Tapping into Maple – An update on the Russia – Ukraine conflict

Russia’s war in Ukraine, a humanitarian tragedy and a sad turn of events for the proud Russian people, has certainly cast a pall over global financial markets in short order.  The shocking development also greatly complicates the global economic outlook since it comes as much of the world is still fighting the pandemic and dealing with a fragile set of conditions on multiple fronts.

From an investment standpoint, we at Maple Capital are contemplating a host of issues that continue to evolve:

  • Geopolitical risk that will remain elevated no matter when the actual fighting ceases
  • Supply chain constraints that now become even more challenging and persistent for many industries (see chart below for perspective)
  • Commodity price surges and shortages that will likely persist, particularly agricultural and energy commodities
  • Inflation pressures that will likely now prove more pervasive and durable
  • Unintended consequences of sanctions and other economic measures being used against Russia, such as the long term implications for the U.S. Dollar as the global reserve currency
  • Heightened volatility in financial markets that could erode investor sentiment
  • Higher risk premiums in financial markets that are eroding financial conditions, albeit from extremely favorable conditions (see prior Commentaries)

Chart courtesy of The New York Fed

Even with all these new risks and complications, we are encouraged by a number of factors such as:

  • The broad, stalwart alliance that has coalesced around the U.S.-led response to Russia’s aggression, including a new resolve to increase defense spending by many NATO member states
  • Economic resiliency owing to a strong jobs market, rising wages, record household wealth levels, and more flexible work arrangements (enabling some to reduce gas consumption, for example)
  • Well-functioning financial markets that are continuing to allow efficient access to capital
  • Declining COVID-19 cases and the rapid return of a more normal daily life, at least in the U.S.
  • The prospect of technological change and adoption rates made possible by higher commodity prices (for example, the auto industry which has been making big advances in the development of electric vehicles and the events of recent days should serve to accelerate these efforts)

Navigating all of this new information is certainly challenging and demands careful deliberation and clear thinking.  As long term investors, we do not actively trade in and out of story-of-the-day stocks.  That said, our opinions on sectors and individual companies can and do change when the facts change and when the long term prospects for them are altered — that’s what you expect and demand of us.

In closing, we wish to extend our heartfelt support for all those suffering from Russia’s actions and we remain hopeful for a swift end to the hostilities for the whole world’s sake.