We don’t have an original point of view on this and you’ve likely come across thousands of good, bad, hot, and freezing cold takes. What we do have is a perspective on the invasion of Ukraine from the Institutional world and our own interpretation of some recent news.
We will take for granted that you are clear on the facts and move to interrogate the impact this conflict has on the world economy and markets.
The Other Nuclear Option: Economic Isolation
Super yachts, global sporting competition, and other severe penalties aimed at both Russia and several of its oligarchs are newsworthy in their own right. But a few sanctions ventured into territory that has been reserved for the most extreme circumstances:
Switzerland announced a break from its tradition of neutrality and enforce EU sanctions.
The US and EU barred most transactions for Russian transaction activity from the SWIFT network.
The US, EU and Japan have also frozen the Russian Central Bank’s foreign reserves, a move that has been almost entirely reserved for armed conflict in the past.
Norges Bank, the world’s largest Sovereign Wealth Fund ($1.3tn), announced it was fully divesting from Russia, and quickly. $2.83 billion in holdings across 47 companies and bonds will be dumped on the market in this process.
The fallout for the Russian economy is unknowable, but it’s almost certainly going to be severe for generations. Will Russian citizens adopt cryptocurrency to maintain purchasing power and asset stability?
Ken Griffin has opined on the impact this might have on the US economy.
From Bitcoin
To sh…. other coins
Blowback
“Blowback” is a term coined by the CIA to explain unintended future consequences of covert actions. In a related sense, economic blowback from the Russian invasion of Ukraine and global retaliation against Russia will have unforeseen consequences almost certainly.
China has announced that it will not take part in Western sanctions against Russia.
“Given close ties between Beijing and Moscow, analysts believe China could provide an alternative by offering to use its own fledgling rival to Swift, called the Cross-Border Interbank Payment System, though the Chinese network has much limited reach.”
Leaders of some Emerging Markets nations are also taking a cautious approach. Brazil has walked the line of endorsing UN Resolutions while criticizing the breadth of sanctions and Jair Bolsonaro has gone so far as to publicly state the the country “will not take sides” in the conflict.
Seizures of private property of Russians (read: megayachts) because they are Russian. Will this make oligarchs feel bad conciliatory about Putin’s action or stoke further resentment & conflict? Secondarily, if government can seize private property of individuals because they hold a citizenship or nationality, is that good??
Us at 25
We’ve been consuming every article and podcast we could get our hands on over the past week. Below are some of the best (in the sense that they are informative and thought-provoking):
Derek Thompson’s podcast, Plain English has become a must-listen. He’s spoken with financial and international conflict experts and produced 3 (so far) must-listen episodes covering everything from Russia’s recent history of incursions and military strategy to the economic precedent of the US and EU’s responses
On the Compound and Friends, Josh Brown, Michael Batnick and Ben Carlson spoke to Ian Bremmer on the conflict. The episode paid equal attention to addressing the severity of the situation and its effect on markets.
NYT’s The Daily has been excellent for both updated information and deeper perspective (see their recent episode on the backstory of EU adoption of sanctions)
We encourage our readers to unplug and spend time just **thinking** in the coming week. The world is a complex place. There is a quote we immediately thought of as the first tanks rolled into Ukraine and the world began to respond: “There are decades where nothing happens; and there are weeks where decades happen.” Then we looked up the source, who is none other than Vladmir Ilyich Lenin. Yikes! Please don’t seize our yachts for including that quote…