicator to watch in all of this is corporate earnings and oil. Corporate earnings will dictate how the market reacts to the situation. Sanctions implemented on Russia will certainly have an impact on the international marketplace, and how Russia responds also plays a role. A retired colonel of the U.S. Army, Jeff Hartman is the associate professor of Russian way of war at the George C. Marshall Center (and is also a friend). Jeff thinks that the oil market in Europe will be impacted by this invasion. In fact, Jeff told me that we will see the U.S. impacted in the following manner:


“This is already affecting oil markets, which will push inflation for all agricultural and manufacturing goods in the U.S. It will affect worldwide grain marketing, which will further increase U.S. agricultural prices. In the long-term, this will affect European supply chains due to far higher energy costs in Europe. We will also see market uncertainty due to euro depreciation caused by European Union borrowing.”


Colonel Hartman has written extensively on this topic and has devoted his career to the military operations in this area of the world, and we should all be grateful to him for his service. I, on the other hand, am not an expert in the specific details, but looking at history, a study of 29 geopolitical events since World War II shows a general trend in short-term losses in the first weeks and longer-term gains over months. History doesn’t always repeat itself, but it often rhymes, and I believe that it’s a fair expectation that the way the markets have responded historically will guide how they perform moving forward.

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www.labargefinancial.com

Registered representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker-dealer and a registered investment adviser. Cetera is under separate ownership from any other named entity.

The views depicted in this material are for information purposes only and are not necessarily those of Cetera Advisor Networks LLC. They should not be considered specific advice or recommendations for any individual.

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