The world is at a crossroad. Multi-dimensional crossroad. How this will all play out is a bit difficult to envisage now but one thing is for sure there are clear signs of new world order and a new definition of money. The idea of living in a global village is no more a plan. Most are positioned to form new alliances and in some cases, the existing alliances are stronger.
In the last few reports, we talked about the G-7 and how their priorities have changed now. The European countries and the US have moved to Spain from Germany for a NATO meeting.
As a starter, they have banned imports of gold from Russia. We also had a Russian debt default yesterday (a missed debt payment) the first to default to foreign creditors since 1918. This did not make any financial market impact as it was not a case of a situation where Russia didn’t have the money to pay but was a case of the asset freeze and banking sanctions placed on Russia by the Western world. In 1998, the Russians couldn’t pay interest on their domestic government bonds which led to the total collapse of the $40 bln local bond market precipitating the infamous collapse of the hedge fund LTCM.
NATO also increased its troops count from 40,000 to 300,000 and has put them on high readiness. The G-7 in their communique has plans to phase out Russian oil and has threatened to put price caps on Russian oil imports. All this will continue to put pressure on global supply and price increases in oil. I was thinking of a serious pullback in oil to buy it again but that may really not happen now.
Much to the annoyance and irritation of Putin, NATO has signed an agreement with Finland and Sweden paving the way for their admission into NATO. Putin had already sent warning signs to NATO that he will act as he pleases should Finland and Sweden join NATO. Now he is angry with Turkey too, as they cleared their opposition for Finland and Sweden to join NATO.
To top it up, President Biden has announced that the US will ramp up military presence in Europe by opening a permanent army base in Poland. Looks like the US was looking for a much-needed opportunity after their adventures in Middle East and Afghanistan for their military machine to be in business.
All this doesn’t bode well for world peace. There are clear risks of a proxy war metamorphosing into a global war. At the moment the posturing from both sides doesn’t speak well for global growth. I wouldn’t be surprised if the US administration switched soon to further fiscal spending again.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.