Russia Invades Ukraine: Will a Warring ‘20s Prevent a New Roaring ‘20s?

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I read a lot of Wall Street research, and I’ve been getting little sense of any deep concern about the longer-term impact of Russia’s dastardly attack on Ukraine, at least not yet. Lots of focus on near-term commodity prices and the impact of monetary policy.

This from Goldman Sachs is typical:

Any direct effects on the US economy should be limited because trade links are weak and energy prices are likely to be affected far less in the US than in Europe. … The growth hit could be somewhat larger if geopolitical risk tightens financial conditions materially and increases uncertainty for businesses. … With some signs of problematic wage-price dynamics emerging and near-term inflation expectations already high, further increases in commodity prices might be more worrisome than usual. As a result, we do not expect geopolitical risk to stop the FOMC from hiking steadily by 25bp at its upcoming meetings, though we do think that geopolitical uncertainty further lowers the odds of a 50bp hike in March.

But it’s not hard to imagine a more serious economic impact if this war doesn’t stay contained to the Ukraine, as bad as the conflict there already is. The US annually exports nearly half a trillion dollars in goods and services to the European Union and its $15 trillion economy. And if you pull the camera back, you’ll still see the potential for even more economic damage over the longer term. Let me again highlight this chart of the price-earnings ratio of the S&P 500, based on trailing 12-month earnings.

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