Ad Hoc Commentary – European economic suicide via sanctions on Russia

“…German Chancellor Angela Merkel said the European Union will press ahead with tougher sanctions against Russia as evidence mounts that President Vladimir Putin is behind “attacks” on Ukraine…”

Who are businesses in Europe supposed to sell their wares to? Not to their European friends because they are hobbled in austerity. Not to their Russian friends because they are blockaded by fresh economic sanctions. Perhaps European businesses will start making unicorns to sell it to the Chinese – after all, Italian cars and French bags are all the rage here. No harm trying to push German unicorns to the Chinese?

Economic sanctions are the modern day version of laying siege on a city. The main weapon during siege is time. The problem with Berlin laying siege on Moscow is that time is not in Berlin’s favor. Europe is mired in a sovereign debt crisis which by virtue of compound interest increases the debt burden exponentially with time. The debt burden is manifesting itself as rising unemployment and slowing to negative GDP growth. The last thing Europe needs is more austerity in the form of sanctions.

The problem today is Russia thinks she lost the Cold War and Putin, being a product of the Cold War, is trying to win the Cold War of yesterday. Those who read books written by Anatoliy Golitsyn, an ex-KGB, will probably come to the conclusion that perhaps Golitsyn was right after all. The fall of USSR was just a calculated move: a pragmatic move in the long-term horizon to prepare for the day they will eventually strike. Western democracies are ill-prepared for such long-term strategy because democracies are inherently myopic. Yours truly is reminded of the Maserati 2014 Superbowl Commercial:

“…The world is full of giants.
They have always been here, lumbering in the schoolyards, limping through the alleys.
We had to learn how to deal with them, how to overcome them.
We were small but fast, remember?
We were like a wind appearing out of nowhere.
We knew that being clever was more important than being the biggest kid in the neighborhood.
As long as we keep our heads down, as long as we work hard,
trust what we feel in our guts, our hearts,
Then we’re ready.
We wait until they get sleepy,
wait until they get so big they can barely move,
and then walk out of the shadows,
quietly walk out of the dark—and Strike…”

If you have not watched the commercial, you might want kindle your love for Italian cars at:

As we noted in the past, the Ukraine conflict will flare out again. But Putin was one month early:
“…Yours truly does not expect any less from the master strategist Putin, and expect Putin to move only in October 2014 earliest. John Kerry will likely find his initiative to ease conflict in Ukraine to be met with a short term Pyrrhic victory for America…”

Despite Merkel calling this a “conflict between Russia and Ukraine”, it is more a proxy war between Russia and USA with the Europeans stuck in the middle. Merkel probably does not want anything to do with it because her economy is fragile. However, as long as Obama belittles Russia as a “regional power” and Putin rightly believes that he is larger than that, then there will be no solution except a split into East Ukraine for Russia, and West Ukraine for the West. The only thing worth buying in the coming months is the US dollar. The US dollar will reign strong during times of geopolitical upheavals until the time when US military is defeated – the weakest link being the US southern command:
“…As the lowest priority Geographic Combatant Command, U.S. Southern Command will likely receive little, if any, “trickle down” of restored funding…”

Good luck in the markets.