This Cold War Warrior Is Siding With Russia
My family is worried.They wonder if I’m losing my mind. They’re having trouble believing that I, a U.S. military veteran of the Cold War, now support Russia’s argument regarding Ukraine. Before you start writing an email calling me a traitor, read that line again. I support Russia’s argument regarding Ukraine. I don’t support an armed invasion. Or the cyberattacks Russia is deploying. But I do support their argument that Ukraine should be barred from membership in NATO. Here’s why…
The map below shows what I mean.
Source: Goldman Sachs
This map shows the current relationship between European countries and the North Atlantic Treaty Organization (NATO).Ukraine is one of the larger non-NATO members in Europe, by landmass. It also shares a border with Russia that extends over 1,400 miles. Russia likely believes that any intervention by external powers in the politics of countries near its borders are a potentially hostile act against Russia.
History Repeats: Russia and the Monroe Doctrine
History buffs will know that last sentence is basically a statement of the Monroe Doctrine. Understanding the Monroe Doctrine puts the current situation in much-needed perspective.In 1823, President James Monroe was worried that European powers were looking to recolonize some Latin American countries. He was also concerned that Russia was eyeing the Pacific Northwest. So, he issued his eponymous doctrine declaring that any intervention by external powers in the politics of the Americas is a potentially hostile act against the U.S. The U.S. has since invoked the Monroe Doctrine to argue against Soviet missile placement in Cuba and to partially justify the Iran-Contra affair. The doctrine still makes sense. Think of it like this… Imagine Russia wanted to sign a defense pact with Mexico. That would put Russian forces very close to the U.S.’s 1,900-mile southern border. It’s reasonable to believe that any U.S. president would object forcefully. Troops would be rushed to the border to try to discourage Mexico from getting closer to Russia. Russia faces that same scenario if Ukraine were to join NATO.
If that happened, NATO membership could mean Ukraine would host military assets of its allies within miles of its Russian border. That’s exactly the kind of thing that spurred the Monroe Doctrine into existence.In a way, Russia is taking the exact same position that President Kennedy argued in the Cuban Missile Crisis. That crisis began to unfold in 1961 when the U.S. deployed missiles into Italy and Turkey, placing tactical American missiles within range of Moscow. In response, the Soviets sent nuclear warheads to Cuba. At the time, these events were met with similar dismay and panic. Thankfully, the hindsight of history offers a framework to end the current crisis. In 1962, both sides stepped back. President Kennedy cut a deal with Soviet Premier Nikita Khrushchev as both leaders realized they could reach a mutually beneficial agreement. Soviet missiles were withdrawn from Cuba while U.S. missiles were removed from Turkey. This created a small degree of safety for each country. Hopefully, both sides can come to an agreement to resolve the current crisis before there is more bloodshed. It’s possible Russia could withdraw and both sides could declare victory. The invasion has demonstrated that Ukraine should not expect military support from NATO and even after a withdrawal, that point would be clear to all. In effect, that could be a victory for both sides. Russia would achieve its goal of preventing NATO expansion while Europe and the U.S. could point to sanctions as the reason for the withdrawal. Regardless, the crisis presents us with a volatile market that we must deal with.
Ignore the News and Trade the Trend
Earlier this week, I posted some charts on Twitter showing how markets looked the last time Russia invaded Ukraine. You can see those here and you don’t need a Twitter account to access that thread. The charts reveal an interesting pattern we often see in times of crisis. As difficult as it is for traders, it is often best to ignore the news and trade the trend. News can accelerate a trend, but rarely reverses it. For example, you may recall that the sell-off after the September 11, 2001 terrorist attack occurred during a bear market that began in the spring of 2000. For now, the trend in stocks is down, and has been for about seven weeks. This indicates we could see a strong move to the downside, but we should be watching for short-term trading opportunities. There are always bounces in every bear market. Regards, Michael Carr, CMT, CFTe Editor, One Trade
Chart of the Day:Russian Twist
Sberbank of Russia, the largest Russian bank, lost as much of 65% of its value overnight as Russia invaded Ukraine.The sell-off equates to over a quarter-trillion dollars in value, wiped out. One of the largest single-day equity losses in history. I don’t have a ton to say about this chart, other than “holy crap.” But there are a few things worth noting. Going off the weekly RSI, this is the most oversold Sberbank has been since the bottom of the crash in 2009. On the MACD, it’s the most oversold ever by a huge margin. As a pure speculation, it’s hard not to look at this chart and think that some kind of bounce and recovery is coming in the weeks to follow. This is about as contrarian as it gets. Tread VERY carefully on this one. Regards, Mike Merson Managing Editor, True Options Masters