by Ivan Martchev

February 15, 2022

The intraday rally in Treasury bonds on Friday was impressive – seemingly based on news that the timeline for a Russian invasion of Ukraine was being pulled forward. The Ukrainian situation has been slowly deteriorating since 2014, with the annexation of Crimea and, according to the White House, Vladimir Putin has made the calculation that now is the time to finish what he started eight years ago.

Crimea has never been a Ukrainian territory over the centuries, in the sense that it was merely folded into the Ukrainian SSR away from the Russian SSR in an administrative reform of the Soviet Union in 1953 after Stalin’s death. Suffice to say that if the Russians had any idea in 1953 that the Soviet Union could disintegrate, they never would have carried out that administrative reform. The seizure of Crimea in 2014 was the countermove to what the Russians perceive as a coup d’etat by Ukrainian President Yanukovych in late 2013 and the beginning of the domino effect that is leading to any upcoming Ukrainian invasion.

Russian Empire 1914

Roman Empire Text 1914

The issue is that the Russians feel threatened by NATO expansion on their borders. They perceive it as a long-term threat that has not been appropriately dealt with. It is unacceptable to the Kremlin that the West is encroaching on their sphere of influence, which can loosely be characterized as their old Soviet borders.

Parallels with the expanding Roman Republic on the territories of the Carthaginian Empire come to mind:

Carthage 264BC

Battles over Rome’s borders resulted in three wars in 100 years and destruction of the Carthaginian civilization. Sicily was Carthaginian territory for hundreds of years with many Phoenicians living there other than the Eastern tip, which belonged to the Greeks of Syracuse. It must have been hard for citizens of Carthage to see Sicily as Roman territory given that Phoenicians still lived there after the First Punic War.

Carthage 150BC

If push comes to shove, Putin will invade if he perceives this is the only way to protect Russia’s long-term security concerns. According to the White House, the invasion will likely happen this week. I don’t think the Russian Federation, with its military capabilities, will end up like Carthage, but the motivation, from their perspective, surely comes from three decades of encroachment on their sphere of influence.

The Russian Federation today is a direct result of the expansion of the Russian empire eastward by Ivan the Terrible (Tsar of Russia, 1547 to 1584). Regrettably, the name “Ivan the Terrible” in English has been terribly butchered. In the Russian language, the word for “Terrible” actually means “Ivan the Fearsome,” which clearly has a very different connotation. After the Russian Empire became the Soviet Union, it then disintegrated in 1991 into many countries with Ukraine and Belarus being closest to the Russian ethnicity.

Today, nearly half the population of Ukraine (those in the southeast) consider themselves to be Russian, not Ukrainian. The Russian Federation has 22 autonomous republics and many more ethnicities with their own languages. Further erosion of the Russian Federation territory is clearly unacceptable to the Kremlin, and it appears they would like to reintegrate Belarus (amicably) and Ukraine (less so) back into the fold.

I don’t think this will turn into World War III, as there are no plans for the West to send a coalition of troops to Ukraine – as the Kremlin likes to bundle the U.S., the UK, and the EU together as “the West.” On the other hand, the economic repercussions can get really problematic, as President Biden has threatened cutting off Russian banks from SWIFT, but Europe needs Russian gas in the middle of the winter and if the Russians are not being paid they can surely turn it off. This gives them a lot of leverage.

I think that China will back Russia 100% on Ukraine, as the Chinese foreign minister has already called Washington before the start of the Winter Olympics to discuss Russia’s “legitimate security concerns.”

This is a quid pro quo situation for the coming Russian support for China’s likely invasion of Taiwan, which I believe will come while President Biden is in office. Last year, Russia’s foreign minister said: “Russia, like the overwhelming majority of other countries, considers Taiwan to be part of the People’s Republic of China. We have proceeded and will proceed from this premise in our foreign policy” (“Russia Says Taiwan is Part of China as Two Powers Further Align Against U.S.,” Newsweek, October 12, 2021)

All of this drama, if it does not escalate militarily for more than a week, should not pressure the stock market past the initial invasion, which based on the 2014 Crimean and 2008 Georgian campaigns of the Russian military, is likely to be well planned and should be over pretty quickly. In response, how long can the West afford to cut off Russian banks from SWIFT, as this can turn into a major economic problem for the European Union? Any escalation of economic sanctions can push the EU into a recession.

US Natural Gas Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In the middle of this mess, it is hard to see the Federal Reserve being more aggressive if the economic repercussions from an invasion cause a recession in Europe and a spike in the price of oil and European natural gas. European natural gas is significantly more expensive than U.S. natural gas due to the botched decarbonization of the EU, which was not well-planned. There wasn’t enough wind for electric wind farms last year, but that alone is not the reason why natural gas was spiking the way it did in Europe.

All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Geopolitics Can Override the Fed – At Least for A While

Sector Spotlight by Jason Bodner
Is It News – Or Just Noise?

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Read Past Issues Here

About The Author

Ivan Martchev

Ivan Martchev is an investment strategist with Navellier.  Previously, Ivan served as editorial director at InvestorPlace Media. Ivan was editor of Louis Rukeyser’s Mutual Funds and associate editor of Personal Finance. Ivan is also co-author of The Silk Road to Riches (Financial Times Press). The book provided analysis of geopolitical issues and investment strategy in natural resources and emerging markets with an emphasis on Asia. The book also correctly predicted the collapse in the U.S. real estate market, the rise of precious metals, and the resulting increased investor interest in emerging markets. Ivan’s commentaries have been published by MSNBC, The Motley Fool, MarketWatch, and others. All content of “Global Mail” represents the opinion of Ivan Martchev

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