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Global Energy Woes and Inflation
With the recent news of a "partial mobilization" coming from the Kremlin, it seems there is no end in sight to the war in Ukraine. This continues to be putting added pressure on the global energy markets. I noticed a disturbing trend in the EU that I think should be on everyone's macro radars. Nationalization, this is when the state takes over an otherwise publicly traded or privately owned entity for security/stability reasons. Stated another way, when things get so bad that the entity would otherwise go under due to financial reasons, but they provide a critical service needed by the people the state steps in to own it. This was a big debate back in 2008 with the likes of AIG and other companies that were ultimately "bailed out" by the US government vs. being taken over entirely (as I believe Fannie Mae and Freddie Mac were as a GSE, government-sponsored entity).

This week, Germany was the first to Nationalize Uniper, their primary natural gas provider. There are now rumblings of the French Nationalizing their Nuclear Industry which came as a surprise to me considering I thought Nuclear would be thriving especially since the French, unlike the Germans have embraced the technology for their green energy needs. Apparently, I was wrong.

What does this mean / why is it important?
Energy and food continue to be the leading causes of inflationary pressure that all these central banks, including the FED, are aggressively raising rates to combat. I have a bit of a different opinion than many of the pundits you read/watch on the subject. As I understand it, the way raising rates combats inflation is via demand destruction. However, when inflation is coming from a sector that is critical to life as we know it and those same governments are deciding to nationalize them I do not see how you can destroy that demand, and therefore reign in the inflation related to it. I do not see a demand problem with energy but a supply problem. Taking a step back, destroying energy demand implies people using less of it, that sounds nice but I do not see energy as something that can be "destroyed" as it would mean that people would be forgoing lighting, heating, transportation, and commerce to reduce the demand side. I can't see that happening, I would be willing to bet that people will have to bite the bullet no matter the cost to keep their lights (and internet) on. Replacing supply is much harder than destroying demand which is why I am concerned that raising rates will not effectively bring prices (inflation) down.

TLDR: Things are not going well in the global energy markets. States are needing to step in to provide stability to their people by buying these companies out and owning them. Since these services warrant the state coming in, I view them as critical and therefore very inelastic which is a bad thing for the global central bank's demand destruction strategy via interest rate hikes. The combination of these factors will continue to be very challenging for the global economy to overcome.
OilPrice.com
France Prepares To Nationalize Its Struggling Nuclear Industry | OilPrice.com
France is slowly but surely nationalizing its 84% state-owned nuclear energy company, just as the company itself warns that its core profits are set to take a considerable hit this year

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