What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing in february of 2022. Russia shocked the world with its invasion of ukraine, and it doesn't look like this conflict will be resolved any time soon. The most obvious impact is the devastation on the ground in ukraine, with tens of thousands dead and close to 10 million people forced to leave their homes, but the effects will not be isolated to ukraine or even europe. A sharp decrease in oil exports has sent prices skyrocketing across the globe, but perhaps even more concerning is the fact that russia and ukraine are both major exporters of food collectively, accounting for around 30 of global wheat, corn and barley, exports and 64 of sunflower oil with Ukraine now an active war zone and their access to maritime export routes blockaded by the russian navy.

These exports could fall close to zero. We've already seen global wheat prices surge by more than 20 since the beginning of the war, and we haven't even seen the full brunt of the impact. Yet the wheat harvesting season in both ukraine and russia is in july and august importing nations adjust their stockpiles. In anticipation of that harvest, when exports end up being 30, 40 or even 50 lower than usual, it's hard to overstate how devastating the effects will be, and this massive supply disruption could not have come at a worse time.

Governments around the world have borrowed heavily to deal with the pandemic. This, along with related supply chain issues, have caused 40-year high inflation rates throughout most of the developed world. The global food price index increased by 30 in 2020 and 2021 as a result of covid and a further 20 as a result of the war. That means that food is less affordable today than it has ever been in the past and around the same time that russian tanks started rolling into ukraine.

China started locking down the economically important port city of shanghai as part of its zero coveted policy covert. Related restrictions have brought the port of shanghai as well as other chinese ports to a near standstill with thousands of cargo ships stranded at sea unable to drop off or pick up cargo. This has all led to an unprecedented reduction in supply. At the same time, developed economies have been increasing money, supply to fund stimulus programs, decreased supply and increased demand will always lead to one outcome.

Stagflation central banks around the world have finally started to raise interest rates in an attempt to combat inflationary pressure, but no matter how creative they become. The fed has zero ability to increase ukraine's wheat exports or solve the supply chain baldness in china as the days go by it's looking more and more likely that we're heading into an era of stagflation, with slow economic growth combined with high and persistent inflation in this Video we'll look at how the world is sinking into stagflation and how investors can protect themselves in these volatile times. The majority of ukraine's farmland is in the large, open plains of the country's eastern regions. Unfortunately, these are the regions most heavily impacted by the current war.

Many of these places are in active war zones and it's impossible to maintain fields or harvest your crops under these conditions, even in areas where fighting has stopped land mines and other unexploded ordinances have rendered many farms too hazardous to harvest. While ukraine is usually a large exporter of grain this year, they probably won't even have enough to feed themselves, let alone export it to other nations and even if they did have any excess. The russian navy is preventing them from exporting via the black sea, which is their usual trade route. Most of ukrainian grand exports go to middle eastern and african countries, including egypt, ia and turkey, and, to a lesser extent, asian countries like indonesia and bangladesh.

The us is a net exporter of grain and doesn't import any from ukraine or russia, but prices are global. Middle eastern nations will start importing more grain from the us to offset lost ukrainian supply, which will push up prices in the us and around the world. Also, while the us doesn't import any grain directly from russia, it relies heavily on russian-made. Fertilizers.

Fertilizers were exempted from economic sanctions, but supply chain issues and reluctance of shipping companies to deal with russia have pushed up prices dramatically. Poorer countries in the middle east and africa will face intense food security crises with prices skyrocketing. Many families simply won't have enough money to put food on the table, and malnutrition will increase. The un's world food program estimates that between 33 million and 47 million more people will become food insecure as a result of the war in ukraine.

With most of the increase coming in africa, while developed countries in western europe and the us probably won't have problems with malnutrition, food prices will go up which will put further strain on people's budgets, which were already stretched in by 40-year high inflation, while russian energy has Yet to be explicitly sanctioned, exports have been curtailed by so-called shadow sanctions. Many western counterparties refuse to facilitate the export of russian oil for fuse of reputational or security risks. Many insurance companies are now refusing to ensure oil tankers which stay on the region for fears that they'll be accidentally targeted. This has led to the oil price skyrocketing to 110 dollars per barrel, the highest level in more than 10 years.

Many analysts fear that prices could go even higher to understand why this is. We have to look at how the oil market was set up going into the crisis, starting in 2014. Advances in fracking technology created a huge oil production boom in texas. This flood of new supply caused prices to crater down to as low as 30 dollars per barrel.

In 2016., the low prices put many oil companies out of business, while prices gradually recovered from 2017 through 2019. The oil industry was hit by another unprecedented shock in 2020, when pandemic related lockdowns briefly sent prices negative. These two disastrous periods, along with increasing esg pressures, caused many oil companies to become more conservative with their exploration budgets and over time, supply capacity has been degraded going into the crisis. Oil supply was already very tight.

Russia accounts for 10 of global oil supply, and many analysts expect their production to fall by 30 percent or three percent of global supply. While three percent doesn't sound like a lot when markets are tight, a small decrease in demand can have a large impact on price because of this goldman sachs thinks that oil can reach 150 dollars per barrel by the end of the year. The increase in oil prices doesn't just hurt consumers at the pump, pretty much everything that you see in a store or is delivered to your home is transported by cargo ships, semi-trucks or trains. Retailers pass on these transportation costs to the consumer in the form of higher prices.

The consumer price index in the us has accelerated every single month since september of 2021 reaching 8.5 percent in march of this year. That's the highest inflation rate we've seen since the great stagflation that ended in the 1980s. In fact, the situation that's unfolding today is eerily similar to the 1970s era stagflation in 1973, the us uk and a few other western nations supported israel in their fight against egypt and syria in the yom kippur war. Opec led by saudi arabia.

Viewed this western intervention in the middle east as unacceptable and placed an embargo on oil exports in retaliation, the price of oil tripled triggering a recession in high inflation. Then federal reserve chairman arthur burns refused to raise interest rates as he feared that this would just make the recession worse. The fed's lack of decisive action allowed inflation to fester and it reached double digits by the end of the decade. This is all very analogous to today's situation.

You have a war which caused an exogenous decline in global oil supply. At the same time, you have a federal reserve, that's behind the curve and didn't raise interest rates quickly enough, and this time it might be even worse, because you also have a massive supply disruption from china's coveted lockdowns, which is further decreasing supply of manufactured goods. It's a perfect storm to create high and persistent inflation while the same time decreasing real economic output, and if history is any guide, it'll be very difficult to get out of this mess. The great stagflation didn't end until paul volcker was installed as new fed chair.

He pushed short-term interest rates all the way up to 20 percent, while he was successful in finally taming inflation. This did not come before an extremely painful recession, which saw the unemployment rate rise to 10 percent policy makers in both the us and europe have grown complacent over the past 10 years, as inflation has remained low, despite the quantitative easing and low interest rates of the 2008 recession, instead of worrying about high inflation, most central bankers were worried that inflation was too low to support healthy economic growth. The low inflation of the past 20 years can be largely attributed to the rise of globalization and cheap imports from china and other developing countries. Foreign manufacturing replaced domestic manufacturing for a much cheaper cost.

The pandemic exposed the vulnerability of globalized supply chains, and almost every country is trying to bring strategic manufacturing back on shore. This has been exemplified with a global chip shortage. The us, china and europe are spending hundreds of billions of dollars on incentives to bring semiconductor manufacturing back within their borders. While this is great for domestic manufacturing jobs, it will also increase costs.

We can no longer rely on cheap foreign imports to keep inflation down like we have in the prior decade, when you consider all the supply chain headwinds, it's hard to see how the fed can reduce inflation to acceptable levels without also causing a recession. So how should investors protect themselves in these turbulent times? The s p 500 has declined by 15, putting it well into correction territory and within striking distance of a technical bear market. The speculative money losing stocks, like those owned by kathy wood, have been completely obliterated with markets, so volatile. You might want to hold cash, but this is basically locking in a loss as the buying power of your cash is degraded by inflation.

The legendary hedge fund manager, ray dalio, says that it's important to have a highly diversified portfolio that can protect your downside in a wide range of possible scenarios. It's almost impossible to predict how the current situation will play out it's possible that the ukraine war will be resolved diplomatically within the next few months, and everything will go back to normal. It's also possible that the current crisis goes on for years and the inflation continues to spiral out of control. At this point, we honestly have no idea during the 1970s stagflation oil was the best performing sector of the us stock market by far yielding a 73 real return compared to negative 16 for the s p 500 over the past decade, energy stocks, as a percentage of The s p 500 has declined from about 10 in the early 1970s to less than 5 as of 2018..

While the recent rally in energy stocks has closed this gap somewhat, the s p 500 still has much less energy exposure. As the mega cap tech stocks have taken a greater allocation as more and more investors use passive index funds, their exposure to energy stocks has decreased, which now makes them more vulnerable to stack tack-flationary environment. While this video is not financial advice, i personally have increased my allocation to the xle energy etf, which tracks oil stocks in the s p. 500..

It's already rallied 35 year-to-day, which has far outperformed the s p. 500. These companies will benefit tremendously from elevated oil profits and the forward price earnings ratio for the etf is just 10 times, which is a significant discount to the broader market. If we really are entering into a stagflationary environment, oil prices should remain strong and oil stocks may continue to outperform alright guys that wraps it up for this video.

Do you think the world is headed towards stagflation? Let us know in the comments section below, as always. Thank you so much for watching and we'll see in the next one wall, street millennial signing out.