Today, we’re sidestepping our usual financial beat to examine a potential Ukraine-Russia hot war. And for good reason: “Geopolitics are difficult to avoid because they affect markets,” says our macro expert Jim Rickards. “You don’t really get ahead of markets if you’re ignoring what’s [happening] on the geopolitical front.”

And what’s happening at Russia’s border with Ukraine can’t be ignored: “The U.S. intelligence community estimates that [Russia is] going to move about 175,000 troops… to the Ukraine region,” said Dmitri Alperovitch – former CTO and cofounder of cybersecurity firm CrowdStrike – during a podcast interview at Hidden Forces.

“But it's also different in terms of the types of forces and the types of equipment and logistics that they're moving,” Mr. Alperovitch said. “They've moved artillery units, they've moved air defense units, they've moved mine-clearing equipment, they've moved bridge-building equipment, lots of things that you actually need for an extensive invasion of Ukraine.” 

As always, a little context is key…

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Your Rundown for Wednesday, January 12, 2022...

Context Clues

“The background is really important,” Jim Rickards says. “This has roots going back to the end of World War II, the Cold War, the fall of the Berlin Wall in 1989, the fall of the Soviet Union in 1991 and the rise of Putin in the early 2000s. It has a long lineage.

“But 2014 was a critical year,” says Jim, “[including] some fairly aggressive tactics on the part of the U.S. and NATO.” At the time, Ukraine’s democratically-elected president was pro-Russian and pro-Putin. “But he was elected and that’s the point,” Jim reiterates.

Nevertheless, the U.S. – with the help of the CIA and some other three-letter organizations – ginned up a “people’s revolution” to overthrow Ukraine’s president. In response, “Putin said: ‘If you want to have a revolution in Kiev, be my guest. I’m taking Crimea.’”

Courtesy: The Washington Post

Russia annexed the region in 2014, and Crimea has been under Putin’s de facto leadership since. “It’s not just a piece of real estate,” Jim explains. “It is on the Black Sea [which is] a so-called warm water port.” Significant since “Russia has ports along the Arctic Ocean, but they freeze up more than half the year.”

Jim continues: “Putin’s possible ambition is to take eastern Ukraine, connect the dots – connecting Crimea with Russia through that corridor – and probably just making the whole thing part of Russia.”

Western ambitions? “The U.S. and NATO talk about Ukraine joining NATO, which is under discussion, and even possibly joining the EU,” Jim says, “fully integrating Ukraine into the Western Alliance.” With NATO member Estonia to the north of Moscow, should Ukraine join NATO, “then Moscow is totally surrounded,” says Jim, which is “unacceptable” to Putin.

“Will a hot war happen?” Jim asks. “If it does – and you can’t rule it out – it’s extremely disruptive to markets.” He also says even the threat of war can roil markets.

For example: “You think energy prices are high now?” he asks. “Natural gas prices are going through the roof. And then, of course, there’s some correlation between natural gas prices and oil prices.”

Looking ahead, Jim believes energy and defense stocks (including Northrup Grummn, Lockheed Martin and Leidos) – which were hit hard last year – might be beneficiaries and help hedge your portfolio against geopolitical hotspots, or even a hot war, in 2022.

Market Rundown for Wednesday, Jan. 12, 2022

S&P 500 futures are up 0.50% to 4,730.

Oil is just a nickel shy of $82 for a barrel of WTI.

Gold is up $2.20 to $1,820.40 per ounce.

And Bitcoin's up 2% at the time of writing to $43,775.

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We apologize for going a little long today, but we think it’s important to understand this longstanding conflict that might erupt into all-out war. This week, the situation appears to be de-escalating, but we’ll continue to follow this story.

For The Rundown,

Matt Insley
Publisher, The Rundown
TheRundownFeedback@StPaulResearch.com