Volatile markets in a volatile world

Key Takeaways

  • Ukraine grows 26% of the world’s wheat and 14% of the world’s corn.
  • Russia is the world’s second largest exporter of natural gas according to the U.S. Energy Information Administration.
  • Russia had $600 billion in foreign exchange reserves at the start of the war.

Economist and CFA Richard Excell recently spoke with Yieldstreet about the continuing volatility in public markets as Russia’s war against Ukraine entered its third week. “A lot of people were scratching their heads thinking Russia wouldn’t telegraph its intentions so much, but in fact, they did,” Excell said.  He is a professor at the Gies College of Business at the University of Illinois Urbana-Champaign and offered some background on what could unfold economically.

There was little expectation that Russia would actually invade neighboring Ukraine during the winter Olympics, according to Excell.  The games ended on February 20th and four days later Russian soldiers launched their attack. Western nations,  including historically neutral countries such as Switzerland, Singapore, and the Baltics, quickly imposed economic sanctions. They removed some Russian banks and corporations from the SWIFT (Society for Worldwide Interbank Financial Telecommunications) system of exchange.

SWIFT makes it easy for banks to transact business across national borders. The sanctions limit, and in some cases, prevent Russia from conducting business with the world.  Russia’s limited options could force it to look toward countries in Asia to increase trade.  The Russian government recently requested aid from China according to US government sources cited in the New York Times.

Russia had 600 billion in foreign exchange reserves at the start of the war but the exact allocation of assets was unknown. Analysts suggest gold and crypto were the most likely holdings because they offer the most viable opportunity for Russia to evade sanctions.

Russia won’t be able to hide from Turkey, a member of NATO and a critical player in Russia’s ability to trade.  Turkey controls the Straits of Bosphorus.  Closing the straits to Russian ships would remove a lifeline to Asia which Russia might need to evade sanctions.  A move like that, however, could have global economic consequences according to Excell.

“I think a lot of people didn’t do the homework on it. So realizing how important Russia and Ukraine are to the global energy and food chain was underestimated”  Excell said.

Current headlines focus on rising prices for oil and natural gas. Loss of those commodities because of the war could disrupt the global food supply.  Ukraine accounts for 26% of the global wheat market and 14% of the global corn market. Russia is the second largest exporter of natural gas in the world and since fertilizer production is reliant on natural gas, food production in countries far from the war could drop.

“The first set of sanctions, which were, in my estimation, intentionally meant to be sanctioned lite, [were] really intended to be little more than signaling or a game theory perspective,” Excell said. He points out the original sanctions were a signal for other nations as a show of unity.   But that unity may be challenged far from the fighting in ways that impact millions of people globally.

Alternative investments

Since alternative investments are not traded on public markets, there tends to be less transparency around pricing as well as less liquidity. For example, it’s easy to find out how well Amazon stock is doing, but it’s not as easy to see how well niche assets like farmland are doing. In the same vein, it’s easier to sell 5,000 shares of Amazon stock than it is to sell 5,000 acres of farmland. However, this isn’t necessarily a bad thing. In fact, because alternative investments typically don’t fluctuate in tandem with the market, they’re usually unaffected by declining traditional market values. 

Alternative investments can be a good way to diversify your portfolio and help reduce your exposure to the stock market. However, a low-risk list of alternative investments like antiques, wine, and coins, just to name a few, are unlikely to make or lose much money, thus creating an opportunity to generate passive income. (Which never hurts!) 

Another notable potential benefit of alternative investments is your ability to invest using retirement accounts like your IRA, which are tax-efficient. Although there are some investments that are off-limits for retirement accounts, the list of alternative investments allowed is still fairly robust.

But the benefits of alternative investments can go even deeper than just building wealth. By allocating some of your money to more niche projects like startups or film, you can feel good knowing you’re contributing to a cause you actually care about.

The truth is that there will always be risk involved, so it’s important to consider key aspects before investing and to be honest about your comfort zone. Ask questions like, am I able to afford these recurring fees? And how easily can I tap into money when I need it? Once you’re satisfied with the answers to these questions, you can feel confident adding alternative investments to your portfolio. 

Learn more about the ways Yieldstreet can help diversify and grow your portfolio.

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