All Eyes on Russia

With the apparent victory of the US/EU/West-backed uprising in Ukraine the most tantalizing question is whether Russia will respond.  The main descriptive words being played on the BBC this morning seem to be “Nervous uncertainty” which certainly captures the moment.  But the mood goes well past the Ukrainian borders…

As I have reported for a number of weeks, with the closing of the Sochi Games, a kind of “handcuffs” come off the Russians from today forward and so with the ousted president calling “Coup!” it will be the next 96-hours – or never – for the Russians to make their move.  Say Friday or Saturday at the latest.

Our war gaming expert “warhammer” has some thoughts…

Czarist minded Vlad Putin is not a happy man today.

Read “Why a new Ukraine is the Kremlin’s worst nightmare…”

The ugly (to an oligarch) emergence of democracy in neighboring Ukraine puts a hitch in Vlad’s get along. Deposed Ukrainian President Yanukovych, a Putin puppet, insured that the Ukraine kept in step with Russia, particularly with regard to rejecting entry into the EU. Yanukovych instead planned to move lock-step with Putin in joining Czar Vlad’s emerging Euro-Asian economic union, despite Yanukovych’s former vassals and serfs strongly desiring membership in the western-focused EU.

Vassals/Serfs 1, Yanukovych/Putin 0.

It would prove an arrogant display of power for Putin to provide armed military assistance to remaining Yanukovych loyalists. Instead, most political pundits believe Putin will put tremendous and immediate economic pressure on the newly liberated Ukrainian government. The “outside looking in” EU then risks direct confrontation with Czar Vlad should it wish to assist, something Putin is betting the pacifist EU deeply wishes to avoid. As the economic hardships mount in the Ukraine, Putin’s Eurasian economic union plans will look more and more digestible.

Will the EU jettison the unsavory situation in the Ukraine just as the U.S. abandoned a complex dynamic in civil war torn Syria? If the EU decides to “fully back” the newly emancipated Ukraine, what will strong man Putin elect to do? Will the EU truly vote to be “all in?”

I fully expect Czar Vlad to tighten the thumb screws on the Ukraine, an act former secretary of State Rice warned would be a “grave act” (diplo-speak for ‘confrontation worthy’). But then, if Syria and Benghazi are any indication, Czar Vlad may believe the U.S. diplo-bark is far worse than its bite. Truth be told, After imaginary Syrian “red lines” and promises to “find and punish” the Benghazi perpetrators, I think Putin’s a shrewd but wise man.

This one’s probably up to the EU to resolve. . . either through action or inaction.

Interesting times, eh!

Similarly, our news analyst fellow in Winnipeg has been thinking and watching:

While the newly assigned leader in the Ukraine has apparently articulated in an EU direction, one hopes past service in the security apparatus will not neutralize Western influence at critical junctures.

A few readers have asked me to expound on the possibility that a Ukraine-like uprising could occur in America. 

In a word: No.  As I pointed out in a recent Peoplenomics analysis, there is almost no chance of such an uprising here because of the simple fact that there are now “dueling third parties” involved.   One of the key characteristics of civil wars (besides grievances) is an outsider shoveling money around in the direction of the rebellion and, in turn, benefiting when it comes to pass.  Note how the EU/West gain and Russia loses a key buffer state that had kept the power-starving unelected (popularly) government of the EU at bay as Russia holds much of Europe’s energy.

The real Putin nightmare is that the EU will keep on coming and that is the kind of event that invokes the WW II siege mentality of the Russians.

I am personally concerned that the West – which views so many things as purely economic/business model decisions – will misread the Russian commitment to independence from the West and will press too hard.  Putin might – even now during the window available right now – decide to march in troops, in support of the elected government, and reoccupy Ukraine in a very hard (fist) manner.

And that easily could in the next couple of weeks, back the West into a decision between the checkbook and the nukes.  However, if Russia was ever thinking about the HEMP option, that would plunge the West into the dark ages and would give Russia a free hand to rebuild its buffer, you likely could find a similarly risky period since the Cuban Missile Crisis.  That’s the scale this situation could flare if Putin sees the handwriting on the wall and decides to play hardball with the West.

I hold Dimitry Orlov’s work in very high regard as he’s one of the few people (other than the folks around UrbanSurvival) that I can point at as really having their head on straight about the risks swirling around the Ukraine situation today.

In a report this weekend, Orlov makes the point that there is the possibility of a financial explosion to come from Ukraine, as (and I quote from his excellent article) “…and a default on some €60 billion of Ukrainian bonds, many held by Russian banks, seems likely. Could this be just the kind of financial contagion needed to finally pop the ridiculous US equities bubble? “  You owe it to yourself to read the rest of Orlov’s excellent update over at his Club Orlov site here.

Orlov’s book, Reinventing Collapse: The Soviet Experience and American Prospects, offers a unique way of looking at the collapse of the Soviet empire’s (soft crash) outcome and how America might fare.  Related is our own thinking about the necessary reordering of power structures as the world goes through the Manufacturer’s Resource Wars, and this is just another one in the long-running series. 

As yet another analyst noted of the situation in an email this morning:  “Reminds me of the song –  Clowns to the left of me, jokers to the right Here I am, stuck in the middle with you..” 

I’ll leave it to your better judgment who the Jokers are and who the Clowns are…

The markets, however,  don’t seem too fazed by events.  Maybe with enough money, the rich are oblivious to the risk.  Maybe they haven’t figured out that with an EMP attack, there would be no moving “money” around. 

Why my fears in this area?  Well, in our data scanning, the word “electricity” has been popping up in unusual and unaccustomed places.  Other than normal wintry store stats, what’s the biggest electricity story you can imagine?  Maybe I’m out there, but EMP sure comes to mind, but I’m a lone nutjob living in the woods…

Oh,  and let’s not forget that the defense industry would hugely benefit from action in Ukraine.  Reason being?  Pentagon boss Chuck Hagel is set to announce big cuts in US Army staffing levels in 2015…and that would put less money in the pockets of those who serve those who serve, as it were…

Earlier, the Dow looked to open up 30, or more, and the overseas markets were mixed.  In Europe, the Brits were down while the French and German markets were up somewhat.  In Asia, the Chinese Hang Send was down 0.8%m however.

One of the REAL stories today was that gold futures were up another $10-bucks, and this gets us to looking at a long-term comparison of proxy gold (GLD) versus the S&P 500

One could almost look at the chart and infer “Either gold has to put on one hell of a rally, or the market has to drop eventually.” 

While this is NOT investment advice, we wonder if playing the Gold to S&P relationship might be an idea whose time has come. 

Revolutions and Gold

An interesting combo to think about in Venezuela.  Remember when Hugo Chavez demanded their gold back?  He got it (at least some of it) and then died.

So what about the current US/West back uprisings there?  Is it that we are going to strong-arm lower gasoline prices, get “our” gold back, or what?

For now, presidente Maduro is calling for talks to work things out.  But, in case you’re just crawling out from under a rock, that’s now how the New World Order works.  You give in or get ousted.  Ask the Ukrainians about the template.

The Weak Ahead?

With the potential that the Russians could react with force to Ukraine, there are also a number of other items on the calendar this week that could make it hard on markets.

Tomorrow morning, for example, we will be doing one of those two-part news postings because the latest data on the Cash Shiller/S&P housing picture will come out.  The consensus seems to be that prices will be up about 13.5% compared with year ago levels, but I’m not that optimistic.  Around 12% – or even lower – would not be surprising.

Also tomorrow, there is consumer confidence to be considered. 

Low level housing numbers is about it for Wednesday but things pick up again Thursday with Durable Goods and then the monthly update on the fairytale (GDP).  There will also be Chicago purchasing manager numbers which is a decent look-ahead tool.

This morning about the only touchstone I can offer is the Baltic Dry cargo index, which stands at 1,174 which means in so many words, that if the world does end this week, we at least won’t have to face empty store shelves on the road to Perdition.

And Don’t Let the Door Hit You, Dept.

I’ve had a very strong opinion that the presence of a foreign news anchor/personality on a big network like CNN was a bad deal for a long time.

I told you on numerous occasions that I couldn’t see how our government could allow one of the kneeler types to get a work permit when we have so many good, young, and up & coming journalists already here in the USA.

So it is with a sense of …well, fulfillment, this morning that I report Piers Morgan may be about to depart CNN.

Still, I am totally flummoxed why major media haven’t asked the question we’ve been asking “How’d he get a work permit in the first place?”  Ain’t like there’s a shortage of talent but maybe there’s something to the “cute accent” that people’s forgotten about since our Revolution.

There Goes Alec Baldwin, Too

And what’s worth a read is how he “Blasts Shia LaBeouff, Anderson Cooper, Rachel Maddow, and more…” as he quits “public life.”

Don’tcha love it when media turns on itself?

How Much Did They Pay?

An email forwarded from a reader quotes the discussion about WhatsApp security as discussed on Wikipedia…:

“,,,As of August 15, 2012, the WhatsApp support staff claim messages are encrypted in the “latest version” of the WhatsApp software for iOS and Android (not including BlackBerry, Windows Phone and Symbian), without specifying the implemented cryptographic method.[30] German Tech site The H demonstrated how to use WhatsAPI to hijack any WhatsApp account on September 14, 2012.[31] Shortly after a legal threat to WhatsAPI’s developers was alleged, characterized by The H as “an apparent reaction” to security reports, and WhatsAPI’s source code was taken down for some days.[32] The WhatsAPI team has since returned to active development.[33] Privacy[edit]

While it seems like a reasonable acquisition for Facebook last week, I sure wouldn’t want to be on the “security and vulnerabilities” part of the due-diligence team.

We also make note of the story that “WhatsApp down days after billion dollar Facebook acquisition. “  Still, I think Facebook knows what they’re doing…and the more complex software becomes, the more it is susceptible to hacks…

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George Ure
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