Food Riots, Debt Defaults, Stagflationary Funk

1: The countries most dependent on Russian and Ukrainian wheat are also the most sensitive to price increases, with food between 25% and 40% of family budgets. As wheat prices skyrocket and shortages loom, families with limited resources may soon need to make very difficult decisions.

As the pressure on family budgets rises and personal rationing becomes reality, civic agitation over food prices and shortages could result in riots and rebellion in the most susceptible countries. Food riots have occurred in organized societies on a regular occurrence throughout history. Worse yet, corruption and kleptocracy could funnel whatever food supply reaches these countries to the powerful elite, resulting in mass famines.

Whatever happens, we will begin to see it unfold very soon.

2: March has almost squeezed by without a technical default on Russian debt. However, based on the chart below, April could prove more challenging for Russian debt repayments, which are nearly triple the previous month.

3: With yield curves approaching inversion, it is increasingly apparent the global economy may be approaching a stagflationary funk, marked by high inflation and weak growth.

Spiking energy prices closely resemble what occurred during the 1970s, a stagflationary decade and one that was bad for stocks. As this occurred half a century ago, few practitioners have the muscle memory from that decade and many younger investors have only known stocks to go up over the long run. Today’s professional investment community is built off the back of long-term disinflation, declining yields and positive real (adjusted for inflation) stock returns. Well, that isn’t always the case, as demonstrated by the chart below. A buy-and-hold investor in 1969 would have been shocked by the real value of their portfolio a decade later.

While I’m not necessarily saying this will or won’t happen, a good investor must be aware of the multiple futures that could materialize.

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