Fallout from the Ukraine Crisis
The DRINCs that we watch for signs of trouble have turned into the dRicncs today as Russia’s invasion of Ukraine holds center stage. Over the longer term we may be more focused on the d RinCs as Russia and China team up in a new Sino Soviet alliance. If Iran has any brains it will see the opportunity to start selling its oil on world markets again by truly dismantling its nuclear facilities. The fallout from the Ukraine crisis is hitting us now and will continue for a long time reshaping international relations and posing risks that those of the Cold War era thought were gone for good.
Market Implosions as Invasion of Ukraine Grinds On
As much as the world would like to see Vladimir Putin back off and leave Ukraine, that is not what will happen unless he follows the path of a former head of the Soviet Secret Police, comrade Beria. Beria was one the three leaders of the USSR after Stalin died. Before he could have the other leaders arrested they arrested him with the help of the head of the armed forces, tried him without defense counsel, shot him, and buried him in a mass grave. We should not wonder why Mr. Putin never sits close to anyone in meetings. Assuming that he does not have a stroke or some other means of untimely death his past actions indicate that he will not give up in Ukraine, will not withdraw, and will become increasingly brutal in his efforts to erase Ukraine as an independent country. The market implosion we see now is likely to be repeated time and time again and as NATO members send more and more arms to help Ukraine fight Russian troops there will be the risk of the conflict spilling over into the rest of Europe and NATO joining the fight.
Sino Russian Pact
Before starting the invasion of Ukraine, Putin visited China and finalized deals for a new natural gas pipeline to China with payment in Euros, a huge contract for coal, and contracts for Russian grain despite Chinese concerns about plant diseases infecting shipments. As the war and war crimes continue Russia will have walled itself off from most of the world with the only true allies being North Korea, Belarus, Syria, and China. Unfortunately for Russia, in the next Sino Russian pact China will be the senior partner and Russia’s only supplier of technical goods in exchange for raw materials. John McCain’s observation that Russia is a gas station masquerading as a country will become closer to the truth. While China will love being able to call the tune on trade with Russia they will not want to lose the West as customers. Unfortunately for them, the US and Europe are already getting serious about reshoring manufacturing that is critical to infrastructure and defense. The worse things get in Ukraine the more NATO will beef up, send arms to Russia’s border and profit companies like Raytheon with their Patriot anti-missile system.
Market Volatility Into the Distant Future
If Putin does not give up, make a deal, and allow peace to happen the Ukrainians will not give up either. He will need to leave troops in Ukraine permanently and suffer losses from a permanent resistance. As Americans, as human beings this prospect is awful. As options traders this sort of situation will offer recurring opportunities for profits. As we commonly note in such situations do not trade alone. Consider joining one of our trading squadrons at Top Gun Options. All of the dumb money has been made in a market fueled by Fed and Congressional stimulus money. Profits now will go to those who pay attention and trade and hedge wisely.