Month: February 2022

By Eric Peters, CIO of One River Asset Management

Red Buttons: Russia has 6,255 nuclear weapons, followed by the US with 5,500. China has 350, France 290, the UK 225. Pakistan has 165 warheads to defend itself from India, with 156. Israel is estimated to have 90 nukes. North Korea is believed to have enough fuel to build 40-50 nukes. Iran is headed there too. We detonated Little Boy over Hiroshima in 1945 and killed 150,000. It had the force of 15,000 tons of TNT. The average nuke today contains the force of 100,000 tons. Many are far larger. One such weapon dropped on New York City would kill an untold number.

Fat Fingers: Vladimir Putin controls Russia’s arsenal. Biden is America’s commander-in-chief. Xi Jinping rules over China, potentially for life. There’s Macron of course. Boris Johnson too. Imran Khan is Pakistan’s Prime Minister, although Arif Alvi is its President and commander-in-chief. Modi is India’s Prime Minister and regularly engages in petty skirmishes with two nuclear-armed neighbors. Naftali Bennett is Israel’s PM. Kim Jong-un leads North Korea with ten stubby fingers. And who could forget Ali Khamenei, Supreme Leader of Iran for life.

Lonely: One thing uniting humanity is the belief that the majority of earth’s 14,000 nuclear weapons are controlled by men who are mentally unstable and unfit to wield such awesome power. Some of us believe 100% of these weapons are controlled by such people. Barely a person on the planet would choose a nuclear war, yet we created a system that empowers others to do just that, on a moment’s notice. An alien would likely observe that such a concentration of power is a gross failure of any species. Perhaps it’s a stage of development that few, if any, advance beyond. Maybe that’s why we have not been visited.

Inevitable: Absolute power corrupts absolutely. But not all power is absolute. So we observe gradations of corruption, usually corresponding to the degree to which power is concentrated. The Catholic Church is reluctantly confronting its decades of unforgivable sin, buried beneath bureaucracy. Whole industries have done the same. Big tobacco. The Sackler’s Purdue Pharma opioid epidemic. And corruption is contagious. So those nations that fight against it and honor the rule of law outperform others. But even in such societies, the battle is never won. We have come to accept that there is no better system. But nothing in human affairs is inevitable.

Impermanence: Money is central to all modern human activity, yet it is an illusion. Central banks operate with governments to distort its value at will. The concentration of their power is as breathtaking as it is difficult for the citizenry to comprehend. While it is generally wielded with the best intentions, the impact on us all are profound. Since Lehman failed, global central banks have purchased $23.3trln of financial assets, lifting to new highs the fortunes of those who already had wealth, so that US private sector financial assets are now 6.3x GDP (up from 2.8x in the early 1980s). Such a societal choice was never put to a vote. And this system, like all systems we have created, is surely impermanent.

Anecdote: “The world as we have created it is a process of our thinking — it cannot be changed without changing our thinking,” wrote Einstein. Like much of his work, it contains many layers. And as with all things profound, the observation is timeless. Einstein helps us understand how we can have such deeply divided nations. They are in fact different realities, created by their respective inhabitants, as vivid to one group as the other. Only by opening our minds and changing our thinking can we connect the two.

But Einstein also challenges us to examine our collective beliefs. One assumed truism is that the world must operate with centralized power structures. Tribes, kingdoms, empires, nation-states; we experimented with them all. And armies, religions, universities, corporations, financial exchanges, central banks. Atop each sits a King or Queen, President or Pope, choose your title, the function holds. Naturally, we have various methods of selecting leaders, and ways to empower or restrain them.

We’ve also explored a variety of structures to distribute economic output. Feudalism, capitalism, socialism, communism. Some believe passionately in one or the other, but we all accept the broad structure because we assume the world cannot operate at scale without a central authority, a clearinghouse to mediate our disputes, set our standards, define domestic laws, international too. And enforce them. It is hard to imagine a world without centralized authority.

But for the first time in human history, a new technology allows us to build decentralized accounting systems we can all trust. This is a stunning breakthrough upon which entirely new governance systems can be built. Bitcoin was the pioneer. Its success has spawned countless new applications, some more decentralized than others. The innovation has barely just begun and now attracts the brightest young minds across the world, allowing them to think about new, more inclusive ways to organize. Venture capital has followed. Speculators. The frenzy itself is breathtaking.

And when we look back, 100-years hence, we will surely see this as the period when we began a great transition, even if today, we cannot yet quite imagine the world we will have created. 

Sanctions under discussion by the European Union would hit some of Russia’s wealthiest tycoons, along with top officials in state companies and the media, in an escalation of penalties against the invasion of Ukraine, according to documents seen by Bloomberg.

While European governments will still need to approve the list, which could still change before they take effect, a handful of billionaires are on the radar who avoided US sanctions – including metals tycoon Alisher Usmanov, Alfa Group owners Mikhail Fridman and Petr Aven, plus Alexei Mordashov, who controls a major steel company.

Putin spox Dmitry Peskov and state-media figures accused by the EU of spreading disinformation are also on the list, as is cellist and longtime Putin friend Sergei Roldugin.

The EU is also looking to include executives at top state companies, as well as military and security officials, many of whom have already been sanctioned by the U.S. in recent years. The proposed list includes Igor Sechin, chief executive officer of oil company Rosneft, and Nikolay Tokarev, CEO of oil company Transneft. -Bloomberg

According to EU diplomat Josep Borrell, “we have agreed to increase the peoples and entities that are going to be subject to restrictive measures, the full list will be finished” at a EU ambassador meeting.

“This includes Russian oligarchs and businessmen whose listing carries huge economic impact and political figures who hold key role in the Putin system in Russia,” he added.

Bloomberg notes that while the US isn’t announcing any further sanctions at this time, ‘no Russian oligarch or family members are safe.’

On Saturday, Western allies agreed to block “selected” Russian banks from the SWIFT payments system, and impose restrictions on the Russian central bank – a move which was coordinated with the United States and the UK.

The EU also announced on Sunday that the bloc would ban Russian state-backed media outlets, Sputnik and RT, and block Russian aircraft from its airspace.

Submitted by QTR’s Fringe Finance

On my latest podcast, I had a chance to try and channel some intellectual horsepower in a fruitless attempt to keep up with Epsilon Theory’s Ben Hunt about a wide range of topics, not the least of which was Russia’s recent invasion of Ukraine.

Ben shed a light on topics from an angle I would have never considered and, quite frankly, took me way out of my box and opened my eyes to a new way of thinking about investing. We talked about the Fed, rate hikes, the idea of narratives and faith driving investing and bitcoin.

I had just read Ben’s 2021 piece called “In Praise of Bitcoin” and so, first, we talked about bitcoin and how, when Russia attacked Ukraine, it acted more like a risk asset than a store of value.

Bitcoin is “not money”, Ben says – but the bitcoin project is “fantastic”.

It has been “not just corrupted, but it’s been transformed by Wall Street and it’s been neutered by Washington. It has become another table in the Wall Street casino.”

“But I think there is enormous value in the inspiration that bitcoin provides,” he continued. “But it’s not what most of us hoped would be the promise of bitcoin”.

We also talk about the precarious position the Fed is in and how the markets will respond to the new geopolitical conflict. Personally, I told my subscribers on the night of Putin’s invasion that my game plan was to sell of some of my exposure to oil, gold and index shorts, in order to nibble at a potential M&A target I like, a retail name that I think is too cheap to ignore and two “falling knives” I continue to catch as they move lower.

I also still think it’s a great time to look at one sector I think is primed for M&A, several ETFs that I think can reduce risk and a little noticed sector I think could catch a bid as part of the “wartime” trade.

Ben told me he thought that over the long term, markets would recover.

“I think it’s long term precarious, but short term not so,” Ben says.

“What I mean by that is every time for the last 20 years I thought that political risk was going to damage markets, I’ve been completely wrong.”

“Frankly, I don’t think what’s happening in Ukraine is much different than that,” he continues.

“I think this ends up being pretty much a nothingburger for markets. The White House has to show some progress on inflation if they want any chance at the mid-term elections.”

“I don’t think what’s happening in Ukraine will deter the Fed from hiking rates,” he continues.

“Monetary policy is a barge, and whatever’s happening in Ukraine isn’t enough to turn that barge around.”

We also discussed the game theory and the market psychology of whether or not the market has already priced in the Russian invasion of Ukraine, as I wrote about days ago.

Moving on to inflation, I asked about whether or not the Fed has the spine to hike in these conditions.

“This is what I do, I research narratives,” Ben said.

“There’s a very strong narrative right now that allows the Fed to raise rates. So that’s what the Fed is going to do. Is it 5 hikes, is it 8 hikes? I don’t know. But the narrative today is so incredibly different than this time last year – when we were arguing about ‘transitory’ – that uncertainty, that narrative question, has been answered.”

“Everyone knows that everyone knows that the Fed is going to hike. Which means when they do hike, it won’t affect markets,” he continues.

We also talked about ARK’s Cathie Wood, and what the future holds for the asset manager. I wrote on Friday about ARKK, and some of the ETFs components that I found myself examining at these prices.

Questions about Cathie Wood led Ben to talk about the “two great faiths” of investing.

“There will always be a home and an audience for Cathie Wood,” Ben says, referring to her “faith” in the growth narrative.

“So much changed for me when I started thinking about these two schools of investing (growth and value) as religions. They each have their own languages,” Ben continued.

Finally, you can listen to the full interview here:

Also read:

• Bitcoin: One Hubris-Laden Interview Closer To A Day Of Reckoning

• Bitcoin Crashes 20% Overnight, Further Proving Crypto Is A Risk Asset

• Modern Monetary Theory Will Destroy The United States

• Inflation Is The Kryptonite That Will End Our Decades-Long Monetary Policy Ponzi Scheme

The aviation community has lost the world’s largest air freighter after Russian forces destroyed it while commandeering an airport outside of the Ukrainian capital, according to reports. 

Antonov Airport (also known as Hostomel) is an international cargo airport and testing facility in Ukraine, located in the northwestern suburb of Kyiv. The airport was seized this weekend by Russian forces, and in the process, the AN-225, the world’s largest operating aircraft, was severely damaged. 

Ukraine’s foreign minister tweeted Sunday that “Russia may have destroyed” the AN-225, “but they will never be able to destroy our dream of a strong, free, and democratic European state. We shall prevail!”

This was the world’s largest aircraft, AN-225 ‘Mriya’ (‘Dream’ in Ukrainian). Russia may have destroyed our ‘Mriya’. But they will never be able to destroy our dream of a strong, free and democratic European state. We shall prevail! pic.twitter.com/TdnBFlj3N8

— Dmytro Kuleba (@DmytroKuleba) February 27, 2022

Ukraine’s official Twitter account confirms the plane was “destroyed by Russian occupants on an airfield near Kyiv. We will rebuild the plane. We will fulfill our dream of a strong, free, and democratic Ukraine.”

The biggest plane in the world “Mriya” (The Dream) was destroyed by Russian occupants on an airfield near Kyiv. We will rebuild the plane. We will fulfill our dream of a strong, free, and democratic Ukraine. pic.twitter.com/Gy6DN8E1VR

— Ukraine / Україна (@Ukraine) February 27, 2022

Ukrainian state arms manufacturer Ukroboronprom also confirmed in a Facebook post, “Russian invaders destroyed the legendary An-225.” They explained the plane’s “restoration will cost more than $3 billion and will take a long time.” 

Here are alleged images of the destroyed AN-225, many of which were posted on Twitter. 

Some reports saying that AN225 was destroyed pic.twitter.com/5Jswr0Uocg

— Galo 🇪🇸 💙💛 (@gvspotter) February 27, 2022

AN225 RIP pic.twitter.com/ThAgBRh2PZ

— ZOKA (@200_zoka) February 27, 2022

It looks like world’s largest cargo aircraft An-225 has been destroyed, Hope It’s not true but you can see something that resembles wings in the burning Hangar pic.twitter.com/DBzeFOgVKM

— Fighterman_FFRC (@Fighterman_FFRC) February 27, 2022

Ukroboronprom explains the plane was “under repair” during the Russian invasion, “so it did not have time to fly out of Ukraine.” 

Authored by Cailtin Johnstone via Medium.com,

Chris Hedges introduces his latest article for Scheer Post, titled “Chronicle of a War Foretold”, with the following:

“After the fall of the Soviet Union, there was a near universal understanding among political leaders that NATO expansion would be a foolish provocation against Russia. How naive we were to think the military-industrial complex would allow such sanity to prevail.”

Imperial narrative managers have been falling all over themselves working to dismiss and discredit the abundantly evidenced idea that Russia’s invasion of Ukraine was due largely to Moscow’s fear of NATO expansion and the refusal of Washington and Kyiv to solidify a policy that Ukraine would not be added to the alliance.

Take Michael McFaul, the mass media’s go-to pundit on all things Russia:

Putin’s horrific invasion of Ukraine has NOTHING to do with NATO expansion! Stop please.

Or read the details: https://t.co/YHXPvoL2Xc via @JoDemocracy

— Michael McFaul (@McFaul) February 24, 2022

Or New Jersey Congressman Tom Malinowski:

Rep. @Malinowski: “The mask is totally off of Putin. In case anyone had any doubts, this is nothing to do with NATO expansion. It has everything to do with his belief that Ukraine has no right to exist. The very existence of Ukraine is offensive to him.” pic.twitter.com/i0VS3ChMHG

— The Hill (@thehill) February 23, 2022

Or Just Security editor Ryan Goodman:

If you think the #RussiaInvasion has much to do with NATO enlargement, this analysis provides many fact-based reasons to think again.

Thanks to great experts on the topic: @PopovaProf and @OxanaShevel#Ukrainehttps://t.co/M0UpxzgKC7

— Ryan Goodman (@rgoodlaw) February 24, 2022

It makes sense that they would have to do this. After all, if westerners were to get it into their heads that this whole terrible war could have been avoided by simply solidifying a policy of neutrality for Ukraine and issuing a guarantee that it would never be added to NATO, they would begin asking why this did not happen. NATO powers had no interest in adding Ukraine to the alliance anyway, so it doesn’t really make sense to refuse to make such low-cost concessions if the only alternative is mass military slaughter. I mean, unless your goal was to provoke mass military slaughter to advance your own geostrategic objectives.

So they work hard to present the narrative that the invasion has nothing to do with NATO at all, and occurred solely because Putin is an evil madman who hates freedom and wants to destroy democracy. Most western analysis goes no deeper than this:

Why would Putin want to invade Ukraine?
Because he wants democracy to fail, and not just in Ukraine https://t.co/ome1TZMvn0

— Anne Applebaum (@anneapplebaum) February 11, 2022

But these herculean propaganda efforts have one pretty significant plot hole: if the attack on Ukraine has nothing to do with NATO expansion, then how come so many western experts have spent years warning that NATO expansion will lead to an attack on Ukraine?

Check out this 2015 video clip by John Mearsheimer, for example:

Best advice to solve the Russia-Ukraine Conflict was given by John J. Mearsheimer in 2015 which nobody listened.

“The West is leading Ukraine down the primrose path and the end result is that Ukraine is going to get wrecked.”#RussiaUkraineCrisis pic.twitter.com/kcRnuhncfu

— Buddhi (@buddhimedia) February 24, 2022

Or this one by the late great Stephen F Cohen back in 2010:

The late historian Stephen Cohen in 2010: “There has been a tremendous expansion of America’s sphere of influence since the mid-1990s…with all the while, every American administration saying to Russia…‘You cannot have a sphere of influence because that’s the old thinking.’” pic.twitter.com/99vw2SlW0N

— Human Rights Watch Watcher (@queeralamode) February 22, 2022

Or this excerpt from a summary by The Nation of points made by Cohen in a 2017 dialogue with John Batchelor titled “Have 20 Years of NATO Expansion Made Anyone Safer?”:

NATO promises that Georgia might one day become a member state was an underlying cause of the Georgian-Russian war of 2008, in effect a US-Russian proxy war. The result was the near ruination of Georgia. NATO remains active in Georgia today.

Similar NATO overtures to Ukraine also underlay the crisis in that country in 2014, which resulted in Russia’s annexation of Crimea, the still ongoing Ukrainian civil war in Donbass, and in effect another US-Russian proxy war. Meanwhile, US-backed Kiev remains in profound economic and political crisis, and Ukraine fraught with the possibility of a direct American-Russian military conflict.

Or this from Stephen M Walt in 2015:

Today, those who want to arm Ukraine are demanding that Russia cease all of its activities in Ukraine, withdraw from Crimea, and let Ukraine join the EU and/or NATO if it wants and if it meets the membership requirements. In other words, they expect Moscow to abandon its own interests in Ukraine, full stop. It would be wonderful if Western diplomacy could pull off this miracle, but how likely is it? Given Russia’s history, its proximity to Ukraine, and its long-term security concerns, it is hard to imagine Putin capitulating to our demands without a long and costly struggle that will do enormous additional damage to Ukraine.

…

The solution to this crisis is for the United States and its allies to abandon the dangerous and unnecessary goal of endless NATO expansion and do whatever it takes to convince Russia that we want Ukraine to be a neutral buffer state in perpetuity. We should then work with Russia, the EU, and the IMF to develop an economic program that puts that unfortunate country back on its feet.

Or this from George Kennan right after the US Senate approved NATO expansion all the way back in 1998:

“I think it is the beginning of a new cold war. I think the Russians will gradually react quite adversely and it will affect their policies. I think it is a tragic mistake. There was no reason for this whatsoever. No one was threatening anybody else. This expansion would make the founding fathers of this country turn over in their graves… Of course there is going to be a bad reaction from Russia, and then [the NATO expanders] will say that we always told you that is how the Russians are — but this is just wrong.”

Or how about now-CIA Director William Burns’s 2008 memo to then-Secretary of State Condoleezza Rice:

“Ukrainian entry into NATO is the brightest of all redlines for the Russian elite (not just Putin). In more than two and a half years of conversations with key Russian players, from knuckle-draggers in the dark recesses of the Kremlin to Putin’s sharpest liberal critics, I have yet to find anyone who views Ukraine in NATO as anything other than a direct challenge to Russian interests.”

Or what the last US ambassador to the USSR Jack Matlock recently wrote about the Ukraine conflict, calling it “an avoidable crisis that was predictable, actually predicted, willfully precipitated, but easily resolved by the application of common sense”:

In 1997, when the question of adding more members to the North Atlantic Treaty Organization (NATO), I was asked to testify before the Senate Foreign Relations Committee. In my introductory remarks, I made the following statement: “I consider the Administration’s recommendation to take new members into NATO at this time misguided. If it should be approved by the United States Senate, it may well go down in history as the most profound strategic blunder made since the end of the Cold War. Far from improving the security of the United States, its Allies, and the nations that wish to enter the Alliance, it could well encourage a chain of events that could produce the most serious security threat to this nation since the Soviet Union collapsed.”

So many people who’ve worked hard to gain an understanding of the Russian government have been warning for years that NATO expansionism would lead to a disastrous conflict, strongly emphasising Ukraine as a powderkeg where that conflict could ignite. Yet we’re being asked to believe that what we’re seeing in Ukraine has nothing whatsoever to do with NATO expansion and is due rather to Vladimir Putin simply being a mean jerk who wants to ruin everything.

The aforementioned Michael McFaul even goes so far as to pretend this thing we were warned about for decades was never anything anyone ever mentioned until the end of last year:

Why were not thinking/debating/writing/tweeting about NATO expansion in 2009? 2010? 2011? 2012? 2013? 2014? 2015? 2016? 2017? 2018? 2019? 2020? Why are you now? Something change in Brussels? No. Putin massed his army on Ukraine’s border and invented this “NATO expansion” crisis.

— Michael McFaul (@McFaul) February 9, 2022

Imperial spinmeisters have even gone so far as to deceitfully claim Putin makes no mention of NATO in a speech about intervening in Ukraine and citing that as evidence that he’s just a land-grabbing Hitler-like monster, hoping no one would fact check them:

And after everything, this Putin speech has nothing to do with NATO and everything to do with challenging Ukraine’s legitimacy as a state.

— Isabelle Khurshudyan (@ikhurshudyan) February 21, 2022

When he most certainly did:

And after everything, this Putin speech has nothing to do with NATO and everything to do with challenging Ukraine’s legitimacy as a state.

— Isabelle Khurshudyan (@ikhurshudyan) February 21, 2022

And continues to:

I’ve seen numerous pundit-hawks point to Putin’s speech today as the definitive evidence that all of this is about imperial ambitions and has nothing to do with NATO…even though Putin again specifically mentions NATO expansion in the speech. Dishonesty or laziness? pic.twitter.com/57Nwlpu2qu

— Branko Marcetic (@BMarchetich) February 22, 2022

So I dunno, if experts have been warning for many years that NATO expansion would provoke an attack, and the guy launching the attack is explicitly citing NATO expansion as a driving motive for his actions, it seems like maybe it’s sorta kinda got something to do with NATO expansion.

Kremlin issues 2 demands to Ukraine:
1)Per Minsk2 agreement, disarm
2)Remain neutral; no joining #NATO
No demands for #VolodymyrZelensky to step down. No demand for #ukraine to join Russian Federation. #Putin says incursion can end now if terms are met. #BREAKING #news #Russia

— Manila Chan (@ManilaChan) February 24, 2022

Which would be great news, because it would mean that the US and its allies actually have a lot more power to end this war than they’ve been letting on, and no good reason not to do so immediately.

*  *  *

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Submitted by The Machine Gun Nest (TMGN).,

There has been a media frenzy over Ukraine. Strangely enough, missing from the coverage of the war in Ukraine is that Ukraine recognized the importance of an armed population.

Ukraine has recognized this importance, so much so that they recently just issued 10,000 automatic rifles to the civilian population. All anyone needs to do is receive one is show their ID.

This is a huge development that has largely been (unsurprisingly) ignored by the corporate media. We know the reason why; the Ukrainians are about to demonstrate to the world why the founding fathers of the United States enshrined the right to keep and bear arms in the constitution, right after the right to speak freely, no less.

On Wednesday, the Ukrainian parliament passed “Law #5708 on the Right to Civilian Firearms”. A spokesperson for the Ukrainian government was very clear about the purpose, saying: “This bill is to ensure that every citizen receives the sacred right to self-defense.”

So why is it that this movement to expand gun rights has been largely ignored by the media?

Well, to acknowledge the importance of an armed citizenry would be to recognize that the anti-gun movement is built on lies. The same people that have told American gun owners that their AR15s would be “useless” against a government armed with nuclear weapons and F-15 Jets would have to explain why ACTUAL “weapons of war” (not semi-automatic sporting rifles like the AR15) are being given out to citizens to fight off a tyrannical invader. According to reports from Interior Minister Denys Monastyrsky, as of Feb 26th, 2022, over 25,000 automatic rifles, 10 million bullets, and an unknown number of RPGs have been given to civilians.

In a piece by the NYPost, a Ukrainian lawyer turned fighter is quoted as saying: “We always look at the Second Amendment of the US Constitution. It is not just about self-protection but the protection of freedom and independence. We Ukrainians really show this meaning of the Second Amendment.”

It’s no surprise that Ukrainians understand the importance of the right to bear arms, considering they’ve been at war with Russia since 2014 when Russia annexed the Crimean peninsula.

The real irony of the situation, though, is those same liberals who are staunchly anti-gun are warming to the Ukrainians in their struggle against Russia. In these two tweets, cognitive dissonance is on full display less than 21 days apart.

BREAKING: Ukraine’s Interior Minister announces that 10,000 automatic rifles have been handed out to the civilians of Kyiv as they prepare to fight tooth and nail to defend their homes against Putin’s invasion. RT IF YOU STAND WITH THE BRAVE UKRAINIAN PEOPLE!

— Occupy Democrats (@OccupyDemocrats) February 24, 2022

… and then there’s this. 

If you’re a Democrat who agrees with Joe Biden that we should ban assault weapons like the AR-15 because the 2nd Amendment isn’t absolute because “you couldn’t buy a cannon” when it was passed — please RT & follow us for more breaking news!

— Occupy Democrats (@OccupyDemocrats) February 3, 2022

The same hypocrisy is on display with PM of Canada Justin Trudeau, who used the Emergencies Act just a few days ago to send heavily armed police to clear Ottawa of the Canadian Truckers who were protesting vaccine mandates and freezing the bank accounts of Canadians and others who supported them.

The Canadian Civil Liberties Association condemned Trudeau for invoking the National Emergency over a peaceful protest.

After being condemned for abusing his power, Trudeau spoke out against Authoritarianism and in support of Ukraine.

Russia’s actions are an affront to the democratic principles that generations of Canadians have fought to protect. We must make sure the Ukrainian people – like all people – are free to determine their own future, and we must stand firmly against authoritarianism. pic.twitter.com/BhVIJvAj2I

— Justin Trudeau (@JustinTrudeau) February 25, 2022

Regardless of the hypocrisy on display, the Ukraine situation certainly demonstrates the importance of an armed population ready to defend their homeland. Anti-gun activists should note that when push comes to shove, even the government agrees; citizens should be armed.

As the Western world still obsesses with how Russia’s expulsion from SWIFT will impact the Russian economy, commodity prices and the global funding markets, a quick note on how forward looking markets are reacting.

While we wait for US cash markets to open (as futures reverse a modest bounce and trade at session lows), China’s micromanaged “market” is already up and running in what so far appears a boring session where the SHCOMP is flat, but where shares tied to China’s Cross-Border Inter-Bank Payments System (CIPS) are surging after Saturday’s decision by Western nations to exclude some Russian lenders from the SWIFT messaging system. Why? Because of what Bloomberg notes is growing speculation that China’s CIPS could become an alternative for those banks.

What is CIPS? It is a payment system which offers clearing and settlement services for its participants in cross-border yuan trades. Indeed, it is a Chinese version of SWIFT, and one which most Russian banks will likely soon be forced to adopt.

As a result, stocks such as Orient Group, and HyUnion Holding jump by the 10% daily limit..

… while Infosec Technologies and Forms Syntron Information surge by the 20% daily limit.

And since China will quickly brush off any threats of sanctions if it were to accept Russia banks into its orbit, it is now clear that instead of driving a wedge between Russia and the country that is true the biggest US challenger on the global scene, China, the West has succeeded into bringing the two powers even closer together while putting the fate of the world’s reserve currency in jeopardy, as Dylan Grice explained earlier…

never seen weaponization of money on this scale before…you only get to play the card once. china will make it a priority to need no USD before going for Taiwan. it’s a turning point in monetary history: the end of USD hegemony & the acceleration towards a bipolar monetary order

— Dylan Grice (@dylangrice) February 27, 2022

By Larry McDonald, publisher of the Bear Traps Report

When was the last time a geopolitical risk event walked through the door behind a tech crash? George Soros always said “when past excesses are being corrected – it is always a period of maximum risk.”

Going into the Ukraine-Russia tragedy, the ferocious “buy the dip” psychology was already impaired – now the matador just put forth his final sword. The wounded bull has been laid to rest. In the early 2000s, we called it “the other side of the mountain” – use vicious countertrend – short covering rallies to raise cash. We have clearly moved from a BTFD mentality to sell the rallies mode.

A bear has arrived for lunch and unfortunately, he’s staying for dinner.

We have been up all night working the phones. It has been a Lehman weekend – as in a 24-hour scramble to find and calculate the risk – NOT the size of the risk.

The dirty work of going through old positions on bank balance sheets is being done around the clock as we speak. We do know the cost of default protection on French banks has diverged from UK-Asia-centric HSBC meaningfully.

After working at Soc Gen for three years we can tell you, the books on most EU banks are a cobweb of darkness. In 2016, when Glencore was going down, every week we found more and more risk tied to Glencore assets. The truth bled out very slowly.

Italian banks have been very close with Russia as well. The point is, it’s very tough for politicians to “target” SWIFT sanctions into this darkness, very tough. In a loud voice the client said – “Larry – details matter BIGLY – we need to urgently to know exactly what is sanctioned here. They – Olaf – Macron – Biden – will try and dance around risk with a targeted SWIFT but they’re probably not qualified to do so.

They are messing with the plumbing of the global financial system. If they shoot from the hip, there could be large consequences.”

Politicians are reaching in the dark to find risk. If they sanctioned the CBR (central bank of Russia) and the transfer agents for Eurobonds, then Russia will default on all foreign debt immediately. And if Russia tries to find a back door through China – will the USA fine or sanction Chinese banks?

Over the weekend another client said “Germany can play SWIFT tough guy all they want – but Macron has to protect the vulnerable Soc Gen and Draghi is probably trying to ring-fence exposed, Moscow cozy Italian banks like Intesa and UniCredit.”

Lost in the Ukraine tragedy – the Fed ́s favorite inflation measure – core PCE has moved from 3.7% in September to 5.2% in January, and the war-torn invasion only pours lighter fluid on this fire. *SCHOLZ: GERMANY TO SPEND MORE THAN 2% OF GDP YEARLY ON DEFENSE + massive social costs across the EU to off set energy prices as well.

So long to the planet’s global negative yield anchor. We are heading back to a 1967 – 1979 regime. Overweight hard assets, take down financial assets and buckle up.