Russia-Ukraine war and related tensions Megathread

[jaichind]

US equities are close to break even on the day.  Amazing.

[jaichind]

It seems Modi and Putin spoke on the phone.  The Indian readout seems to indicate that Modi wanted this crisis to be solved in a peaceful way but mostly focused the conversation on the safety of Indian citizens in Ukraine.

[jaichind]

I am baffled by the opposition of booting Russia from SWIFT from Germany and Italy. What the hell are we waiting for?

SWIFT is a payment system.  So if you cut Russia off from SWIFT you are really just saying Germany and Italy can no longer buy Russian energy.

[jaichind]

This also highlights that Russia aligning with China is good for Russia, but not "too good" for Russia. If it goes far enough, it becomes a massive net bad for Russia. Vietnam is another country that would be strongly anti-Russia if it was too close to China.

Over in PRC I suspect they are most likely thinking

"Oh oh.... We are allied with a potentially and actually unstable person"
"After this blow over maybe Putin needs to go.  This Medvedev fellow looks pretty stable ..."

[jaichind]

Both the PRC and Russia have built up alternative payment messaging systems so on the medium run I suspect Russian can survive losing access to SWIFT but it will be very painful on the short run.

[jaichind]

I am baffled by the opposition of booting Russia from SWIFT from Germany and Italy. What the hell are we waiting for?

SWIFT is a payment system.  So if you cut Russia off from SWIFT you are really just saying Germany and Italy can no longer buy Russian energy.

That’d be the point. Russia needs Germany to buy its gas. Germany does need a Russian gas too, perhaps Biden can authorize more gas production in the United States? If NATO doesn’t go all in on sanctions Putin will face no consequences.

USA LNG costs more than Russian gas so who will make up the cost difference.  If it is the Germans then German business will push back. If it is USA them USA midterm voters will push back.  Also I am not sure if there are enough LNG terminals in Germany to make this work.

[jaichind]

Both the PRC and Russia have built up alternative payment messaging systems so on the medium run I suspect Russian can survive losing access to SWIFT but it will be very painful on the short run.

Couldn't Germany also connect to these alternative payment systems if they really needed to? Germany does lots of business with Russia and China, so I could see voices in favor of them doing that.

That would be the long term workaround.  But you cannot just change the payment flows and process overnight.  Russian and Germany can also go to a pre-SWIFT world and use letters of credit and such.  All this is very disruptive and for now no one in Germany wants to go there.

[jaichind]

S&P 500 now up 0.7 on the day !!!  I guess the fear of something bad is always worse than that bad thing itself.

[jaichind]

S&P 500 now up 0.7 on the day !!!  I guess the fear of something bad is always worse than that bad thing itself.

The bad of Ukraine ceasing to exist as a sovereign nation far, far outweighs your portfolio going up slightly.

Hmmm .. just to be clear I want the US equity markets to go down.  In my last portfolio rebalance in late 2021 I have become very underweight equities.    I plan to be heavy intermediate fixed income late in 2022 so I am looking to get back into equities again in between that transition.  So for me it is ideal that US equities go down a lot, ideally bottoming out in March 2022.

[jaichind]

The way the USA should be countering Russia on the medium run is a "Hydrocarbons New Deal" with an all out fracking effort.

[jaichind]

S&P 500 now up 0.7 on the day !!!  I guess the fear of something bad is always worse than that bad thing itself.

What does this have to do with the thread?

It matters because economic sanctions are a big part of the current struggle between Russia and collective west.  Financial markets be it equities FX energy etc etc gives you a glance with the likely economic impact of these sanctions are likely to have on the various economic players.

[jaichind]

S&P 500 now up 0.7 on the day !!!  I guess the fear of something bad is always worse than that bad thing itself.

What does this have to do with the thread?

It matters because economic sanctions are a big part of the current struggle between Russia and collective west.  Financial markets be it equities FX energy etc etc gives you a glance with the likely economic impact of these sanctions are likely to have on the various economic players.

I was chatting with a colleague about the recovery in the market in the afternoon, and there's another possibility for it that this forum is not going to like: Ukraine collapses and surrenders very quickly, there is minimal destruction and bloodshed (because they lost so fast), and we're back to BAU before long.

Reading some market commentary just now I get the same vibe as well.  I am not claiming that the equity traders know more than anyone else but they will put the time into understanding what is going on since they have money in the game.

[jaichind]

S&P 500 now up 0.7 on the day !!!  I guess the fear of something bad is always worse than that bad thing itself.

What does this have to do with the thread?

It matters because economic sanctions are a big part of the current struggle between Russia and collective west.  Financial markets be it equities FX energy etc etc gives you a glance with the likely economic impact of these sanctions are likely to have on the various economic players.

I was chatting with a colleague about the recovery in the market in the afternoon, and there's another possibility for it that this forum is not going to like: Ukraine collapses and surrenders very quickly, there is minimal destruction and bloodshed (because they lost so fast), and we're back to BAU before long.

The 1yr and 2yr USA inflation swap also fell around the same time intraday as the equity really which implies there is a view that the overall energy market will become more "normal" soon which would imply a bet that geopolitical tension decline over the coming months.

[jaichind]

S&P 500 now up 0.7 on the day !!!  I guess the fear of something bad is always worse than that bad thing itself.

I am pretty sure that you have no idea what you are talking about. You've been wrong about Putin's aims and ambitions in Ukraine, you failed to predict this invasion and now you're making pronouncements about "fear of something bad" being worse than "the bad thing" before we even understand the full extent of this war, its meaning, its length, duration, the effect of sanctions etc. The wise thing to do would be to listen and learn from people who aren't fools.

I am doing a bad job of explaining myself.   There is an old saying  "Buy to the sound of cannons, sell to the sound of trumpets."  The idea is the fear is geopolitical events most of the time is greater than the real bite when it really takes place.

[jaichind]

One interesting question would be how much of Russia forces massed at the border have been deployed in battle?

[jaichind]

At Japan PM Kishida's press conference he was fairly evasive on what actions Japan will take.  All questions on what steps or changes in policies Japan will take beyond some very limited sanctions produced the same response from Kishida "It is a very serious situation that affects the international order including Asia. We must show our intention not to allow the change of the status quo by force." 

Of course back in 2014 Abe was eager to get Russia's help on the return of the Northern Islands so Japan did not join in the sanctions.  This time around there are some nominal sanctions.

[jaichind]

With sanctions not hitting Russian exports of raw materials and being paid for it, Russian gas started to flow again into Europe, some via Ukraine.  Gas prices fell 20% on this supply surge.  Russian equities up 12%.  Gas still way up from a few days ago and Russian equities still way down from a few days ago but the trend has reversed.

[jaichind]

It seems Olaf Scholz indicated he cannot support cutting Russia off from SWIFT.

The SPD is worthless. Completely in Putin's pocket. If they are the ones frustrating a coherent and robust Western or European response, that should have consequences for the way we view the Scholz govt.

CDU would have done the same.  Shutting down SWIFT and Russia imports would have triggered an economic crisis in Germany.

[jaichind]

oh no, we can't have that!  Germans are a soft, weak people who aren't known for their business acumen.  The world must protect the German economy!  If a few tens of thousands of Ukrainians must die, well that's a small price to pay to keep the German economy ticking smoothly.

I think is less about Germans being "weak" versus Ukraine is not a core issue for Germany.  Russia will get hit badly on the medium run by these sanctions yet Russian elites are behind their course of action.  The reason why is because they view Ukraine as part of their core national interests.  Swap out Ukraine for New Zealand and Putin did the same thing he would be soon put in the nuthouse by his followers.

This is why I have always been for the Great Power sphere-of-influences approach for international Great Power competitions.  Here I am 100% aligned with Putin in terms of what the international political model should look like. There should be a concert of Great Powers that make clear to each other what their core interets are and what they are not.  There will still be competition and conflict but the payoff matrix is clear to everyone.

Clearly, I do not approve of what Putin did.  He basically retroactively drew some red lines and claim that NATO and Ukraine crossed them.  It is clear he wanted to do this back in 2014 and was too weak to do so and think he is strong enough today to do it.  He should have at least given an ultimatum with a due day so all parties can negotiate with Russia knowing what is at stake and the consequences.  Putin kept on saying he will not invade and then claim his opponents cross a retroactively constructed red line and attacked.  He is not really obeying his own principles which I do agree with.

[jaichind]

Due to very low gas reserves in Europe and shutting down for a day of any Russian gas exports the act of turning on the gas again to Europe to make up for the shortfall PLUS build up extra reserves meant the capacity utilization of gas pipes reached an unprecedented level especially, ironically, for the gas pipes from Russia through Ukraine.  

Ukraine kept on talking about more sanctions on Russia.  They can do their own sanction.  Just blow up those gas pipes and Russia's ability to export to Europe and get paid for it will be dealt a severe blow.  Of course, the reason they do not is they need the money.  So it is not just the Germans that care about money.  So does Ukraine even though they are getting invaded.

[jaichind]

There was a call between PRC's Xi and Putin.  It is not clear what took place.  It seems Xi pushed Putin to open talks with Ukraine.  I assume Putin most likely responded "Da, as soon as the special operation is over we will start talks"

[jaichind]

Indian sources say that Russia says it expects support from India at the UNSC as the body takes up the matter of Ukraine. Yesterday night Putin spoke to Modi in a call organized by the Russians to explain Russia’s reasoning behind the attack.   Not clear if India will act the way Russia expects.

[jaichind]

Russian defense ministry claims that Russian forces now control  Hostomel airport.  They also claim they cut off Kyiv from the West.

[jaichind]

PRC sources say that Putin indicated to PRC's Xi that Russia is ready for talks with Ukraine.  Most likely this is in response to Xi pressure that Russia open such talks.

[jaichind]

Russian defense ministry talking points about ensuring that civilians are not hurt in their attacks reads just like the USA talking points back in 2003 Iraq about the care they are taking to ensure Iraqi civilians are not harmed.  Both are equally farcical.