Vladimir Putin

As Vladimir Putin proudly shows off his holiday vacation spot - Sochi - to the world and proclaims it clean, safe, and accepting of homosexuals ("just don't tell the kids"); there is a considerably darker side to Russia that he would very much like the outside world not to know about. As Bloomberg reports, hidden from the outside world and abetted by policies that critics say promote infections rather than curbing them, the HIV scourge plaguing Russia is one that even the poorest countries have begun to subdue. With an estimated 2.4 million users of injected drugs and 1.3 million of Putin's countrymen with the life-threatening virus that causes AIDS; among the top 20 global economies, only India, with a population almost nine times bigger than Russia’s 143 million, has more people living with HIV.

After a banner year for the former KGB spy, who first neutralized Prince Bandar and John Kerry (not to mention the president of the US), and subsequently reannexed the Ukraine into the Russian sphere of influence now that the second coming of the former USSR is in the works, it should come as no surprise that Russia's Vladimir Putin has been named the third most admired person in the world. Then again when one considers who is ahead of Putin in the Time poll, perhaps this distinction is nothing to write to the NSA about - third spot is located behind Microsoft founder Bill Gates and US President Barack Obama. Indicatively, this also means that Barack Obama is inexplicably still the second most respected person in the world.

Just a few short weeks away, the opening ceremony of the Sochi Winter Olympic may go off with a bang, literally, judging by the amount of "terrorist" chatter surrounding the games. Today however, it is more than just chatter: earlier the Russian media reported that Russian security forces had come across multiple unexplained deaths and explosive devices in a region near Sochi, resulting in an aggressive "anti-terrorism sweep."

Just barely hours after we covered the second deadly explosion in the southern Russian city of Volgograd in as many months, this time in its packed train station, the city was rocked by yet another suicide bombing in what is clearly a terrorist campaign to spook Russia and its Sochi winter games visitors just over a month ahead of the olympics.  This time, a bomb ripped apart a trolleybus killing all 14 people aboard, and wounding another 28 in the second deadly attack blamed on suicide bombers.  According to Reuters, "Investigators said they believed a male suicide bomber set off the blast, a day after a similar attack killed at least 17 in the main rail station of a city that serves as a gateway to the southern wedge of Russian territory bounded by the Black and Caspian Seas and the Caucasus mountains." Even Putin, so far non-committal, is starting to take these daily escalations seriously: "President Vladimir Putin, who has staked his prestige on February's Sochi Games and dismissed threats from Chechen and other Islamist militants in the nearby North Caucasus, ordered tighter security nationwide after the morning rush-hour blast."

"I can give you a guarantee to protect the Winter Olympics in the city of Sochi on the Black Sea next year. The Chechen groups that threaten the security of the games are controlled by us... " - Saudi Arabia's Bandar bin Sultan to Vladimir Putin, spoken in hope of Russia selling out the Syrian regime, summer 2013.

While the US is debating which set of Al Qaeda "rebels" in Syria is the best local partner for the State Department to provide military support to, once Qatar's demands for a trans-Syria pipeline return some time in 2014, Vladimir Putin - fresh from his diplomatic oup in the Ukraine - is reinforcing his other major victory in 2013: the preservation of the Assad state, this time however with more than words. As Reuters reports, Russia has sent 25 armored trucks and 50 other vehicles to Syria to help transport toxins that are to be destroyed under an international agreement to rid the nation of its chemical arsenal, Defense Minister Sergei Shoigu said on Monday. Or in other words, Russia just sent Syria more than 75 military vehicles.

Russia's MICEX jumped almost 1% this morning on news that Vladimir Putin had asked for clemency in the jailing of vocal Kremlin critic, Yukos founder Mikhail Khodorkovsky. Khodorkovsky has been jailed since 2003 on a variety of tax-evasion, fraid and embezzlement charges though being among the nation's wealthiest men, the jailing was seen as politically-motivated (because of his political ambitions). The WSJ reports that Putin said this morning, "He asked for a pardon for humanitarian reasons, his mother is sick, and I believe that we can make a decision and will soon sign a decree to pardon him." The twist in this tale is that Khodorkovsky's people deny the pardon request, since Putin's spin would be the pardon request implies an admission of guilt...

2013 was a year when Europe tried to reallign its primary source of natgas energy, from Gazpromia to Qatar, and failed. More importantly, it was a year in which Russia's Vladimir Putin undisputedly won every foreign relations conflict that involved Russian national interests, to the sheer humiliation of both John Kerry and Francois Hollande. However, it seems the former KGB spy had a Plan B in case things escalated out of control, one that fits with what we wrote a few days ago when we reported that "Russia casually announces it will use nukes if attacked." Namely, as Bloomberg reports citing Bild, Russia quietly stationed a double-digit number of SS-26 Stone, aka Iskander, tactical, nuclear-capable short-range missiles near the Polish border in a dramatic escalation to merely verbal threats issued as recently as a year ago.

If one was to believe the picture that most Western media outlets are painting, Ukraine has been lost to Russia. Though the country fought valiantly to sign an Association Agreement with the European Union in Vilnius, Lithuania last month, President Viktor Yanukovych suspended negotiations with the EU at the last possible moment, betraying Ukrainians everywhere. Two recent energy deals that Ukraine has reportedly made, one with Russia and the other with Slovakia, however, show that the reality of the situation is slightly more complex.

The 21st century has proven interesting when it comes to Time's choices for person of the year: George Dubya, twice, Barack Obama, twice, Vladimir Putin, Ben Bernanke, and of course, Mark Zuckerberg. And now, moments ago, the Time person of the year 2013 has been revealed: the winner - Pope Francis, best known recently for bashing materialists and those who cry over a 2 point drop in stocks everywhere. Sorry Miley Cyrus - more twerking will be required in 2014 to make up for this epic loss.

It will be a long night in Kiev, where as warned previously, once things start rolling downhill, they will deteriorate rapidly. Via Bloomberg:

RIOT POLICE ARMED WITH CHAINSAWS APPROACH KIEV BARRICADES
UKRAINIAN POLICE MASS NEAR BARRICADES AT KIEV SQUARE
POLICE STORM PROTEST CAMP IN CENTER OF KIEV, AP REPORTS
UKRAINIAN POLICE INSIDE KIEV PROTEST CAMP

Now that Athens' Syntagma square has been put on indefinite hiatus since everyone has finally figured out the game between Greece and Athens (Greece grudgingly promises to reform but doesn't, at the same time Troika grudgingly threatens to cut off funding for Greece unless reforms are implemented but doesn't... even as the fate of the people gets worse), a new square has emerged as the focal point in the fight for (and against) Europe - Kiev's Independence Square.

Ongoing anti-regime demonstrations in Ukraine are weighing on investor's risk perceptions as CDS spike to near three-year highs today (up over 100bps). At a minimum developments lower president Yanukovich's chances of remaining in power beyond the spring 2015 elections and possibly undermine his hold on power earlier, further decreasing the likelihood of sizeable financial support from Russia. With Moody's earlier comments on the nation's "precarious external liquidity" position; as Goldman warns, with even higher political uncertainty ahead, an acceleration of capital outflows might also follow and while they think the authorities will eventually turn to the IMF to avoid a disorderly sell-off of the currency, recent events arguably raise the risks to that view. However, the capital outflows are already having an impact as Reuters notes, Russian banks are considerably exposed as Ukrainian banks should deposit runs escalate.

While events in the Ukraine continue down a very slippery path, and just a few short minutes ago the Prime Minister Azarov fired the Kiev chief of Police who got into hot water over the weekend for various clips showing Police brutality in dealing with demonstrators, one specific party that is keeping a very close eye on the ongoing developments is Russian leader Vladimir Putin who scored a major victory over Europe when he managed to realign the Ukraine away from the EU and sign a trade pact with the "European bread basket" nation, an event which according to the prevailing narrative the main reason for the surge in civil discontent as hundreds of thousands took to the streets over the weekend. As such, it is important to keep track of news not only from Kiev but also from Moscow. One such update which came moments ago was the following:

• President Vladimir Putin has said Russia respects any choice made by Ukraine, Dmitry Peskov tells Bloomberg in Yerevan, Armenia.
• Russia not in talks with Ukraine on loans, bailout
• Russia not involved in current unrest in Ukraine: Peskov

This came just hours after Putin stated that events unfolding in Ukraine should not be described as a revolution, but were rather more reminiscent of a “pogrom.”

While moderate recovery in growth and inflation is BofAML's rates team's base case, there are numerous risks to that forecast. The risk of tapering is already quite well known and they suspect it may not result in the significant market-moving event many expect when it actually happens; however, the following downside and upside risks threaten BofAML's central scenarios for 2014 as well.