Iraq

The situation with Russia should give investors and traders a reason to brush up on their history, as current events take root in things that happened 50, 100, and 200 years ago.  To understand this, can provide perspective, during an information war, where it's not easy for some to separate facts from beliefs and propoganda (on both sides).  The relationship between US and Russia has always been interesting, as we shall explore.

The cultural divide

The two big stories of our day are: (1) Our economic problems: The inability of economies to grow as rapidly as they would like, add as many jobs as they would like, and raise the standards of living of citizens as much as they would like. Associated with this slow economic growth is a continued need for ultra-low interest rates to keep economies of the developed world from slipping back into recession; and (2) Our oil related-problems: One part of the story relates to too little, so-called “peak oil,” and the need for substitutes for oil. Another part of the story relates to too much carbon released by burning fossil fuels, including oil, leading to climate change. While the press treats these issues as separate stories, they are in fact very closely connected, related to the fact that we are reaching limits in many different directions simultaneously.

Look who is warning us again about the great harm conspiracy theories are doing to the minds of impressionable citizens everywhere: Cass Sunstein has emerged at Bloomberg, to once again plead for 'correction' of the many conspiracy theories that are disseminated on that pesky new medium, the intertubes, seemingly without inhibition. Contrary to the infamous paper in which he described how to precisely combat the spreading of false information that lacks the government's seal of approval, he doesn't list his favored censorship and disinformation techniques outright this time, but it is certainly implied that 'something must be done'. Mr. Sunstein's concern with 'conspiracy theories' is all about preserving the State's perceived right to rule by letting nothing intrude on the notion that politicians and bureaucrats are 'disembodied spirits solely devoted to the public good' rather than people who pursue their own personal interests.

Veteran Investor Jim Sinclair Says That If Russia Accepts Payment For Oil And Gas In Any Currency Other Than The Dollar – Whether It’s Gold, The Euro, The Ruble, The Rupee, Or Anything Else – Then The U.S. Petrodollar System Will Collapse

While Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the "Holy Grail" energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis. One which, as some especially on these pages, have suggested would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar, something which Russia implied moments ago when its finance minister Siluanov said that Russia may refrain from foreign borrowing this year. Translated: bypass western purchases of Russian debt, funded by Chinese purchases of US Treasurys, and go straight to the source.

• Australia says nothing spotted in search for plane (AP)
• Putin looks to Asia as West threatens to isolate Russia (Reuters)
• China Billionaire Builds Metals With Dreyfus, Glencore Hires (BBG)
• China Beige Book Says Economy Slowing (BBG)
• Caterpillar Said to Be Focus of Senate Overseas Tax Probe (BBG)
• US Cancels Summit With Divided Group of Gulf Nations (WSJ)
• Cyprus defense minister suffers aneurysm (AP)
• Abe to zero in on economy as tax hike looms (Nikkei)
• Europe strikes deal to complete banking union (Reuters)

The Battle for Ukraine Was Planned in 1997 … Or Earlier

“The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.”

The core elements of this Fourth Turning continue to propel this Crisis: debt, civic decay, global disorder. Central bankers, politicians, and government bureaucrats have been able to fashion the illusion of recovery and return to normalcy, but their “solutions” are nothing more than smoke and mirrors exacerbating the next bloodier violent stage of this Fourth Turning. The emergencies will become increasingly dire, triggering unforeseen reactions and unintended consequences. The civic fabric of our society will be torn asunder.   

It has been a relatively quiet overnight session, aside from the  already noted news surrounding China's halt on virtual credit card payments sending Chinese online commerce stocks sliding, where despite an ongoing decline in the USDJPY which has sent the Nikkei plunging by 3.3% (and which is starting to impact Abe whose approval rating dropped in March by a whopping 5.6 points to 48.1% according to a Jiji poll), US equity futures have managed to stay surprisingly strong following yesterday's market tumble. We can only assume this has to do with short covering of positions, because we fail to see how anyone can be so foolhardy to enter risk on ahead of a weekend where the worst case scenario can be an overture to World War III following a Crimean referendum which is assured to result in the formal annexation of the peninsula by Russia.

The Real Reason Why Ukraine is Key

• China premier warns on economic slowdown as data fans stimulus talk (Reuters)
• Li says China defaults ‘unavoidable’ (FT)
• Russia Said to Ready for Iran-Style Sanctions in Worst Case (BBG)
• Rescue the tapes from the Bank of England’s dustbins  (FT)
• Obama Warns Putin of Cost to Russia for Annexing Ukraine (BBG)
• The TVIX is back: Credit Suisse VIX Note That Ran Amok in 2012 Back on Top (BBG)
• U.S. Risks National Blackout From Small-Scale Attack (WSJ)
• U.S. Investigators Suspect Missing Airplane Flew On for Hours (WSJ)
• Malaysia says no evidence missing plane flew hours after losing contact (Reuters)
• Missed Alarms and 40 Million Stolen Credit Card Numbers: How Target Blew It (BBG)
• Death Toll in NYC Building Blast Rises to Six; Search Continues (BBG)

Ukraine, we are told, is infamous for its colorful proverbs and as the title suggests Citi's Matt King warns that emerging market (EM) bond investors may yet become familiar with more of them in coming weeks. Unfortunately Ukraine’s importance is greater than its economic or even geopolitical significance would suggest. Risk premia everywhere have been compressed by the prolonged force-feeding of central bank liquidity. EM in particular has benefited from enormous inflows. However, for developed market (DM), King believes even a serious deterioration in Ukraine still feels unlikely to really derail the serene march tighter we see in spreads – but even so, he warns there are some broader implications of the EM woes which investors would do well to be aware of as "drunkards know no danger".

Officially, US debt stands at more than $17 trillion. In reality, it is many times more. So who in his right mind would think it is a good time to start a war with Russia over Ukraine? And worse, who would commit the United States to bail out a Ukraine that will need at least $35 billion to survive the year? Who? The president and Congress, backed by the neocons and the so-called humanitarian interventionists! Cooler heads in the United States are not currently prevailing. There is a danger of an unimaginable conflict between the US and Russia. We must demand a shift away from a war footing, away from incendiary rhetoric. We are broke and cannot afford to “buy” Ukraine. We certainly cannot afford another war, especially with Russia!

I clearly have a very hard time reconciling a U.S. stock market making new all-time-highs almost daily, especially in the face of what most economists consider to be a weak domestic economy with negligible growth prospects.  Moreover, when you layover the thoroughly stalled and certainly weaker overall global economic picture, it’s even harder to rationalize.  Finally, throw into the mix the gravity of threatening geopolitical tensions between the U.S. and Russia, the two nations with the largest stockpiles of tactical nuclear weapons on earth, and the market actually welcomes it.  Something majorly does not add up, well, to this Idiot anyways.

With a March 16th date set for Crimea's referendum (to confirm that the region, which has an ethnic Russian majority, is a part of Russia) and a few short days after Ukraine's Prime Minister Yatsenyuk is due to meet President Obama in the White House, Reuters reports that The United States will not recognize the annexation of Crimea by Russia if residents of the region vote to leave Ukraine. Obama has said a referendum on Crimea would violate international law and the Ukrainian constitution... but this raises 3 awkward (and apparently hypocritical) questions on the right to self-determination... and pins March 16th as a crucial inflection point between Russia and US.