🇺🇦How World Events Impact Your Finances🇺🇦
Major world events can impact your cash flow in unexpected ways
World Events and the Economy
It’s no surprise that the world and the economy are interconnected more than ever. Since ongoing globalization from the tail end of the 20th century, countries have relied on each other more than ever for goods and services as the Internet brings humans together.
With the news of Russia’s invasion of Ukraine last week, Americans will be experiencing the effects of an interconnected economy more than ever (especially after a global pandemic). From Planet Money’s podcast, here’s a quick recap on why Ukraine will impact your pocketbook.
It’s important to understand the role that these two actors (Ukraine and Russia) play on the geopolitical stage. With Russia exporting roughly 10% of the world’s oil and Ukraine’s major export being wheat to Western Europe, Americans will feel the impact at home. Let’s see the specifics along with some of my own predictions:
Gas, Gas, Gas
It’s straightforward to understand the impact that oil has on gas prices within the U.S. As the price of oil increases, we will incur a larger amount to pay at the pump. What fewer people realize is that this creates a ripple effect in the economy. A rise in the transportation of goods equals a rise in the overall cost of the good. With this in mind, this will only add to the 7% inflation seen from the previous pandemic year.
Some economists speculate that we could potentially see 10% inflation not seen since the early 1980s.
My own personal approach to this is to alleviate my dependence on the pump wherever possible. Working from home has saved me on gas expenses for nearly two years now but inflation continues to take a toll in other areas of my pocketbook. As such, I’m looking to take public transportation when I can to offset any considerable transportation costs. Note: this doesn’t help the fact that my car is actually due for an oil change tomorrow.
Another ramification of the increase in oil is the cost of other petroleum-based products. I didn’t realize how many products relied on oil. Here’s an example chart below from the Ranken Energy Corporation.
Wheat, Grains, Oh My
As Ukraine exports wheat, we’ll feel this impact at our local grocery store. As I mentioned before, the global economy creates a ripple effect where distance is no longer an issue for problematic economic issues.
With short supply, your local grocery store could see a cost increase with beer, bread, cereal, corn, cooking oils, and seemingly kitchen essentials for survival.
Here is a Washington Post article that does a great job recapping the ordeal.
As a quick note, I want to mention that I do not advocate for stockpiling these goods. It’s worth a mention that stockpiling foods from grocery stores only exacerbates the issue and creates more scarcity for others. This is something we have to deal with as a society and it’s important not to hoard food in order to save a buck.
My Own Predictions
Two things here: Commodity ETFs and Cryptocurrency.
Firstly, I bring up Commodity ETFs as they are now an overweight portion of my diversified portfolio. From the last year, I placed money into commodities as I experienced rapid inflation throughout the year. If prices go up on our common goods, these ETFs will provide returns during harsh inflationary times. The Invesco DB Commodity Index is one of my top performers so far.
Secondly, I bring up cryptocurrency as a means that the world will seek to operate outside of newly created sanctions. As the blockchain produces untraceable means, cryptocurrency may play a larger role than ever in transactional day-to-day exchanges with my prediction of an overall currency increase. My educated guess is that Bitcoin will soar or a new cryptocurrency will take the stage as a day-to-day transactional currency.
Have a great week,
JT