Economic Commentary
Daniel Laufenberg, Ph.D.

Numerous economic data series are released between the publication dates of the Laufenberg Economic Quarterly (LEQ). Therefore, this page is designed to provide commentary on the more recent data and their implications for the economic outlook.


(March 3, 2014)

Russia in a flagrant act of aggression has invaded Ukraine. As unacceptable as this act may be, the purpose of this note is not to comment on the geopolitical aspect but rather to assess its impact on financial markets and the global economy, especially U.S. financial markets and economy. I actually wrote a note on this topic to the investment team at Stonebridge Capital Advisors on Sunday, March 2, before financial markets opened. The list below is an expanded version of that note:

First, geopolitical events tend to be very difficult to time investments around because it is unclear just how much of a disruption they might have on global economic activity. There is little doubt that the Ukraine economy will suffer but possible increases in activity in other countries may more than offset it. I think it goes without saying that financial markets in Russia will behave badly—stock market down, interest rates up and a much weaker ruble. Second, geopolitical events that involve Russia seem to be more of an issue for European markets and economy than for the U.S. In that regard, stock markets generally will correct but not all will correct the same in terms of degree and duration. For the U.S., any drop in the stock market most likely will be temporary. I would recommend sitting this one out. For what it is worth, according to an interview on CNBC this morning (March 3), Warren Buffet agreed with me.

Third, investors may look to the U.S. as a safe haven, causing the dollar to strengthen and interest rate to fall. This will help keep inflation in check and improve the purchasing power of consumers. It could also actually help the stock market so long as earnings do not deteriorate in the wake of events in Ukraine. I do not expect earnings to suffer. Indeed, U.S. economic growth could accelerate even more than I currently expect, owing to even stronger consumer spending growth and a larger contribution to growth (less of a drag) from international trade. However, it is important to note that interest rates and inflation were already very low, so the upside benefit to the economy from further declines may be limited.

Fourth, if it looks like the U.S. will increase defense spending dramatically in response to the invasion, then budget deficits, which have been improving, may start to deteriorate sooner than was expected. At some point, larger budget deficits could depress the value of the dollar and offset the disinflation effect on the purchasing power of consumers. Changes are that will be a 2015 issue more so than 2014.

In conclusion, I contend that the investment implications are not straightforward and that any
response in U.S. financial assets, up or down, will be short‐lived. After some initial
nervousness, economic fundamentals will drive the outcome and for the U.S. they seem better
now than anytime during the current expansion. That doesn’t preclude some tense moments; I
just doubt it will be a major problem for the U.S. economy unless we go to war. period







For the current economic forecast, as well as other analysis and commentary, please visit the Stonebridge Capital Advisors website.

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The views expressed here reflect the views of Daniel Laufenberg as of the date referenced. These views may change as economic fundamentals and market conditions change. This commentary is provided as a general source of information only and is not intended to provide investment advice for individual investor circumstances. Past performance does not guarantee future results.

2014 Commentary

(current article)
-- March 3, 2014

2013 Commentary

-- October 25, 2013

Doomsday forecasts: Honest people can disagree
-- April 26, 2013

Making sense of the February jobs report
-- March 10, 2013

Growth gyrations continue
(current article)
-- January 28, 2013

2012 Commentary

Optimism, not irrational exuberance
-- October 15, 2012

Disappointing but far from disastrous
-- July 31, 2012

Assessing the recent weak economic data
-- June 8, 2012

Consensus too pessimistic about everything
-- April 16, 2012

Risks to the forecast
-- March 7, 2012

A good finish to 2011 but still not good enough
-- January 27, 2012

2011 Commentary

More evidence of a strong finish
-- December 22, 2011

Finishing Strong
-- October 14, 2011

Living in interesting times
-- September 8, 2011

A not so pleasant surprise!
-- September 2, 2011

-- August 16, 2011

Debt ceiling politics
-- July 25, 2011

Q2 growth: Another disappointment likely
-- July 14, 2011

Interpreting the ISM manufacturing index and the employment situation report for May
-- June 4, 2011

A slower start to 2011 than anticipated earlier
-- April 14, 2011

Is the dollar's status as the reserve currency at risk?
-- March 21, 2011

More trouble in the Middle East
-- February 26, 2011

Searching for the next debt crisis
-- January 13, 2011

2010 Commentary

What's going on?
-- October 15, 2010

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