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    Key takeaways

    We enjoyed a fascinating conversation with John Emerson, Vice Chairman of Capital Group and former U.S. Ambassador to Germany. Below are some highlights:

    • The circumstances that culminated with Russia’s invasion of Ukraine have been brewing for decades.
      • In 2005, Russian President Vladimir Putin declared the breakup of the Soviet Union to be the greatest catastrophe of the 20th Century, greater than the World Wars, famines, the Holocaust, etc.
      • Putin has said for years that Ukraine is a made-up country.
      • The timing for the war is not a coincidence.
        • Former German Chancellor Angela Merkel was tough on Putin and an expert on Russia. She left office last year.
        • Putin looked at the rest of the West as weak, with a number of leaders unpopular or up for reelection.
    • Emerson remarked on the unprecedented unity that the invasion brought about with Western nations
      • The U.S. has for years urged Germany to not rely on Russia in its energy policy and to spend more on its military. The 72 hours post-invasion caused Germany to sacrifice more of these policy “sacred cows” than years of negotiations. Perhaps, Germany will grow more comfortable with deficit-spending.
    • The war may give global energy (oil, gas, and nuclear) investment a shot in the arm.
    • He’s worried about a potential food security crisis due to how much of the developing world relies on Ukraine for agriculture.
    • He’s also worried about Russian cybersecurity attacks, particularly aimed at energy infrastructure.
    • Germany does not have a risk-taking culture, which may help explain why its stock market is not larger and why it hasn’t produced any large internet-based tech companies.
      • Only 9% of Germans own stocks.
      • He told an anecdote where entrepreneurs whose company failed mortgaged their house to pay back investors.
      • Germans love to save, which is disadvantaged in inflationary and low interest environments.
      • Emerson was involved in pushing Germany to develop deeper capital markets while ambassador.
      • Germany has many inter-generational family-owned businesses with specific niches. They do not sell stock to the public.
    • Emerson believes the era of unfettered globalization may be over. Still, globalization will remain strong.
      • China is working hard to develop the European market for its products.
      • Companies may become more nationalistic and sensitive to geopolitical risk.
    • Investors should not be pollyannish about investing in China.
      • Investing in China should be done with discretion and a keen understanding of companies’ susceptibility to political risks.
    • During periods of instability, investors must rededicate themselves to a financial plan that’s built to meet their long-term needs. Sticking to your plan is the best way to remain a disciplined long-term investor.