Investing In A Nuclear Era

The war in Ukraine goes on, and since it began Russia has absorbed a series of embarrassing defeats and setbacks, including most recently the sinking of one the ships in its Black Sea fleet. The stout defense of Ukrainians is heartening for those who oppose evil aggression and the slaughter of innocent civilians, but it also has raised the possibility that Vladimir Putin might be tempted to do the heretofore unthinkable: launch some kind of nuclear weapon. Ukrainian President Volodymyr Zelensky warns that the world should be prepared for precisely that inconceivable scenario.

It’s a frightening time, for sure. And yet, things haven’t been as panicky as you might have thought. No one is hiding under the bed or encamped in their home fallout shelter. People live their lives and go to their schools and jobs, the economy bumps along, we worry about inflation and gas prices and shortages, and stocks continue to be traded. In fact, when you think about it, the stock market is pretty weird right now. Frightening times typically are bad for the stock market, which always reacts badly to uncertainty–and yet the market has held its own, even as concerns about the Russia-Ukraine conflict escalating to the nuclear level are raised. Why is that?

Paradoxically, it might simply be that the possibility of nuclear war is just too scary to really affect the markets. It’s too colossal a risk, and far outside the normal issues that affect trading in securities. If you’re worried about inflation, you can adjust your portfolio and trading patterns; if you’re concerned that equities are overvalued due to irrational exuberance, you can shift into fixed income investments. But there is no plausible investment strategy that can protect against the devastating impact of a nuclear exchange.

That’s why some analysts are encouraging their investors to stay bullish on stocks, even in the face of the risk of Putin launching nuclear weapons. One Canadian firm, BCA Research, recommends staying in the equities market for the next year, reasoning that financial risks are immaterial in the face of a potential existential risk. One article quotes BCA Research as saying, bluntly: “”If an ICBM [Intercontinental Ballistic Missile] is heading your way, the size and composition of your portfolio become irrelevant.”  

If you were searching for evidence that financial analysts are cold-blooded, look no farther! But, in a strange, counterintuitive way, this apocalyptic approach to investing makes sense in the current circumstances–and it may be why the market hasn’t plunged into Black Friday territory. The BCA Research approach might seem like the caterpillar approach from the fable of the ant and the caterpillar, but what else can an investor do? In such extraordinary times, the best approach may be to keep your head down, follow your investment strategy, and hope that Vladimir Putin keeps his finger off the button.

The Limits Of The Law

Today the International Court of Justice, the highest court in the United Nations hierarchy, ruled by a vote of 13-2 that “the Russian Federation shall immediately suspend military operations that it commenced on 24 February 2022 in the territory of Ukraine.” (The Russian and Chinese judges dissented.) The majority opinion concluded that there was no evidence substantiating Russia’s stated reason for the invasion, which was that Ukraine was committing genocide against Russian-speaking peoples in eastern Ukraine.

Under the UN Charter, the Court’s rulings are binding on the parties, and the Court has stated that they create “binding legal obligations” on the parties. The article linked above notes, however, that Vladimir Putin is nevertheless “unlikely” to abide by the order and cease the murderous invasion of Ukraine, and the Court has no standing army it can hurl into the fray, or any other means of enforcing its ruling. It’s entirely predictable that the Russians will ignore the order and undoubtedly will issue propaganda seeking to undercut the credibility of the Court and depict the judges as stooges of the imperialist West.

Presumably everyone understood this at the outset, and the Ukrainians nevertheless thought that the effort was worth it, if only to further evidence the barbaric and lawless actions of the Putin regime. I’m not sure that the decision is a very positive thing for the ICJ, however, because it is not good for courts to issue orders that they know will never be enforced or enforceable. A record of unenforceable orders undercuts the credibility of the court and can only serve to encourage noncompliance with other orders in the future. The Russian actions in the Ukraine are so heinous that the ICJ apparently decided to go ahead and issue the order, regardless.

The situation reminds me of an incident I learned about in law school. In 1832 the U.S. Supreme Court, in Worcester v. Georgia, issued a decision about Georgia’s rights with respect to Cherokee tribal lands. President Andrew Jackson strongly disagreed with the decision and famously stated: “John Marshall (the Chief Justice of the Supreme Court) has made his decision; now let him enforce it.” Because both the President and the state of Georgia basically ignored the ruling, it had no effect, and the terrible “Trail of Tears,” in which Cherokees were forced to relocate to Oklahoma at the cost of thousands of Native American lives, was the ultimate result. It took decades for the Court’s credibility to recover to the position it now occupies, where the public outcry if an American President ignored a Supreme Court ruling would quickly make the President’s position unsustainable.

Unfortunately, Russia is not the United States, and the ICJ does not have the same implicit authority in Russia that the U.S. Supreme Court has in our country. The ICJ’s ruling today is undoubtedly correct, and it provides another reason to steadfastly oppose Vladimir Putin’s egregious activities in the Ukraine–but it will be up to history to determine whether the impact of Putin’s flouting of the order on the International Court of Justice’s credibility, and on parties’ compliance with its future orders, was worth it.

Putin’s Bad Gamble

We’re now at the two-week point in Russia’s invasion of the Ukraine, and it’s safe to say it hasn’t gone well for Russian President Vladimir Putin, the architect of the invasion. If you believe the news reports, Russia expected a quick win, and Russian soldiers expected to be welcomed with open arms. The reality has been the exact opposite. The Russian forces have encountered fierce resistance and are mired in the mud, and the Ukrainian people have shown great grit and determination in resisting the Russians at every turn.

That’s what happens when you overestimate your capabilities, and believe your own faulty propaganda.

But the consequences for Putin are a lot more significant than just doing worse in a war than he expected. He’s shown that the Russian military isn’t nearly as fearsome as people thought it would be. He’s galvanized and unified the West in a way that hasn’t been the case in years, and encouraged countries like Germany to reverse their policies on defense spending and energy dependence. He’s isolated the Russian financial sector and put the fortunes of the Russian oligarchs who supported him at risk. There are reports that the Russian treasury might be bankrupted by the war and may be forced to default on debt. And in the process, Russia has become a kind of global pariah in way that wasn’t even the case during the heyday of the Soviet Union.

And what might be bugging Putin the most is that this war has exposed him in a way that goes to a core personal issue. Putin has always seemed highly conscious of cultivating a macho image, and carefully orchestrates photos of himself riding horses without a shirt and going hunting. But if Putin were really the bold, studly guy he’s been trying to portray, we’d be seeing him out in the field with the Russian generals and soldiers. Instead, he’s staying in the office–a guy with a bald spot sitting at the end of a ridiculously long table, as if he’s afraid to even get close to his own aides. It’s pretty safe to say that, even if Russia “wins” the war in the Ukraine, people will never see Vladimir Putin in quite the same way again.

Many people will no doubt be tempted to enjoy some schadenfreude at Putin’s problems, but a little caution is in order. This colossal strategic mistake by Putin may just force a reduced and depleted Russia to turn to China for financial and other assistance, which would materially alter the strategic balance in the world. I think Putin’s bad gamble is going to make the world a much more dangerous and volatile place for the next few years.

Further Befogging The Fog Of War

On Friday Russia enacted a new law that makes it a crime for foreign news organizations to intentionally report “fake news” about Russia’s war in the Ukraine. Violation of the new law is punishable by sentences of up to 15 years in prison.

Western news outlets reacted promptly, and with obvious alarm, to the new law. The BBC’s director-general said the law “appears to criminalise the process of independent journalism,” and the BBC reacted by announcing that it would temporarily halt its reporting in Russia. CNN and CBS said that they would cease broadcasting from Russia, reporters for Bloomberg News and the Canadian Broadcasting Company in Russia also stopped work, and other news organizations removed the bylines of reporters stationed in Russia who were filing reports on the war in Ukraine. Still other networks and newspapers are figuring out how to respond. Obviously, no news service wants to risk the possibility that the accurate reporting of news that is at variance with Russian propaganda would be deemed “fake news” by repressive authorities and result in reporters being jailed.

We’ve often heard about the “fog of war,” in which participants and observers are enveloped and left floundering in a decisional murk because they can’t get accurate information about what is really happening on the ground. One of the concerns about the war in Ukraine is that we are not getting the facts, and therefore are at the mercy of propaganda from both sides. Russia’s decision to put western reporters at risk of prison time for their reporting activities will just make the “fog of war” even thicker for those of us in western countries.

But I suppose it is also fair to draw inferences from Russia’s decision to enact its new law. If the war–and activities on the home front in Russia–were going really well for the Kremlin, there presumably would be no need to criminalize journalism. Russia’s desperate effort to control the bad news therefore might actually make the fog a little less dense.

Fighting On The Financial Front

The Russia-Ukraine war may be the most sprawling, multi-front conflict in history. There’s brutal fighting on the ground, of course, and also in social media and in cyberspace. And a another new front has been opened in the financial sector, where an allied group of countries are throwing haymakers at Russia’s economy, with the goal of crippling Russia’s ability to sustain the conflict.

The current set of financial sanctions that have been brought to bear against Russia may be the most sophisticated and extensive in history. A group of countries that include the United States, the European Union, the United Kingdom and Canada have cut off Russian banks from SWIFT, a global financial messaging service. Even the historically ever-neutral Swiss have joined in the sanctions and frozen Russian assets. The U.S. also banned U.S. dollar transactions with the Russian central bank. The overall goal is to prevent the Russian central bank from accessing the reserves Vladimir Putin was expecting it would be able to tap to finance the conflict.

We’ve come to expect economic sanctions to take a while to work, but that hasn’t been the case here. The assembled sanctions caused an immediate drop in the value of the Russian ruble, as shown in the chart above that shows its value against the dollar. You don’t need to be a financial whiz kid to recognize that any data that shows the value of a nation’s currency tumbling off a cliff isn’t good news for that country. A ruble is now worth less than a penny. The sanctions also caused a run on the banks by everyday Russians who are afraid the purchasing power of their savings will vanish as the ruble crashes and inflation takes hold. And the sanctions also caused Russia’s central bank to raise interest rates and halt any trading on the Moscow stock exchange, which also aren’t positive signs for the Russian economy.

Financial sanctions can be effective against some countries, but not so much against others. Countries without advanced economies, or that are willing to become pariah states like North Korea, or that have secret benefactors that might help them skirt sanctions are better equipped to withstand the impact. Russia doesn’t really fit into any of those categories. In fact, the prompt and devastating impact of the sanctions is causing some people to wonder whether they might be too effective, and back Putin into a corner that might cause him to entertain doing the unthinkable and escalating the conflict to a nuclear stage. We’ll have to hope that other, rational forces in Russia prevent that.

Unfortunately, the sanctions will cause the most pain for the ordinary Russians, who had nothing to do with the decision to invade Ukraine–but one of the ultimate political goals in any war is to crush the resolve of the enemy population so it will sue for peace. That’s what the allied fighters on the financial front are hoping to achieve.

The Return Of Baghdad Bob

Many of us recall “Baghdad Bob,” the Information Minister for Iraq whose press briefings during the Iraq War in 2003, and confident declarations that the Iraqi forces were pulverizing the enemy, were laughably divorced from reality. Baghdad Bob’s willingness to lie to the press, even as invading tanks rolled past behind him, was so complete that the photo of him, above, has become one of the standard internet memes that is used whenever someone is trying to present reality in a way that is contradicted by the obvious truth.

Speaking of Baghdad Bob . . . how is the Russian media presenting the war in Ukraine and the protests that have sprung up in some parts of Russia?

Not surprisingly, it’s been a struggle, and the truth has been hard to find. The tone has been set at the top, where Vladimir Putin has tried to convince the Russian people and Ukrainian military forces that the Ukrainian government consists of a “gang of drug addicts and neo-Nazis.” And the Russian media has tried to play along and support the Putin regime by broadcasting patriotic programming and attacks on the Ukrainian leaders.

The problem for Russia is that its people have cell phones and computers and multiple ways of communicating without resort to the traditional media, and that decentralized, personal communication technology is changing the way war can be presented on the home front, just as it is changing how war is conducted on the battlefield. Patriotic programming and outright propaganda lose their force if you can flip on your cell phone and see video recorded or forwarded by your contacts of anti-war protests happening across the country and Russian police breaking up spontaneous demonstrations against the war.

Who knows? Maybe we’ll see footage of a Russian spokesman assuring the world that the Russian people are united in their support for Putin’s invasion of Ukraine, while in the background an anti-war protest marches through the streets–and a new “Moscow Mel” meme will be born.

War In The Internet Age

Like everyone else, I have been following the events unfolding in Ukraine, and hoping like crazy that the courageous Ukrainians continue to stand up against the Russians and make them pay for starting a brutal and totally unnecessary war. In the fog of war you never know what is actually happening, but it looks like the Ukrainians, and their President, Volodymyr Zelenskiy, are putting up a fierce fight–according to some reports, at least, much more fierce than Vladimir Putin and Moscow expected.

I’m also fascinated by the new issues that modern technology are introducing to the harsh realities of war. Two stories in particular are helping to illustrate how the internet is changing the paradigm in ways that Sun Tzu, von Clausewitz, General Lee, General Patton, and other experts on war could never have anticipated.

First, consider Ukraine’s President. He has been extraordinarily deft in using modern communications tools to rally his citizens and his troops, using his cell phone and other technology as a kind of tactical device. After the fighting began, President Zelenskiy made a broadcast, using his cell phone, in which he was posed in front of a notable landmark in Kyiv. In the screen shot above, Zelenskiy looks like a guy taking a selfie on a visit, but his broadcast had an important point: refuting Russian propaganda that he had fled the capital. Zelenskiy’s immediate, selfie response exposed the propaganda as fiction, undercutting Russian credibility (to the extent there was any) and fortifying the resolve of Ukrainians who saw with their own eyes that their leader was standing firm. Zelenskiy, who was an entertainer before becoming President, clearly has a command of modern technology and an intuitive understanding of how it can be used to his advantage. His videos make Zelenskiy look like the future and Putin look like a Cold War relic–which he really is.

Second, consider the many reports that, as they invade, sex-starved Russian troops are using the Tinder apps on their cell phones to try to line up liaisons with Ukrainian women. And consider further the contentions by some that, knowing of the Russian practices, Ukrainian intelligence operatives are posing as women on Tinder and other social media apps to gather useful information on where the Russians are, how they are equipped, and where they are heading. Thanks to the lack of discipline of Russian troops and the anonymity of some social media apps, Ukrainians can collect real-time data about troop movements–the kind of information that is extraordinarily valuable in any war.

One admonition in the United States during World War II was: “loose lips sink ships.” The new saying might be “Tinder apps help lay traps.”

Whatever may happen here, war will never be the same.

Gas Prices

The other day we were out and about, and I noticed we were running low on gas. I stopped at a gas station to fill up and was shocked to see that gas prices were up to $3.39 a gallon. Admittedly, I don’t drive much since my commute became a walk, and it had been a while since I filled the tank. Still, $3.39 seemed like a pretty abrupt upward change in the price for unleaded regular.

Statistics show that there has been a rise in gas prices in Ohio, which have risen again since my visit to the pump last week. You can see charts with records of Ohio gas prices here and here. The data shows a recent surge in prices, with fuel costs up by more than 4 percent week to week and more than 38 percent over the past year–which obviously is not a good trend. At the same time, however, the data shows that the current price for gas is below historic highs, which touched $4.00 a gallon in 2008 and 2011 and came close in 2014. It seems to be human nature to forget the prior high-price periods and fondly remember only the low-price days.

Still, the current trend of price increases is alarming, and the volatile situation caused by Russia’s invasion of the Ukraine isn’t going to help reduce gasoline prices, either. At some point, a continuing spike in prices will cause new sources of gas to come on line–that’s how the law of supply and demand works–and it may prompt the Biden Administration to change policies that many believe have contributed to price increases. Until that happens, though, we’ll have to ride out the surge, and the burden is going to fall primarily on people who have long commutes and have to use their cars a lot.

A sudden jump in gas prices isn’t something that people typically budget for, so it will cause belt-tightening and grousing. And if the Ukraine situation provokes further increases and takes prices to new heights above the $4.00 a gallon level, that might just be something that people actually remember going forward.

Time To Skip A Few Fundraisers

Yesterday Democratic Senator Dianne Feinstein of California was asked about whether President Obama should alter his current schedule, which includes attending a number of fundraising events, so that he can focus more on some of the crises in the world, such as the downing of the passenger jet over the Ukraine by pro-Russian forces, the surge by ISIS in Iraq and Syria, and the escalated Israeli-Palestinian fighting in Gaza.  Senator Feinstein’s response was delicately phrased.  She said that the world would very much respect his “increased attention” to these matters, because the Leader of the Free World needs to lead in such times.

President Obama has attended a lot of fundraisers during his tenure in office.  The Washington Post recently calculated that he has held 393 fundraisers while in office, which is more than George W. Bush’s total during his full two terms but not quite as many as Bill Clinton’s record.  It’s not hard to understand why Presidents like fundraisers.  By definition, it’s a friendly gathering — after all, everyone else in attendance is ponying up thousands of dollars to be there, and obviously they’re not paying that much for the food — and at the end of the event the President can see tangible results and tote up the money he’s raised to support candidates who will support his agenda.

The Obama Administration no doubt would contend that the President is fully in touch with his national security team and capable of dealing with these crises whether he’s in the Oval Office or wearing a tux at some glittering event.  Maybe . . . although the combination of world events and the mess at our border raise legitimate questions about whether the President is fully in control of events.  In any case, I think Senator Feinstein has put her finger on something significant.

Appearances and messaging are important in today’s world.  It’s hard to successfully characterize something as a crisis if you can’t be bothered to change your schedule and skip non-essential events in order to work the phones with international leaders and build working coalitions to deal with the problem.  When the President goes to fundraisers in the midst of these events, he’s implicitly communicating that he is more concerned about Republicans than he is about the Middle East, or the Ukrainian separatist activities, or the influx of unaccompanied minor illegal immigrants.

Senator Feinstein recognizes that — and, I suspect, so do the perpetrators of the events that have given rise to these crises in the first place.  I think it’s time for the President to skip a few fundraisers.

Shooting Down A Commercial Jet Is Unforgivable

I’m not going to leap to conclusions about the terrible downing of a Malaysia Airlines jet, and I’m not going to rush to judgment about what caused the disaster.  Nor am I going to heap criticism on President Obama, as some have, for not saying more about the incident after he learned of it.  With an incident was awful as this, we can and should take the time to determine the true facts before assigning blame and taking action.

I will say this, however — if it is determined that pro-Russian Ukrainian separatists did shoot down the plane with a missile, it is one of the worst, most unforgivable crimes imaginable.  Hundreds of people from a number of different nations boarded this particular jet in Amsterdam, headed to Kuala Lumpur.  They didn’t know that boarding an international flight that was just like countless others would be their doom.  The jet flew through peaceful airspace, where there had been no warning of any danger.  The people on the plane were absolutely defenseless against an attack.  Anyone who would shoot down a plane under those circumstances — even if it was a case of mistaken identity — simply does not deserve to live in the modern, civilized world.

If a missile attack in fact occurred, whoever was responsible for this outrage must be punished, and the punishment should come from every nation that had citizens aboard that jet.  If Ukrainian separatists were the culprits, then the United States should side with the Ukrainian government and do whatever it can to defeat the separatists, learn who perpetrated this act, bring them to justice, and see that they are appropriately punished.  If Russia wants to be accepted as a responsible figure on the international scene, it should do likewise — and so should every other country that has an international airport.

I’m tired of mealy-mouthed responses to criminal, terrorist acts that demand swift and sure action.  If commercial jets can be shot from the skies without fear of prompt and painful retribution, then the world has become a grimmer, darker place.  We simply cannot permit such acts to go unpunished.  Let’s get the facts, get them quickly, and then take meaningful steps against whoever perpetrated this awful crime.

Cold War Timewarp

For a child of the ’50s who grew up in the ’60s, reading the news this week is weird and disturbingly familiar.

Stories about Russians testing ICBMs, engaging in adventurous activities in the Crimea, and issuing vague threats make me feel like we’re caught in a timewarp. It’s like it’s the Cold War all over again, and the Russkies are even being directed by one of those inexplicable, menacing leaders that Americans love to hate. Vladimir Putin is like this generation’s Nikita Khrushchev. What’s next? People building fallout shelters and making our kids watch Duck and Cover?

When the Berlin Wall fell more than two decades ago, people confidently predicted “the end of history.” Of course, that’s not what happened. A bilateral world splintered and shifted, and now there are many more threats and many more unpredictable leaders who apparently are bent on doing us harm. I wonder whether this little demonstration of naked Russian aggression will cause President Obama and Defense Secretary Chuck Hagel to revisit their plans to cut defense spending and Cold War weapons programs.

I hope that we don’ return to the unsettling Cold War world, with its doomsday clocks and periodic crises that could blow up into catastrophic confrontation. I hope we also aren’t so smug, however, that we confidently conclude that it just can’t happen. Such conclusions are wishful thinking. There are lots of people out there with lots of territorial ambitions who are willing to run stupid risks to try to achieve them, and we need to recognize that reality and deal with it.

Is The U.S. In A Foreign Policy Cocoon?

The unfolding events in the Ukraine, where Russian military activities in the Crimea have caused the Ukraine to mobilize its forces, obviously are of tremendous concern in their own right. We don’t like to see the rights of sovereign nations impaired, nor do we like to see pro-democracy movements bullied into submission.

The unfolding developments in the Ukraine, however, also give rise to a deeper, yet equally significant concern arising from the fact that the Russian military actions apparently caught the United States, and the western world, completely by surprise. People in the foreign policy world had confidently predicted that Vladimir Putin, flush from the favorable PR about the Sochi Olympic Games, wouldn’t risk the goodwill of the world by taking any kind of military action in the Ukraine, or lacked the will or resources or interest to do so. Of course, those people were wrong.

Is our failure to predict the Russian actions in the Ukraine due to poor intelligence, or of a cocoon-like atmosphere in our foreign policy establishment that doesn’t recognize that other countries and leaders might not see the world as we do? This article in The American Interest argues that it is the latter — and that the cocoon, unless and until punctured, is going to produce more foreign policy crises and setbacks in the future.

I don’t know if the hypothesis of the article is correct or not — but I do think that, when it comes to contingency planning about responses to fast-moving global events, it’s essential to have different viewpoints represented and presented to President Obama. If our current foreign policy apparatus doesn’t include the contrarians who are willing to offer their competing views and the decision-makers who will consider those views, we need to make some changes, pronto. Presidents can only make good decisions if they are given full information and a range of options.