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A Cold War and Hot Oil

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Greetings,

All eyes are turned east this week as a former superpower looks to reclaim some of the dominance it lost three decades ago. The Cold War, a distant memory for a long time heard of mainly in history lessons and spy thrillers, has entered a new chapter and is back to defining global politics and trade. If you feel like you are going “back to the future,” you are not alone. Our thoughts are with the people of Ukraine as they face this violent invasion.

The grim news coming out of Kyiv has hit stock prices around the world. It is a rapidly changing situation and, as we write this, the S&P 500 index is now in correction territory (10% drop from all-time high) and the Nasdaq index is approaching its first bear market (down 20% from all-time high) in nearly two years. (FWIW rundown on some of these terms here). Some investors have loaded up on “safe haven” assets like government bonds and gold, which are seen as safer in times of crisis, while - as this Barron’s article notes - other long-term investors may be looking to buy as stock prices drop.

As you move forward on your investing journey or work out how to align your values with your investing, what can we expect for stocks? Historically, the US stock market has taken many (but not all) geopolitical events in its stride, as this chart from LPL Research shows. Only 1% of the revenue for S&P 500 companies is generated in Russia and Ukraine, according to FactSet, which has a list of the most exposed firms. But there’s no saying how it will play out this time, especially if the conflict escalates, drags on, and drastically reorders the global economy with broad consequences. The data suggests the recovery could take much longer if US forces get involved.

Some may say Russia is not a superpower anymore, but it’s still a major energy provider, the world’s biggest wheat exporter, and a huge source of raw materials like nickel, copper, and platinum. We could see shortages in these commodities and the products made with them as war and sanctions disrupt several supply chains, including the already troubled chips sector. (No, not red caviar Lay’s, which the world also needs more of, but semiconductors used in gadgets.) However, the central concern for trade and the planet with what’s going on right now is energy. Read on for more on this.


News you can use

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  • The storms in Europe making it hard for planes to land, as seen in viral live streams, are contributing to a surge in wind power. The EU generated a record 14.9 terawatt-hours last week, according to Bloomberg. Germany has produced more power from wind this year than fossil fuels thanks, in part, to the winds accompanying the storms.
  • If all the methane leaks in fossil fuel operations were plugged in 2021, we could have captured enough gas to supply Europe’s power sector, said the International Energy Agency. Read our deep dive on methane here.
  • Activist investor Carl Icahn doesn’t like how the sausage gets made at McDonald’s. As a shareholder, he’s putting pressure on the burger chain to stop sourcing pork from suppliers that use gestation crates and has nominated two members to its board to get rid of the practice.

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