Thursday, January 20, 2022

Crimea 2.0

 Crimea 2.0

Eight short years ago we were just wrapping up the Winter Olympics when Russia invaded Ukraine and seized the Crimea. President Obama did nothing. The milquetoast response of "sanctions" were roundly brushed off by the Russians. The situation in the Ukraine today feels like Crimea 2.0. Does the European Union, NATO, or the United States have the backbone to prevent war? Probably not.

Investors ignore situations like this at their own peril; students of history are well aware of how the Balkans helped launch World War I with the assassination of Archduke Ferdinand. This catalyst caused a domino effect nearly 100 years ago. It isn't a far conjecture to see the chess board set-up quickly in 2022 as an early decisive move seems eminent. Frankly, it baffles the mind of this Western pro-democracy supporter of how the entirety of Western Europe and the United States is yet caught on their heels yet again as a Russian Military force effectively dictates the battlespace.

The most likely result will be further solidification of Ukrainian sovereign land into the Russian Federation. If recent history is any indicator, neither the rhetoric or economic sanctions proposed by Western Europe or the United States will have any stopping power. The Ukraine may in its entirety fall under Russian control. There is a strong possibility given the spineless response from the West that Ukraine could even be taken without a shot. Why? Simply put, Western Europe needs Russia more than Russia needs Western Europe; Russia supplies over a third of all power to Western Europe in the form of its natural gas and oil pipelines. This does not bode well for Ukraine.

Obviously this possible invasion is a serious problem for democracy in Ukraine, but it also further establishes a terrible precedent of a U.S. and Western Europe malaise and unpreparedness. Neither are good traits agains a Russia that is clearly capable of immediate action. Investors take note; the Russian Federation is proudly wearing their laurels as we sit on ours. Besides the clear violation of Ukrainian sovereignty, the very real possibility of further unimpeded annexation exists, all the while the West conducts meetings on what to do that should have occurred years ago.

Raising some cash here probably isn't a bad idea, and it is hard to believe that both the energy and gold markets won't express their concerns. Natural gas in particular looks like it is held in the crosshairs.  Watch this situation closely, obscure maneuvers in far-off lands often ultimately have dire global results. Putin knows he's playing chess with a pigeon, and Xi will feel emboldened to take Taiwan after the Olympics this year as his "Gold Medal" on the world stage if the West does nothing (again) in Ukraine.