Over the past few weeks, investors have been concerned about a potential war breaking out between ukraine and russia. Now, with tensions running high between the east and the west, the global economy is in a tight situation. This video will go over where the current u.s economy is positioned in this landscape. What has and will continue to change and how us investors can position our portfolios for our performance.

Russia's ukraine invasion has frightens people all over the world and will have devastating consequences. The war is not just affecting ukraine and russia, but the entire world. The european union will be delivering 500 million dollars worth of weapons to ukraine. That is the first time in history that the eu has sent arms to a country that is being invaded.

A vast array of other countries are also being involved in the war. Germany will be supplying ukraine with 1000 anti-tank weapons and 500 anti-aircraft missiles. President biden has also decided to supply up to 350 million dollars of weapons for ukraine. This type of involvement is unprecedented and hasn't occurred since the cold war.

Most people believe that russia will win the war, because russia is simply too well equipped to lose. If russia wins, then the ukraine invasion will likely force ukraine's regime to be pro-russia. The question is how long the resistance will continue once the current government in power falls, the expectations are for a new cold war and militarized borders. However, the risk for a military escalation will remain for some time.

Economic sanctions are being levied against the central bank of russia. All of this is going to have a substantial impact on the global economy. First, we'll start with how the u.s economy will drastically change, but before we get into that, we have to contextualize the current us position of the economy. Recent economic indicators show that the us economy is running at full steam.

Unemployment declined to a near 52-week, low and wages have been on. The uptrend salaries in january were up 10 year-over-year and consumer spending is up 12 year-over-year due to excessive money printing in the past two years, m2 money, which is the measure of the amount of money circulating in the economy, has grown 42 percent, an increase in m2. Typically pushes the us gdp higher, along with it m2, is up 15 month over month, and the us gdp is up 15 quarter over quarter. All of this will be extremely important soon when we discuss how ukraine and russia's tensions affect these measures.

The increase in m2 is also pushing inflation higher as well, which is exacerbated by supply chain disruptions. In particular, the u.s is struggling with supply chain issues because of the country's inefficient shipping ports. Despite all of this, the us has not experienced much of a change in foreign currency rates for the dollar. This is in part, because other countries have also flooded their economies with money.

Printing m2 data is not collected in europe, so in this chart we will compare the usm3 and europe's m3 money. M3 is like m2, but it also includes deposits over 100 000. This chart compares the change in m3 as a percentage. You can see that the increases in m3 are about the same for europe and the us with the amount of money printing happening.

Commodity prices have been pushed higher as well and again, consumers have been paying for these higher prices. This will be incredibly important soon when we analyze the impact that russia's war has on the global economy. The federal banks of the world have become hawkish, which puts the global economy at an awful time to be at war when a bank is hawkish. That means that they see high inflation and want to combat inflation before it becomes a long-term issue.

The stock market is expecting between four to six interest rate hikes from the u.s federal reserve. The effective federal funds rate or interest rate is the rate that the federal reserve lends money to banks at increasing. This rate has a result of elevating rates across the economy and therefore reducing the supply of money. That rate for the u.s is currently at 0.08 percent.

However, four 25 basis point rate hikes would put it around 1.08 percent. Each basis point is 0.01 percent, so 425 basis points would be 1. Originally, the markets contemplated that the fed would raise rates, 50 basis, points or half a percent in march now, with the war underway, that option has been taken off the table. The fed could, however, raise rates 50 basis points later this year.

The war is essentially delaying rate hikes because the central banks are scared of a recession during wartime goldman sachs recently predicted that the fed will raise rates 11 times in 2023. Such a massive delay could mean that a recession could occur in 2023. The federal reserve also has to start quantitative tightening quantitative tightening is when the fed sells bonds. That is the opposite of quantitative easing, which is when the fed purchases bonds.

We have been experiencing quantitative easing since early 2020 with quantitative tightening the supply of money in the economy would be reduced, thus lowering m2 and therefore reducing demand as well. In other words, if quantitative easing is a money, printer quantitative tightening is a money vacuum. This chart shows a level of m2 starting at the end of the 2008 recession at 100 billion dollars. If this trend continued without the pandemic happening, m2 would be between 200 to 220 billion dollars.

However, because of the pandemic, m2 money is now at 259 billion dollars. The fed's debt is also at six trillion dollars. Instead of the expected three trillion dollars, quantitative tightening and rising rates will slowly economy significantly. Delaying such a move means that inflation could get out of control.

The conflict and imposed sanctions on russia are pushing up commodity prices, especially in oil and natural gas. Such increases have the effect of slowing the economy in the short run, because the money to fill up or heat a home is taken out of the consumer's pockets. At a certain point, this can also be dangerous and raise inflation further. Russia's invasion of ukraine drove up oil prices from the usual 70 to 80 dollars per barrel to over 100 before dropping to the 90s.

The reason why this is happening is because of the impact that the war has on the production of commodities. First of all, russia provides nearly 25 percent of oil and 40 of natural gas to europe. Sanctions or damage to the pipelines would reduce supply as three pipelines run through ukraine, not only that, but ukraine produces 14 of the global wheat supply and a large portion of that gets exported to europe. Thus, the invasion will have a significant impact to the volatile food and energy prices in europe.

If the oil and wheat supply decreases in europe, this would push prices higher. As a result, some supply in the u.s will likely be moved into europe and increased prices in the us. That type of relationship means that prices across the globe are linked. The russian sanctions will also have a substantial global impact.

The sanctions have mostly targeted the financial and technology segments of the economy. However, they have stopped short of cutting russia entirely from the swift payment system. The swift payment system is essentially where all the international banks go to settle, accounts and transfer money. If russia were to be immediately cut from the swift system, european banks would not be able to deal with the debt owed by russian banks.

As a result, europe would have a problem paying for the gas and oil purchased by russia. Additional sanctions are targeting swift, but economists are expecting. At least one bank will remain on swift to allow europe to purchase oil from russia, so with energy and food prices likely to remain high. This creates a problem for federal banks across the globe, even though these may seem like short-term problems.

There is the risk that this further aggravates long-term inflation problems. What the us and other countries could try to do to keep prices down would be releasing some other strategic petroleum reserves. This could temporarily push oil prices back down to the 70 to 80 dollar point. However, oil production will likely not increase significantly because of short-term political tensions.

This is because oil manufacturers do not want to borrow money to drill for oil at 90 per barrel if prices might drop to 70 to 80 dollars near term. There are a vast array of problems going on right now. The inflation rate is at over seven percent. We have a war that is driving up energy and food prices, exorbitant, money, printing and artificially low interest rates.

The federal reserve needs to reduce the money supply and raised rates while trying to keep unemployment low, that's extremely difficult to do without crashing the economy. The stock market does not lack uncertainty, and our current situation definitely fits into that category. The question is no longer if the economy will slow, but rather how much it'll slow a way to look at the uncertainty in the market is through volatility. I typically use the market's fix or vol to determine volatility.

Earlier this year, the vol was in the mid 30s to near 40s that placed roughly a 40 chance of the s p, 500 crashing to 3 800 or increasing the 5100. While we could see further downside recent market events point towards some level of market support. The fact that nato and the us are not stepping in to actively defend ukraine and support at the current market levels, the economy is currently continuing to accelerate. Although the higher energy prices will temporarily slow the economy, this could actually be beneficial because it does some of the fed's work of slowing inflation.

The long-term rates of the treasury bonds are roughly in line with where they were before the pandemic. This is a great sign because it indicates that the market believes that race and inflation will return to normal in the long run. However, the short-term bond yields tell a totally different story. The short term portion of the rate curve shows that the fed is behind on raising rates the difference between the fed and the one month.

Treasury bond yield is nearly 150 basis points or 1.5 percent, so where are rates expected to go? These are the rate expectations. The market has priced in by december of 2022. The expectation is for rates to be 1.5 higher than they are today, which is a substantial amount. Inflation would also be back down to the 3 range by the market forecast central bank's worldwide raising rates places less risk on the s p than across the globe.

Europe is likely to feel more pain with higher prices than the us. The expectation would be for the u.s to outperform the european market. The dollar will also increase in price in relation to european currencies. As the fed raises interest rates faster than europe, the asian markets are likely to hold up well.

For the most part, however, the tax-centric focus of japan and south korea could see a slowdown, because russia is prohibited from purchasing technology for military purposes. I suspect that russia will go through china to make such purchases. Latin america and emerging markets will likely survive without too much of a problem. That being said, with the u.s dollar likely to increase in value compared to other currencies, the benefit of any potential outperformance from latin america could be lost from the conversion of foreign currency to u.s dollars when investing abroad.

Remember that you are investing in the foreign currency of another nation, the value of that currency fluctuates in relation to the u.s dollar, domestically with inflation high, but consumers paying for the goods at higher costs. Companies that are in the non-durable space are likely to do well. These are products we would use every day, such as toothpaste, razors, shampoo and more companies in this industry tend to perform well during recessions. This would also include beverages such as water and beer, all of which can hold value during a recession.

The other side of the coin include luxury brands such as louis vuitton and ralph lauren, which would likely struggle in a recession as the escalation and new cold war continue. Cyber security stocks are likely to do well like palantir, and many others other plays some of which have played out well, are banks and energy that trade is lightly crowded and more fought with risk, especially the energy trade. The bank trade could also begin to flatten and unwind if the economy slows enough today, the situation is very fluid. A lot can change on a daily basis, but with so many items in flux, the vix should be closely watched.

Let me know how you see the tensions in ukraine playing out down below. If you enjoyed this video, please hit the like button and subscribe and i'll see you in the next one.