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.

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.

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.

The Handshake Analyzed ‘Round The World

Donald Trump and Vladimir Putin met yesterday at the G-20 summit.  Presumably they had something important to discuss — but you wouldn’t know it from the press coverage.

gettyimages_810247620-0No, newspapers around the world were more interested in the Trump-Putin handshake, and more specifically which of these leaders of two of the world’s most powerful countries got the better of the other during the handshake.  The New York Post even consulted a body language expert who concluded that Trump “won on points” because he used the palm-up approach, which apparently is some kind of domineering power-play technique that allows the handshake to proceed to a vise-like grip.  From the breathless analysis, you’d expect that President Trump carefully considered, but ultimately didn’t use, the “knuckle-roll” approach to really let ol’ Vlad know who was boss.

The reporting on this brief incident make it seem as though these two leaders were behaving very consciously during every instant of the handshake encounter.  Perhaps that is so at the international leader level, but for most people a handshake is a pretty unconscious event.  You meet someone, you reflexively stick out your hand — a tradition that apparently stems from ancient times, where the open hand indicated you weren’t holding a weapon — and give the other person’s paw a basic shake.  It’s only a noteworthy incident if the other person’s hand is weirdly damp, or their handshake is incredibly limp, or they try the bone-crusher approach.  Absent something like that, the handshake moment passes by in a flash without a thought and you get into the substance.

In our modern media, though, substance just isn’t as interesting as trying to read “body language” and speculating about what each twitch and eye movement meant and being distracted about meaningless minutiae.  Next thing you know, the media will be asking Putin what he thought about President Trump’s hand size.

Let’s hope Trump and Putin actually focused on something more meaningful.

The Coveted Putin Endorsement

Aww, isn’t that sweet?  Russian leader Vladimir Putin and Donald Trump like each other.  No, really — they really like each other.

The Donald started the courtship first, by extending an olive branch and saying that he would “work with” Putin and “get along” with him.  Then Vlad the Invader upped the ante, stating that Trump was “a bright and talented person without any doubt” and is “an outstanding and talented personality.”  Those Putin plaudits almost made Trumpelstiltskin go squeeee!  He responded by saying:  “It is always a great honor to be so nicely complimented by a man so highly respected within his own country and beyond.”  You almost expected Trump’s reaction to be followed by a little hand-drawn heart and a smiley face emoticon.

jbrsspbvThe Trump balloon and the leaden Clinton and Bush retread campaigns have made this a weird political year, but Vladimir Putin injecting himself into U.S. presidential politics, and a candidate responding positively to it, just makes the year even weirder.  I’m not sure who “highly respects” Putin — other than Trump, apparently — but it is surely not anyone who knows much about Putin’s record of duplicitousness, invasion, power plays, and support of murderous dictators like Assad on the international front, and his vile and appalling treatment of opponents, journalists, and gays in mother Russia.

I’ve got nothing against trying to “get along” with the leaders of other countries, or at least finding common ground on issues where our interests are aligned.  But Trump’s blushing reaction to Putin’s throwaway compliments is as naive as the Obama Administration’s embarrassing notion that relations with Russia could be changed simply by pushing a “reset” button.  Anyone who actually thought that, as President, Trump would be a tough guy should be under no illusions after the Putin-Trump lovefest.  Trump, like any narcissist, is a pretty easy target — shower him with praise, and he’ll follow you anywhere.  Does anyone really think that the Trumpster would stand up to Putin’s adventurism any more than the Obama Administration has after Putin threw a few more kudos his way?

Somewhere, Vlad the Invader is having a pretty good chuckle right about now.

 

The Ruble’s Ruin

Does anyone remember learning in history class about the economy of the Weimar Republic — the ill-fated government of Germany between World War I and the ascendance of Adolf Hitler and the Nazi Party?  It experienced hyperinflation and financial calamity, and we read about Germans needing wheelbarrows of cash to buy even a loaf of bread.

We think that couldn’t happen anymore in the modern world — but it can.  In fact, it is happening right now in Russia, as a Fortune article reports.  Some people think that Russia’s currency, the ruble, is in a state of irretrievable collapse; its value against other currencies, like the dollar, is plummeting and even draconian increases in Russian interest rates might not stem the tide.

The reason is oil.  It’s Russia’s one big marketable commodity and the bedrock of their  economy.  The price of oil has been falling for months, which has made investors nervous about how Russian companies are going to pay off their debts given the lack of incoming cash.  So, the ruble trades lower, and the ability of Russian companies to pay off debts calculated in foreign currencies becomes harder and harder — which makes defaults even more likely.  By one calculation, the amount of rubles Russian companies need to pay off foreign debt obligations has increased by 90% just since the start of November.

How is Vladimir Putin going to deal with this crisis?  You might be tempted to say this disaster couldn’t have happened to a nicer guy, but let’s resist the impulse to enjoy some schadenfreude.  Putin is adventurous as it is, and you have to wonder whether a destabilizing currency failure is going to make him even more likely to wave his big stick to try to distract from his other problems.  And if Russian companies start defaulting on the more than $670 billion they owe, what is that going to do for the world economy?

Keep an eye out for the wheelbarrows.

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.

The Putin Piece

Several Webner House readers and friends have asked me what I think of the op-ed piece from Vladimir Putin that was published in the New York Times.  If you haven’t read it, it’s here.  I’ve got several reactions to it.

First, I’m amazed that some people are questioning the decision of the Times to run the piece at all.  As a fan of the First Amendment, I firmly believe that more speech is better than less.  I’m glad the Times ran the piece, because it did what free speech advocates expect — it provoked lots of comment.  The Washington Post, for example, ran a response that annotated and “fact-checked” the Putin piece.  In my view, all of the discussion — about the role of the Russians, what American policy is and should be, and is the piece a pure propaganda effort — is a very good thing.  The more people become aware of competing views, the better.

Second, I think the piece was a carefully crafted bit of propaganda from a foreign leader who is following his own agenda.  So what?  There is still value in being exposed to the views of other actors on the world stage.  I’m also not troubled by the criticism of American policy.  We’re big boys, and we — and our leaders — should be hardened to the rough and tumble of a world where others are pursuing different agendas.  If there are members of the Obama Administration who are feeling bruised by the criticisms of Vladimir Putin, they really need to get over it.

Finally, although I agree with Putin’s notion of America working within the framework of international law and international organizations to resolve the Syrian crisis, I completely disagree with one of his broader points.  He thinks its dangerous that many Americans view our country as exceptional, I think exactly the opposite.  Most of our ancestors came to America precisely because they believed it was exceptional — and it was, and is, exceptional.  It is the place where Old World class, religious, and ethnic divisions are shed and where freedom allows people to advance and prosper no matter what village they come from or what religious faith they follow. The opportunity and freedom found in America is not found in Putin’s Russia or countless other countries.

Sorry, Vlad!  You’re wrong about America.  We are exceptional, and the world is a better place for our exceptionalism.  In the gush of reaction to the Putin piece, I’m hoping that many Americans — including President Obama — focus on that reality as well.