Market Thinking

making sense of the narrative

Don’t throw me in the briar patch Brer Putin!

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We try and avoid talking too much about politics and Geo-politics and only do so insofar as we feel it is affecting markets and where we believe that application of Market-Thinking might provide some insight. Right now, with Western Media relentlessly beating the war drum on Ukraine, we feel it worth considering Cui Bono? over any invasion. The conclusion? The only winner would be the US – which is probably why they are talking so much about it.

Back in the 1930’s the children’s author Enid Blyton (doubtless long since cancelled for ‘wrong speech’) wrote a series of books based on the character Brer Rabbit, whose origins can be traced to the ‘Uncle Remus’ stories of the 19th century, in turn representing folk tales from the American south. Brer Rabbit was a character that many young children could identify with as he used his ‘street smarts’ to constantly outwit his opponents, in particular the wily Brer Fox.

I was born and raised in the Briar Patch!

Probably the most famous of the tales is Brer Rabbit and the Briar patch, where, in brief, the crafty rabbit, having finally been caught by Brer Fox, seeks to escape by begging Brer Fox to do anything except the one thing that he actually wants him to do, i.e throw him into the Briar patch, from where he can make his escape. Naturally he achieves this and escapes to fight another day.

We were reminded of this story in the latest episode of the long-running two-fronted cold war that the US continues to wage, this being the Russian front with China being the other one, making us wonder if Brer Rabbit is still required reading in Langley. “Please don’t invade Ukraine, Brer Putin” appears to be the cry, something Russia has shown no desire or intention of doing, but which would suit the US foreign policy establishment extremely well.

Listening to the podcast of Scott Adams – creator of the Dilbert cartoon and a very smart observer on the US political scene- we were surprised/relieved to hear this weekend’s edition where he finally started raising points outside of the conventional CNN/MSNBC narrative on US foreign policy. This is important, since while he (and his audience) are extremely skeptical about the mainstream media narrative on domestic issues, they seem very happy to accept the official foreign policy narrative from the same establishment sources. As clearly do many US investors. If that is changing, then, rather like Covid, we may soon see a shift in the popular narrative – if not the official one.

To be clear, we don’t have any information about whether or not Putin will invade the Ukraine – but crucially, nor apparently does anyone else. Instead, we have an increasingly hysterical Anglosphere declaring imminent war, with no actual evidence, while those actually closest to events – Russia, Germany, France and Ukraine itself – are saying the opposite. The Anglosphere seem to be channeling their inner Groucho Marx – “Who are you going to believe? Me, or your own lying eyes?”

So what do the markets think?

So far, the markets in general seem to believe Russia, France, Germany, and Ukraine, that there is no invasion plan, at least in so far as they are buying back into Russian assets, including currencies, bonds and equities – especially Gas companies. The broader US investor meanwhile appears to believe the opposite and is buying put options as ‘protection’. As with Covid, it is difficult to tell how much of this ‘news’ is coming from some central office and how much is simply being generated by the AI algorithms that hype up this or any other ‘crisis’ in search of ‘clicks’.

The Market doesn’t appear to believe the western media

If one did want to hedge against a Ukraine invasion – or even the prospect of a switch from a US puppet regime to a Russian puppet regime, then it would probably be worth looking at the big Ag companies. The likes of Cargill, Louis Dreyfus etc are profiting enormously from grain exports from Ukraine – the strong harvest and the lack of storage in Ukraine itself means that most of Ukraine’s grain goes for export. Unfortunately for monitoring or trading purposes most of the top ten largest commodity traders are private, but both Archer Daniels (ADM) and Bunge (BG) are quoted – as is Glencore, (GLEN) although that is more minerals and energy.

As the chart shows – timed since the start of the escalation of tensions, not coincidentally we suspect around the time of a new German Chancellor – the markets don’t appear to fear a change of regime in Ukraine any time soon.

Agricultural Commodity Traders not reflecting possible regime change in Ukraine

Bloomberg Market Thinking

The markets are probably considering the recent history that Russia has had with US accusations – Russia Collusion, Trump impeachments, Skripal and now Ukraine – where the burden of proof is somehow flipped to be on the Russians to prove that they are not doing what the US is accusing them of, rather than the US providing any proof (at all) to support their theory/accusation. The same is true this time; the evidence is apparently ‘classified’ and we are instead expected to accept it on the basis of Putin’s character (again based on their presentation of such) and the US say-so.

They are evidently giving more credence to Russia, which has stated clearly that it is not going to invade Ukraine, but that it will protect Russian citizens in the event of an attack by Ukraine on the breakaway Donbass region, which has essentially been at low level civil war since 2014. It has also clearly stated that what it wants is for Ukraine to not host any NATO (US) weapons that could threaten Russia. Neither is exactly unreasonable, and in reality this is no different from ‘The East’ sponsoring a Color Revolution in, say, Mexico and then subsequently sending fleets through the Gulf of Mexico on July 4th to ensure ‘freedom of navigation’, backing Mexican claims to mineral rights off Texas and then subsequently declaring that ‘the US is about to invade Mexico’ and demanding that the rest of the world impose sanctions.

The US response, along with the UK, has been to ignore diplomacy and simply shout that Russia is about to invade Ukraine and must move its troops from the borders. (Interesting that many of these troops are on a pre-announced set of annual exercises with Belarus, exercises that finish this week.)

So to return to Brer Rabbit, a detached observer might note that, while there really is absolutely no reason for Russia to invade Ukraine, it would very much suit the US Foreign Policy establishment were it to do so. It’s the Briar patch. Not only would it allow the US to, once again, sanction Russia – or more importantly require its European ‘allies’ to cut off trading relations – but it would, crucially, prevent any new integration between Europe and Russia and, via central Asia, China. As previously noted, the purpose of GeoPolitics 101 as learned from Mackinder is to prevent the formation of ‘The Global Heartland’, ie Eurasia. Hence the declaration by President Biden that, in the event of an invasion by Russia of Ukraine, the US would prevent the Nordstream 2 pipeline from completion. This, note, is a pipeline agreement between Germany and Russia and thus technically nothing to do with the US, unless of course you regard Germany as ‘part of your sphere of influence’. The US has of course been desperate to stop this development for years now as the pipeline provides integration of Germany and Russia while sidelining US proxies like Ukraine and Poland who currently benefit from transit fees. Clearly the US hasn’t forgotten the original doctrine of NATO, which was focused as much on subduing Germany as containing the USSR. In that sense it looks like a ‘reminder’ to the new German Chancellor of who (literally) calls the shots.

The purpose of NATO ? “To keep the Russians out, the Americans in, and the Germans down.”

Hastings “Pug” Ismay, first secretary General nato

Meanwhile, Russia is very aware of the “You broke it, you pay for it” rule and even though it now has huge foreign reserves and an extremely modern army (both facts that seem to elude many US based armchair warriors) it seems highly unlikely that it would want to get stuck in a conventional invasion and occupation of a country that has nothing to offer but problems. Since the ‘Color Revolution’ of 2014 that installed a ‘pro US’ regime, the Ukraine has steadily collapsed economically and is dependent on Russian gas both for energy and for transit fees. As we noted in early December (The lamps are going out all over Europe ) , the lack of Nordstream 2 won’t harm Russia or, even particularly Germany, but it would benefit Ukraine. Its completion however, will cost Ukraine up to $3bn a year in transit fees, not to mention the gas that is syphoned off to meet domestic demand.

De-escalation to be presented as ‘proof’ of the need for NATO

So what is the alternative, if Brer Putin doesn’t take the bait? Well it is starting to look like a narrative shift to “Russia de-escalated because we scared them away”. This can then be presented as a post Afghanistan victory for Joe Biden and it looks like Nancy Pelosi is already preparing the ground in this ABC interview . Note the scandalous confiscation of Afghan Foreign reserves and the allocation of half of them to pay for lawyers litigating for US victims of 9/11 is being presented in the same light. Painful as this is to watch, it is probably the best outcome (although Macron will be looking to claim credit for any ‘de-escalation’ ahead of his own Election campaign.) The NATO/US Military Industrial Complex might however find that the, inevitable, subsequent tin rattling in Europe – “look how we protect you, give us 2% of GDP please” might find short shrift.

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