This isn’t a recession – it’s a war-cession, David Roche says
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LONDON — The global economy is likely entering a “war-cession,” according to veteran investment strategist David Roche, and markets are underestimating its duration.
This happens as the markets try to deal with a series of simultaneous economic obstacles, such as Russia’s invasion in Ukraine and rising interest rates, high inflation and disruptions from China’s attempts to control a Covid-19 epidemic.
Roche, the president of Independent Strategy suggested to CNBC’s SquawkBox Europe that Russian forces have committed atrocities in Ukraine against civilians. He said this would make it impossible for them to reach a quick peace agreement with Vladimir Putin.
According to him, Russia is the West’s best option, as Putin can not be seen in Russia to pull out of Ukraine without a victory.
Roche stated that he isn’t going to trade with the US for any reduction in sanctions. He said the sanctions remain and that the consequences for Europe were that there would be recession. “The sanctions will increase, and we will move toward a total energy blocade.” Roche added.
In light of the recent Russian sanctions, EU members agreed last week to several new sanctions. reported cases of sexual violence and the torture and executions of civiliansThe measures include a total embargo of Russian coal imports. Europe may also consider additional measures, such as a complete embargo on oil, coal and nuclear fuel imports.
More than 30 people were injured and killed in a rocket attack that struck a Kramatorsk, an eastern Ukrainian town. This attack comes just days after Russian forces moved their offensive to the eastern Ukraine, following their withdrawal of towns near Kyiv.
According to Ukrainian officials, further atrocities could be found in areas retaken by Russian soldiers. Roche stated that investors would no longer be allowed to seperate politics and markets.
“This supply-side shock is enormous and will persist in food, energy, metals, and other areas. That will go on while at the same time, we’re dealing with inflation worldwide, we’re dealing with rising interest rates – I think the 30-year [Treasury yield] will be at least 3.5% in a year’s time – and we’re looking at, of course, supply disruptions in China due to what is happening on Covid, which people are not talking about, but which are obviously another supply side to the global system,” he said.
‘War-cession’
Roche claimed that stock markets will have to overtake this in order for them to keep grinding higher. He also argued that historical high inflation won’t fall as economic growth slows down, which would normally be the case during a recession.
In a normal recession output and demand fall, while inflation rises. This type of recession, or a “war-cession,” actually sees output fall at the same rate as costs rise and inflation rising.
You can see that in mismatches in labor markets, but you also see it in commodity prices. So you are faced with an unusual situation in which central banks must choose between growth and their inflation target.
Investments are closely following comments from central banks to determine the probable pace of tightening monetary policy to control inflation. Roche stated that talk of policy rate increases “over-the-hump” is premature.
“When there is extreme pain on the output, performance, and growth side of an economy, they will slip back. But I believe it’s going be a lot more time than what the equity markets assumes,” he stated.
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