Market Update – April
It was the late US General and later politician Colin Powell who once said “Bad news isn’t wine. It doesn’t improve with age”. With the bad news emanating from Ukraine over the last month or so, much of the early focus was on the humanitarian plight of those caught up in the conflict as well as the action taken across Western nations aligned to NATO and the US to sanction Russian individuals, companies and economic interests. The narrative was very much around how these measures would pressure Russia by bringing its economy and currency to its knees.
Since then, however, the Ruble has recovered to less than 14% below its pre-invasion levels. Part of this may be due to capital controls and strict rationing of USD by the Russian Government to defend the Ruble. It may also reflect the shifting geopolitical sands brought about by the conflict and the related crisis of commodities being felt across the world. We take the liberty here of quoting (at length) Zoltan Pozsar of Credit Suisse (and formerly of the US Treasury and US Federal Reserve):
In today’s environment, where we have to navigate a global conflict between great powers and an unfolding crisis of commodities, thought leadership is more important than ever. The current environment is perhaps more complex than the crises of 1997, 2008, or 2020, for the problem is not only nominal (FX pegs, par, or the great overdraft, respectively), but also real: commodities are real resources (food, energy, metals), and resource inequality cannot be addressed by QE…
…you can print money, but not oil to heat or wheat to eat.