So the war is here. What still can be done

24 February 2022, 01:46 PM

Sad to say that my base line scenario which I have held since the US intel warnings in November is playing out - I have warned of a defining Russo-Ukraine war since 2015. And that war is happening.

Very, very sad. Ukrainians are the good guys here - standing up, fighting to defend our system of Western liberal market democracy.
Some thoughts here:

Ukraine - depends what Putin wants. Is it regime change or a new Treaty which puts Ukraine under Russia’s geopolitical orientation? If Putin forces regime change on Ukraine, then that new administration in Kyiv would be a pariah in the West. It will not be able to finance itself in international markets and Russia will have to pay the very big price tag - tens of billions of dollars.

Video of day

If it’s a new treaty that will create social and political instability in Ukraine - but likely that’s what Putin wants. But Ukrainians will fight Russia, so let’s see how this all plays out.

Russia - interesting listening to Western leaders today and there is real shock and emotion. They feel totally let down and threatened by Putin. Putin is now recognized as THE most imminent threat to our system of Western Liberal Market Democracy.

I think massive sanctions will follow - making Russia a global market pariah and uninvestible. This will increase borrowing costs, cut investment, lower growth, subdue living standards, and create social unease even unrest but likely put migration. Russians will be poorer.

Eventually, they might rise up against Putin - like in Kazakhstan recently - but this might take years and will be met with brutal force. Russians will be paying for Putin’s adventures in Ukraine, Transnistria, Abkhazia, South Ossetia, Syria, Libya, Mali, et al.

Remarkable the devastation wrought on Russian markets today. Equities down 50% (FIFTY), ruble down 10% and trading suspended, the Russia long bond down at 40 cents, it had been at 130 cents last year. This tells me that Russians did not think this was going to happen. They believed the Kremlin’s lies of no war. They are now paying the price in their investment portfolios. Russians seem to be panicking trying to buy FX on uncertainty where this is going. Putin is crashing Russian markets - but he does not seem to care.

Oligarchs? They should come out publically against Putin or face devastating Western sanctions.

China - this can go two ways. Either Xi will see a Putin win in Ukraine as a green light on Taiwan. Alternatively, they might think that with Putin now the number one pariah in the West they can look to improve relations with the West. Herein Putin hated the status quo - time did not work for him - Xi likes the global status quo. So maybe Xi will reach over to Biden and offer to try and contain Putin, for a price.

Global markets - this is a globally systemic hit to Western security. Putin is drawing a new Iron Curtain across Europe. Expect higher defense spending, higher energy prices which will play into the global stagflation story.

Watch for energy importing losers - India, CEE, Turkey, Asia. And winners - GCC.

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