# Klaxon Blaring

- Link: https://brianejohns.com/2022/01/26/blog-klaxon-blaring/
- Published: 2022-01-26T11:30:00-05:00
- Author: Brian Johns

First, I am writing about the martial arts industry/schools. But, of course, you
can also apply this to the small business community.

As I have written, martial arts schools have been devastated in the last two years
by the various restrictions and lockdowns resulting from the COVID-19 pandemic.

Unfortunately, the devastation may not end once the pandemic fades into endemicity.

Before I go any further, let’s agree on a couple of no-brainer stipulations. The
first is that for martial arts schools to prosper, they need paying customers. Duh.

The second stipulation is that these customers have sufficient disposable income
to pay tuition for martial arts classes. Again, duh.

The less disposable income a customer has, the less likely they will spend. A corollary
to that is even if a customer does have sufficient disposable income, external factors
may influence them to cut back on spending. A classic example of the corollary is
the pandemic. Some folks may understandably want to avoid group classes and may 
wait till the pandemic recedes before they are willing to jump back into the fray.

## Having laid out the stipulations, let’s look at the current risk factors for this year beyond the 󠀁[pandemic](https://brianejohns.com/2021/06/08/blog-its-on-like-donkey-kong/)󠁿.

The first risk factor is the Russia-Ukraine situation. You might ask yourself, “
_What does this have to do with martial arts schools?_” Hear me out.

First, the December 2021 inflation data in Canada was the highest in 30 years. The
higher the inflation, the more it eats into folks’ disposable income. On top of 
this, oil prices are soaring. Oil prices usually decline during winter due to reduced
demand. However, they have been rising in the last two months.

Should Russia invade Ukraine, it is reasonable to assume that oil and natural gas
prices will rise. Ditto for [wheat prices](https://foreignpolicy.com/2022/01/22/russia-ukraine-war-grain-exports-africa-asia/?fbclid=IwAR2rzeMooUvAgMEjLxk42zwDY8BkX3MgaUyGPMmDouZNh-pWDU5QeB1oOO8).
Stock markets will take a hit. You can see where I’m going with this—higher oil 
and gas prices. In addition, folks can be pretty sensitive to the cost of gas and
heating their homes. Even though stock markets aren’t the economy, folks respond
to the markets psychologically. All of the above factors _could_ combine to reduce
spending in the overall economy. If an invasion of Ukraine results in a severe disruption,
it will be tough for everyone.

In any event, experts are divided on whether Vladimir Putin will invade Ukraine.
I have difficulty seeing him engage in this massive buildup and saying, “_Never 
mind_.” Based on an analysis by [Michael Kofman](https://warontherocks.com/2022/01/putins-wager-in-russias-standoff-with-the-west/?fbclid=IwAR1btmy8IeW1EaTi7GuY9ork2LWxmSxI67Ym1KHoEngbbDyiRiG0ezOCRAI),
I bet that Putin will not settle for anything less than a regime change in Ukraine,
which means a massive military undertaking.

The West will respond to a Russian invasion of Ukraine with severe sanctions, which
will have substantial worldwide economic repercussions. And that’s on top of increased
oil, natural gas, wheat prices and rattled stock markets. Not looking pretty, eh?

As distant as it may seem, the Russia/Ukraine situation is a considerable risk factor
for this year. But, of course, nothing may well happen at all. Putin may find a 
face-saving exit, but I won’t bet on it. Putin’s grievances are too deep for him
to walk away from this crisis.

## The next substantial risk factor for this year is the financial markets.

Before I discuss the current market, let’s recall the 2008 financial crisis. When
the US housing bubble burst in 2008 and the financial markets crashed, people shut
down their wallets and purses, resulting in the Great Recession.

However, that’s not the end of the story here. As a result of the 2008 crisis, the
US and the rest of the world entered into a period of low interest rates that has
lasted to this day. The combination of a long period of low interest rates, massive
government stimulus packages from the 2008 crisis and the pandemic has created an
environment awash in easy money.

Unfortunately, it has also resulted in enormous debt loads for individuals, corporations,
and governments worldwide. Interest rates will rise this year, and those debts could
become unmanageable, causing ripple effects in the global economy.

We are in an era of meme stocks, [NFTs for fart smells](https://www.insider.com/reality-star-made-200k-fart-jars-selling-them-as-nfts-2022-1),
colossal speculation in cryptocurrencies, massively overvalued companies, out of
control housing markets (see Toronto), and a stock market seemingly based on speculation
instead of the fundamentals. And I haven’t mentioned the supply chain issues and
inflation! Anyway, I have relied on the updates from Bill Blain of the [Daily Morning Porridge](https://morningporridge.com/)
for his insights. Blain has long been concerned about the massive amount of easy
money sloshing in the financial markets. Also, I recently came across an article
by [Jeremy Grantham](https://www.gmo.com/americas/research-library/let-the-wild-rumpus-begin/?fbclid=IwAR3pjW9P0OeJw-G3Y-i7xw6MlRE8vI-Y1bJ7R5OhaTr8t5SWX5E9RfWd2co)
echoing the same concerns as Blain. The question posed by these gentlemen is whether
the markets are poised for (A) a correction, (B) a significant correction, (C) or
a crash. Blain and Grantham lean toward (B) or (C). Both are concerned about simultaneous
massive asset bubbles in housing, the stock markets, and cryptocurrencies.

## Gulp. Can you hear the klaxons blaring?

Let’s go back to the beginning of the pandemic. Then, the central banks more or 
less coordinated with each other to ensure that the world economy stayed afloat 
in 2020.

However, the story will be a bit different this year. Various central banks will
most certainly not be coordinating to raise interest rates. The reason is that conditions
in each country are different from those in others. The result has been stock market
volatility since the beginning of the year. That will continue for the rest of the
year. Moreover, rising interest rates may pop asset bubbles and render debt loads
unmanageable.

So, substantial economic risks involve Eastern Europe and the financial markets.
And I haven’t touched upon the [ongoing pandemic](https://brianejohns.com/2021/11/29/blog-dark-times-ahead/).
It could be a terrible year. Or this may all be overblown. Who knows? However, I
don’t recall seeing this much global risk in a long time.

Post-publication note: Surprisingly, the Bank of Canada held off on raising rates
today even though December inflation data showed a 30-year high.

## So, what does this mean for small businesses like martial arts schools?

![](https://i0.wp.com/brianejohns.com/wp-content/uploads/2022/01/Karate-School.png?
resize=560%2C315&ssl=1)

**Photo courtesy of Canva.**

Many martial arts schools operate on a break-even point and survive month-to-month.
Like individuals, they live from paycheck to paycheck—and that’s in the best of 
times. A steady student base allows a martial arts school to survive and sometimes
thrive. Any disruption to the student base spells trouble for martial arts schools.
Oh yes, martial arts schools have not gotten governmental assistance like large 
corporations. As a result, owners are left to fend for themselves.

The pandemic has done enormous damage to the martial arts industry. As you can see
from the above, there are additional and substantial risk factors for this year 
on top of the pandemic. I dearly hope that none of the above risk factors for this
year come true for the sake of my martial arts brothers and sisters.

At the very worst, this may impact students’ disposable incomes and further devastate
the martial arts industry. On the other hand, none of the worst scenarios may come
to fruition.

To sum up, there are currently substantial risks to the world economy due to (A)
the Russia/Ukraine crisis and (B) asset bubbles and overvalued stock markets.

No wonder why the Klaxons are blaring.

## My YouTube Shorts

I’ve been shooting a few YouTube Shorts and have enjoyed doing them, even if it 
means enduring bone-chilling cold weather!

Here’s a playlist of what I’ve done thus far. Enjoy!

If you are not able to view this playlist, click [here](https://youtube.com/playlist?list=UUSHGknHM2KzYEs1ag2k4eVkdg).

## Additional Reading

 * [Dark Times Ahead?](https://brianejohns.com/2021/11/29/blog-dark-times-ahead/)
 * [Pandemic Solo Training](https://brianejohns.com/2021/05/11/blog-pandemic-solo-training/)
 * [Parole Is Coming!](https://brianejohns.com/2022/02/15/blog-parole-is-coming/)
 * [The State of the Filipino Martial Arts Industry](https://brianejohns.com/2017/01/16/blog-the-state-of-the-filipino-martial-arts-industry/)
 * [The Coming Winter](https://brianejohns.com/2021/11/01/blog-the-coming-winter/)

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