Vice President Biden was in Warsaw last week to reassure our eastern NATO allies that they have the support of a “steadfast ally.” But if Russia moved against Poland or the Baltic States, would the United States really go to war? Or would we do nothing and effectively destroy the NATO alliance? President Obama has ruled out a “military excursion” in Ukraine. America is not obligated legally to take action against Russia for annexing Crimea. We would not go to war if Russia mounted a large-scale invasion of Ukraine to restore the ousted, pro-Moscow government of Viktor Yanukovych, currently under U.S. sanctions. And we would not even send troops if Ukraine was partitioned, or absorbed by Russia. Americans have no interest in such a conflict, and no stomach for it.
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.
White House attacks Russian financial markets and oil, Merkel suffers from “moral cowardice,” Russia develops “Putin Doctrine,” in crescendo of sanctions and counter-sanctions
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.
With senior German officials expecting discussions among leaders at the EU Summit to solely focused on a second round of sanctions against Russia (and warnings that they "must avoid a spiral of sanctions"), we thought it worth drilling down on just how mutually-dependent the two regions are. As Acting-Man's Pater Tenebrarum notes, the following infographics suggest tit-for-tat sanctions could be a really big problem for Europe and why the EU's leaders are probably quietly praying for the crisis to simply go away.
Having warned of Putin's blind-spot (and Merkel's position of potential leadership) in the Europe-US-Russia debacle, billionaire investor George Soros has some ideas on how to punish Russia (and some warnings on the consequences)...
Why Mainstream Economists Like Krugman Are So WRONG and So DANGEROUS
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Ukraine Announces Joint US Military Exercises As Obama Rules Out "Military Incursion" - Recap Of The Day's EventsSubmitted by Tyler Durden on 03/19/2014 18:12 -0400
With the story of the day undoubtedly Yellen's first (bungled) press conference, it was easy to forget that the second coming of the Cold War is raging in the Ukraine. For those curious what they may have missed, here is a summary of the major events that took place in the troubled country this afternoon. Highlights from AP, AFP, Reuters, WSJ, Bloomberg, RIA and Interfax.
While it has been public for a long time that i) JPM is eager to sell its physical commodities business and ii) the most likely buyer was little known Swiss-based Mercuria, there was nothing definitive released by JPM. Until moments ago, when Jamie Dimon formally announced that JPM is officially parting ways with the physical commodities business. But while contrary to previous expectations, following the sale JPM will still provide commercial gold vaulting operations around the world, it almost certainly means farewell to Blythe Masters.
In an overnight session that had little in terms of macro and news flow, the most notable event was that the Dollar-Renminbi finally crossed above 6.20 which as a reminder is the suggested "max vega" point beyond which even more max pain lies for levered accounts long the Yuan. However, in a world in which nothing is discounted and in which no news matters, the "market" broadly ignored this significant development (which as we explained further yesterday means an accelerated unwind of Chinese Commodity Funding Deals, and a potential drop in global commodity prices), and eagerly awaited today's non-event of an FOMC conference, where nothing new will be announced save for the novelty of it being Yellen's first appearance before the press as the head of the Fed. And of course the Fed will almost certainly scrap the 6.5% employment threshold, as the FOMC scrambles to make the economy appear worse than it is reported to be, in a stark reminder that the biggest optically manipulated tool meant to boost confidence in the recovery was nothing but a number meant to serve political purposes.
A new era is dawning in Chinese foreign policy as the country’s economic growth enables it to move from past timorousness in declaring itself a global leader and a relative inability to defend its interests, to one in which Beijing can seek adjustments in the security environment it has faced for the last sixty years. In the Chinese-language media, politicians are increasingly talking of China as a great power. Yet Russia’s invasion of Ukraine has put Beijing’s new foreign policy to the test and raised questions about the extent of China’s global role. China is close to meeting all the measures of what defines a global great power: political, economic, and military might with a global reach. But it does not appear to act like a great power in terms of its contribution to international leadership during conflict situations such as in Ukraine. Instead we repeatedly only see Beijing being assertive when it comes to defending its own narrow interests.
Despite much hope that the current breakout of the markets is the beginning of a new secular "bull" market - the economic and fundamental variables suggest otherwise. Valuations and sentiment are at very elevated levels while interest rates, inflation, wages and savings rates are all at historically low levels. This set of fundamental variables are normally seen at the end of secular bull market periods. It is entirely conceivable that stock prices can be driven higher through the Federal Reserve's ongoing interventions, current momentum, and excessive optimism. However, the current economic variables, demographic trends and underlying fundamentals make it currently impossible to "replay the tape" of the 80's and 90's. These dynamics increase the potential of a rather nasty mean reversion at some point in the future. The good news is that it is precisely that reversion that will likely create the "set up" necessary to launch the next great secular bull market. However, as was seen at the bottom of the market in 1974, there were few individual investors left to enjoy the beginning of that ride.
Has the market done it again? Two weeks ago, Putin's first speech of the Ukraine conflict was taken by the USDJPY algos - which seemingly need to take a remedial class in Real Politik - as a conciliatory step, and words like "blinking" at the West were used when describing Putin, leading to a market surge. Promptly thereafter Russia seized Crimea and is now on the verge of formally annexing it. Over the weekend, we had the exact same misreading of the situation, when the Crimean referendum, whose purpose is to give Russia the green light to enter the country, was actually misinterpreted as a risk on event, not realizing that all the Russian apparatus needed to get a green light for further incursions into Ukraine or other neighboring countries was just the market surge the algos orchestrated. Anyway, yesterday's risk on, zero volume euphoria has been tapered overnight, with the USDJPY sliding from nearly 102.00 to just above 101.30 dragging futures with it, in advance of Putin's speech to parliament, in which he is expected to provide clarity on the Russian response to US sanctions, as well as formulate the nation's further strategy vis-a-vis Crimea and the Ukraine.