Due to the nature of my day job managing a massive IT team (including cybersecurity) at a very large organization you all have heard of, I can’t talk about specifics on anything about this subject – so I keep things intentionally bland or not speak of it at all. In this case, I wanted to talk about a possible objective of Russia, and how this plays into your investments.
What I want to do here is ask a lot of questions, hypothesize, and try and reveal how all of this plays into the gold and silver narratives many of my Twitter folk have been harping on forever. I’m not going to talk about geopolitics I know nothing about in Ukraine, nor am I going to speak to anything about the military here, which is a hard line in the sand for any commentary I have. I’d like to dive into possible motivations of Putin, and how these motivations can be looked at from an investment perspective. I don’t mean to be crude to those in Ukraine – but I wanted to take a cold look at how this affects my family’s bank account.
- He wants the Soviet Union back!!
Some of my friends tell me not to overthink it. “Putin is evil”. “Putin wants to re-unite the Soviet Union”. Unless you personally talked with him, it’s hard to come to this conclusion other than listening to pundits talk about it Sunday mornings. I personally understand this, but it’s a very one-dimensional way of looking at Putin. Putin has seen what happened the last time any one person tried to grab land using the military in WW2. It didn’t end well for that Austrian guy in the bunker at the end. Unlike then, you have NATO, and many of the countries and former Warsaw pact nations became members of NATO.
So you then may have the ability to maybe put in regimes friendly to you? I remember reading in my textbooks during my cyber security grad degree about how Russia rolled into Estonia in 2007 and Georgia in 2008. Then, 2014 had Crimea. I have heard other pundits saying perhaps Ukraine may break into 5 or 6 distinct countries due to how the nation is constructed.
It seemed with Crimea, not much happened – as from OUR news sources, it seemed a lot of the people there were ethnic Russians and this wasn’t a big deal for them.
When fighting in the eastern Ukraine broke out, again, our news services tell us a lot of the population there is Russian. So to me, I decided to keep out of this (with my blogs) as I have no idea what those people want.
So with weapons are how they are today, and how strong the Russian military may be, it seemed odd there has been fighting in eastern Ukraine for 8 years without much of anything moving hands. The recent incursion into this territory then didn’t come as much of a surprise to me or anyone else. And, I think the expectation was sanctions and this would be another Crimea event.
The widespread invasion of Ukraine is what took many of us aback. Why would he do this?
Again, my friends be like – “he wants to unite the soviet union”! I don’t buy it. He’s a billionaire. Lives a life of luxury. While Ukraine is the “bread basket of the world”, I don’t understand what would then have him push his tanks further in. Could there be another reason?
Edit 3/1: After longer consideration, I wanted to add here that Ukraine is the world’s “bread basket”. If Russian nat gas is cut off, and nat gas is used to make fertilizer, in a post-Ukraine invasion, it makes sense to secure a massive food supply for his people. If fertilizer is not an issue to get to Ukraine, and the rest of the world is seeing sky high energy and food prices – imagine a situation where energy and food is plentiful for not only Russia, but China as well. I listed to Luke Gromen’s Palisade’s interview today and he put out something I had not considered. Under 3 below I mention selling oil for gold, but he mentions forcing the sale of oil/nat gas in rubles. Now, imagine forcing people to buy Ukraine’s food in rubles as well. While the ruble is getting crushed now, I imagine if Putin sells oil to China, India, and others in rubles, this will create a strong demand for their currency. So getting Ukraine may be geared towards securing a food supply if cut off from a lot of the world’s financial resources. This could be part of the expansionism – not so much to get the old gang back together, but to secure food might be a strategic objective here.
2. Push back of NATO
To me, this is the most likely scenario. I’m 46. I grew up watching movies like, “The Day After” and “Red Dawn” – let’s not also forget “War Games” and “Cloak and Dagger”. They were powerful in shaping me as a young child. I respected the fact that nukes – if used by anyone – could end it all for everyone. I also remember hearing about the Cuban Missile Crisis, and how the Soviets placed nukes 90 miles off of the coast of the USA. To us, this was not acceptable. And, it brought a lot of tension to geopolitics.
I’m not an expert on Ukraine – so I’ll tell you big picture of what I understand, is that it’s more of a European country these days and there has been talk of them joining NATO. This borders Russia. For years, Russia has wanted to have a president there they could control. One who is friendly to them who could serve as a buffer state.
Let’s look at how things were 50 years ago with Soviet influence in Eastern Europe as well as the Warsaw Pact – which had heavy Soviet influence.
We now look at NATO influence, and how many of these red circles are now red circles for NATO
Now, if we take these two combined, we have….
That red area above is land area the Russians (former Soviet) influence in the region. The blue were areas that was still in play for NATO/Russian influence, with Ukraine being pulled apart the last decade or so between the Russians and NATO. Recently, Belarus is thought to jump into the war on the behalf of the Russians – where I had also see a video of a woman saying she’s now in charge of Belarus. So the region is in a lot of trouble.
Apparently, when the Soviet Union fell, it was partially due to assurances by the west that NATO would not move one inch eastward. This was a promise to Gorbachev. If you look closely on the map above, you can clearly see we moved a lot more than one inch eastward.
One could also postulate that if Ukraine fell into NATO control, then Crimea would also be annexed back to Ukraine – possibly – but this is crucial access to the Black sea for Russia.
3. He wants to attack the US dollar
This is my bet, along with part of number 2. When he went after Donetsk, I could understand. Lots of Russians, access to the Black Sea through the Sea of Avov (I had to look this up). Part of me felt that when he made these moves on Donetsk, that THIS would trigger the removal of Russia from SWIFT. I wrote about this a few times to not much commentary on Twitter. IF you remove Russia from SWIFT, do you think Russia is just then going to give back the land to get back into SWIFT? No. I didn’t think so either. The issue was, I was hearing then than removal of SWIFT is off the table.
This then is when the further invasion started. This then had Europe all in agreement to remove Russia from SWIFT. ONLY this further incursion triggered this. IF we are to believe the news, which is filled with propaganda from both sides, you can potentially see Russia’s B squad was sent in and wiped out most places. “Embarrassing losses”. “Putin is upset”. “Russians are dumping gas out of tanks when they hear they were to drive on Kiev”. “Russian top general fired”. This type of narrative could be absolutely true. It COULD be a false flag. Send in troops for an operation that is meant to cause minimal damage to civilians in order to trigger a SWIFT removal.
If Russia were to simply stand up a new payment system to challenge SWIFT, it could be seen as a direct attack on the USD as a reserve currency, and potentially be seen as an act of war against the US. While Russia is capable, they also do not want to provide the moral justification for US forces to attack Russia in any way. However, if Russia was the aggressor in an action against Ukraine, which is NOT a member of the EU or NATO, sanctions are a more likely tool to stop the fighting. Removing Russia from SWIFT then allows them to stand up an alternate payment system with gold-back rubles.
Right now, Russian stock markets and their currency are getting crushed, along with their bonds. I grew up admiring Kasparov, the Russian Grandmaster after Anatoly Karpov, who took it when Fischer disappeared in 1975. Fischer took it from the Russian Spassky. This entire culture is a culture of deep thinking strategists. And Putin just happens to be former KGB.
I saw a piece where they are now suggesting Putin is playing poker rather than chess. But that is sort of lunacy – sort of like him going all in with a pair of 2s hoping to get two more 2s later on. That sort of gamble is not poker, it’s irresponsible and not thought out. So, respectfully, I think the article is horse shit.
You have to ask yourself, what is the play if Russia stands up a new payment system?
I’m also not an FX guy, so I’ll try not to veer much out of my swimlane here, but it would stand to reason that if Russia was able to use a block chain payment system backed by gold, they could circumvent just about any banking problem out there. Imagine you want/need Russian oil and gas. You don’t have rubles to pay them. You cannot pay them in dollars with SWIFT. However, you can use the blockchain to pay them gold stored in a vault in Shanghai. Payment is instant, and final.
Suddenly, Venezuela might be able to sell their oil as well using this method. The Chinese could send gold to Russia for oil and other commodities.
All of these countries begin buying more gold with their native currencies. And, Russia tells China and others to only pay in gold. Russia uses the Ruble for their local currency, but gold is their international currency.
What effects could that have on paper-backed currencies? The US is thought to have like 8100 tons of gold, but the last time that was audited was 1954.
What are his motivations? Only he knows, at this point, but it could be one of the three, it could be a mix of the three. I’m seeing reports now Putin sent in a hit squad to assassinate Zelensky. Could that put more credence on the first one above? Perhaps.
I’m leaning towards number two being the main reason, with number three as the means of executing the objective to weaken the west. Chess is a game of strategy – as well as tactics. The STRATEGY here may be simply be to halt the eastward movement of NATO. You can see for years he has literally begged the West to stay away from Russia’s sphere of influence. The STRATEGY here is to halt movement east, and perhaps counter with westward sphere of influence expansion. The TACTICS to carry this out may be false flag wars, currency wars, cyber wars, etc.
I feel the US debt load is insurmountable. We are on the brink of insolvency, and the only real way out of this is by inflating our way out of this. We have to own the narrative, and then blame Russia for inflation. Remember – Russia has a bazillion commodities, and by us isolating Russia, we can then morally justify higher prices everywhere. Just blame the inflation on Russia, COVID supply chains, and commodities.
Meanwhile, the card trick and sleight of hand in the deck has happened. While you were masking up those 2 year old little fuckers for day care and goose stepping in line with bullshit narratives, Putin slid two 2s in the bottom of the deck and dealt from the bottom. You think he is playing poker. What his is about to do is let our debt attack us, and let our people tear us apart from the inside.
Make no mistake – the only way to defeat us is to have us become insolvent. Most think of default as not paying your car loan, but this type of default is printing too much dollars and devaluing them to nothing. The strategic way out of THAT mess was to promote MMT. However, the first real test of MMT failed when inflation hit 7.5% 18 months after the money printing – which none of them said would lead to inflation. Remember….”modern monetary THEORY”. This has now resulted in $30T in debt.
The feeling to me is this person….
And this person
Is squaring off against who they think is this person
But has been this person
Is going to look like this…
How this affects you as an investor is that Russia is a big player with commodities. Can they stop selling gas to Europe and freeze them? Perhaps – but in response, perhaps some nuke plants and coal plants get fired back up temporarily. Perhaps we see $7 gas prices in the US, if not higher, until pressure to allow domestic production and pipelines occur again to take the Russian supply out of the equation. All of these higher energy prices will go into the cost of production of goods. The fertilizers they produce may not be sold to the world.
Or. Russia saw this coming and has already lined up buyers for all of this in China, Russia, India, South Africa, Venezuela, Cuba – and they all agreed on a payment system outside of SWIFT. In that case, if you were an American investor in a Russian company, you will lose your ass. BP just took a $25b write off to get out of Russia, instantly. You don’t do that if you think this will blow over in a few days. You have intel. And I believe we will be starting currency wars as our next fight.
The winner will not be Russia, EU, etc.
This is the winner…
Gold has clearly broken out in USD
What is of interest here is I believe gold now will have a nice further move as you can see the 400/200dma converging. I believe once that is crossed over, it cements the higher price shelf as a permanent new high range. That move to $2500-$3000 is in the cards for the next 15-18 months, with consolidations and saw tooth moves being part of it.
With this, I am playing my miners as usual. You can see they have been underperforming the metal recently, and I expect with more sharp moves in metals prices, you may see this ratio go higher before sector rotation happens.
Day in and day out of the NASDAQ getting beaten down, may have those who have had a 15x move stuff to gold to preserve what they have. It’s not about getting rich with gold, it’s about preservation.
I know my main gold play, FSM is about to have earnings in about 2 weeks – and like every other gold company out there, are printing money in profits. At 11x P/E ratio, compare that to Tesla at 360x P/E ratio with falling prices, and it might be easy to see those who got in on Tesla at $50 move out at $700 to then preserve their winnings in gold, and perhaps play the gold equities for growth as a defensive play.
February 28, 2022 at 4:39 pm
Nate, pretty good piece of analysis. I’m leaning also towards the option 2, but observing the situation unfolding, the option 3 might be in play as well. With the media propaganda and public hysteria difficult to filter the information. But these are my observations sitting in the former communist country in central europe.
But the conflict came as a suprise to me, as I thought it is all set up and there will be last chance talks and the agreement will be made in the last minute. Remarkable is the lack of will on the US side to support the talks before the war started. Now we have no other option as to sit and wait how the conflict unfolds.