Asking For an Oligarch Friend

Let’s talk silver linings.  COVID cases in 90% of U.S. counties are experiencing low or medium community spread.  I know that’s not what you came here to read, but it’s the best I can do.  Yes, the situation in Ukraine has worsened in the past week and while we had hoped there might be a diplomatic solution, it now appears the war is entering a new phase.  There are some green shoots appearing on the economic front, but they are being overshadowed by the geopolitical unrest for now.

While there is clearly a very serious human toll that is unfolding in Ukraine, our focus in this email will be on the economic and market impact.  As is required by the SEC, when there is an adverse event companies are required to make public the impact it may have on their bottom lines.  It is with that understanding that this week we saw many companies come forward and explain how what’s unfolding in Eastern Europe will impact their revenue, operations, and margins.  For many of the oil conglomerates, we learned about severed joint ventures in Russia, and the closing down of production.  For freight and logistics companies we learned delivery both to and from Russia will be halted.  For financial companies, we learned business operations in Russia have been shuttered.  Boeing will stop sending parts and Microsoft and Apple, among many others, will suspend sales.  The point is the events in Ukraine are going to be disruptive on many levels.

Inflation remains an issue as oil and gas prices rise sharply.  We should expect the price of gas at the pump to rise considerably in the weeks ahead.  California is already at $5 per gallon but we could see gas hit $6 or even $7 per gallon before this is over.  WTI Oil itself hit $112 per barrel and could go above $125 soon as Russia is one of the world’s top producers.  With Russian supply offline, we are now negotiating with Iran which is far from ideal.  As bad as we in the U.S. may have it, it will be far worse for our allies in Europe.  The price of energy throughout Europe has already skyrocketed and will pose real issues for the people of Germany and France, among others.

While things do feel bleak right now, the economic data is actually good.  Today we learned that over 678,000 jobs were created in February which is well above consensus.  The unemployment rate fell to 3.8%, which rivals pre-pandemic levels, and wage growth is flat.  Wages have been a sticky issue for much of the past year, so having them appear to be leveling off is a positive development.  And finally, the labor force participation rate is climbing which suggests more people are returning to work.  On that note, more companies are requiring employees to return to the office.  Both Google and Twitter announced this week that employees will return next month after two years of working from home.  And finally, the CDC has lifted its mask mandates both indoors and outdoors.  So, despite the tragic events unfolding abroad, things are slowly returning to normal domestically.  We’ve waited a long time for this day, and while it is currently overshadowed by world events, it does point to a future that at least will feel more normal than at any point in the past two years.

In closing, I thought I’d tackle the difficult discussion of where you might hide a 500-foot yacht.  It’s one thing to stuff cash under your mattress or move millions into offshore bank accounts.  Hiding a mega-yacht from multiple governments and a global mob of private citizens is a bit trickier.  The Biden administration this week announced a “KleptoCapture” task force that is aggressively targeting Russian oligarchs by seizing real estate and other prized assets.  Other countries are imposing similar measures, setting off a global game of hide-and-seek.  In a nutshell, your best bet is either the Seychelles or the Maldives.  Several super yachts are on their way to these locales as we speak.  However, the more savvy might take another route.  Many oligarchs choose to register their property using corporations or shell companies.  In this circumstance, you can just deny owning the property.  So, if you happen to have an oligarch as a close friend, these are just some ideas you could offer.  Now you know.

Bruce J. Mason, MBA