I took a little bit of stick yesterday for writing “If you want to know what happens next, look at equity markets. They don’t give a toss…”.
Sure, there was a lot of uncertainty around but the S&P 500 closing down 0.74% and the DJI closing down 0.94% doesn’t exactly present itself as a rout. I’ve seen bigger moves on Goldman Sachs missing quarterly estimates.
Where there was a rout, in fact a decimation in the truest sense of the word, was on the Moscow exchange where stocks fell by over 10% but going on half of this was already gained back in the opening hour of trading today. Asian markets are also all in the plus again and the worst of the shock effect of the stand-off between Russia and the Ukraine looks to be over, at least as far as markets are concerned.
It’s hard to know whether to analyse from the bottom up or from the top down but both approaches lead to the same conclusion. Top down tells us that Russia is a very powerful country and one in which national pride still counts for something. If the West truly wants to influence its thoughts and actions, which I doubt it can do, humiliating it is just about the worst strategy. The West has probably done more shooting from the hip than has that big old Russian bear and it has put us in the embarrassing position that it is we who will have to do the backing down rather than President Putin and his merry men.
Enough now. Markets are in rebound mode and we will be busily catching up for a day lost. Did anyone buy the dips yesterday?
I was speaking to former defence specialist during the course of yesterday who said that he was reminded of the good old days of the Cold War when one knew who the enemy was. I would go a step further. From Ukraine snuggling up to the EU to it attempting to join NATO is a small step and Russia no more wants NATO on its doorstep than America wanted to see Soviet missiles based in Cuba in 1962. The Ukraine is a perfect buffer zone – there’s a good Cold War term – between NATO and Russia and that Moscow would prefer to keep it as that is not at all unreasonable. Watching the EU in the form of the unspeakable Catherine Ashton prancing around in Kiev will have given Moscow the woollies.
I am no fan of that man Putin – I tweeted several weeks back: “If Vladimir Putin were to manipulate an election, which of course he’d never dream of doing, would he then become Vladimir Put(myself)in?” and yesterday I also questioned whether the “protection” of Russian speaking minorities might not smack of the “Heim ins Reich” policy of a certain German Chancellor in the 1930s who annexed Austria and then occupied the German speaking parts of Czechoslovakia in the fundamentally flawed assumption that anyone who spoke German was German.
Who rules whom?
Germany and France spent centuries going to war over hegemony in Alsace and Lorraine (Elsass and Lothringen, if you’re a German speaker) whilst arguing which of the two they are. I know that part of Europe reasonably well and in my book they are neither, nor – they are what they are, namely Alsatians and Lorrainians, irrespective of whether they are ruled out of Paris which they are at the moment or out of Berlin which they have also been from time to time.
I guess the Crimea is in some respects similar. Being governed by either Kiev or Moscow does not make it Ukrainian or Russian, respectively. It is Crimean. Curiously enough, it was the Russian leader who launched the Cuban Missile Crisis in 1962, Nikita Khrushchev, who chose to put the Crimea under Ukrainian administration rather than under Russian and in doing so sowed the seeds of the current crisis.
It was the same former defence specialist who immediately pointed out to me that the famed 5.00am deadline for Ukrainian troops to surrender to the Russian or be annihilated had only been reported on a Kiev website and that the news had not been corroborated by the Russians themselves. While markets were in hysteria, I took his advice and treated the story with a pinch of salt.
This morning our media were reporting that the threat had not been carried out. Ermm? Excusez moi. Who says there ever was such a threat?
Alas, politics aside, the economic implications of a proper East/West standoff are not in the West’s favour either. Russia has the energy and the jump in gas prices which the conflict brings with it benefits Russia just as much as it damages the EU. Ukraine is an agricultural economy, a huge producer of grain. Though fine and dandy and very necessary for all of us, producing food makes nobody rich and certainly does not generate the income to run the infrastructure of a modern nation. It has lived for years with the Russian sword of Damocles of conditional subsidies hanging over it. If it escapes those, it will be standing in Brussels with the begging bowl looking for unconditional financial support and I wonder who there has the courage to say anything but “Yes” to a country with two thirds of the GDP of Greece but four times the population and five times the area.
Enough now. Markets are in rebound mode and we will be busily catching up for a day lost. Did anyone buy the dips yesterday?