The Molotov Cocktail Hour
By Greg Fields
Geopolitics continues to dominate the markets this week. But how so? And what's the latest?
I'll start (as always) with a story!
Once upon a time, Big Bully State invaded its neighbor under the pretext that sovereign borders were fake news, and anyway, Mouse Neighbor - a country one-tenth Bully's size - posed a, uh, security threat. Bully even staged a flimsy false flag operation and then rolled forces in. But then, things didn't go so well. Despite superior numbers, weapons, and material, Bully's forces were poorly trained and uncoordinated. Pee-Wee was clever and agile. They utilized guerrilla tactics to isolate small deployments of Bully's forces and destroy them.
This unprovoked attack drew the ire of the world. Big Bully's Foreign Minister made excuses (not making this up), "Those loud bangs you're hearing aren't bombs! That's just us dropping big boxes of food and humanitarian aid for Pee-Wee. Aren't we excellent?" As their capital was devastated with actual Bully bombs, Pee-Wee responded with, "Awesome! Know what we got to go with your 'food supplies'? Cocktails; lots of Molotov cocktails."
If you hadn't guessed, I'm talking of course about...the Soviet Union's Winter War with Finland in 1939, which the USSR lost. Badly. 123,000 casualties in three months kind of badly. The Finns not only won their independence, but they invented a weapon used in every David vs. Goliath fight ever since: the (Soviet Foreign Minister) Molotov Cocktail.
Ukraine is starting to look an awful lot like the Winter War. Let's pray Putin's forces actually repeat Russian history.
THE EMPIRE STRIKES OUT
This past weekend, the West locked arms and stepped up to exact unprecedented, enormously punitive economic sanctions that some believe could eventually shrink Russia's GDP by 25%:
•Russia was forcibly removed from the SWIFT international messaging platform, essentially severing them from the international banking system.
•For the first time ever, Russia's central bank was sanctioned, effectively stranding Puttin's $631B war chest of foreign currency that was supposed to insulate him from international sanctions. Oops.
•The list of companies pulling out or suspending operations in Russia is growing by the hour: British Petroleum, Shell Oil, Apple, Volvo, GM, Disney (You're still there?! You suck ExxonMobil!)
•In a full-on bank run, Russian citizens withdrew $1.3B in rubles this weekend. As of today, the ruble is almost worthless.
•The Russian stock market fell over 50% before it was shut down yesterday.
•Famously neutral Switzerland(!) joined the rest of Europe in imposing sanctions.
SPARE (CLIMATE) CHANGE
Political disruption is never great for markets, especially in an environment where inflation is Himalayan high and supply chains are still re-linking. But Putin's war is unsustainable. Russian troops already lack food. They have to forage for fuel. Young conscripts had to be tricked into fighting. And remember how we said the East German Border Wall could never possibly fall? Until it did.
That said, certain investment areas may well thrive in a world changed by conflict:
•defense systems stocks
•pretty much anything associated with climate change: EVs, lithium, green utilities
If there is any silver lining to this atrocious attack, it's that investors have finally woken up and smelled the dead dinosaur: fossil fuels are no longer a risk worth taking anymore. Oil is the currency of autocrats and military adventurism. The now surging price of oil only ensures that alternative energy sources become cheaper and more appealing to consumers and businesses.
When Putin's woefully incompetent military and boot-licking lackeys are eventually defeated, we will have a democratic, decidedly European Ukraine to thank for a greener, cleaner, and less warm world.