“I asked Truman for which foreign policy decision he most wanted to be remembered. He did not hesitate.’We completely defeated our enemies …,’ he remarked. ‘And then we helped them recover, to become democratic, and to rejoin the community of nations. Only America could have done that.’”
Kissinger, Diplomacy, 1994
My former employer, Bridgewater, had me on their podcast to discuss Navalny, who was buried today in Moscow, and Russia. You can hear the full exchange here.
THE BELOW IS NOT INVESTMENT ADVICE. INVESTING IS RISKY AND OFTEN PAINFUL. DO YOUR OWN RESEARCH.
Inflation (coming down, globally) and earnings (picking up) suggest the coast is clear for assets (stocks) to go up. Longer-term bonds in major countries require more caution, for reasons I explained last week. Politics, however, is a different story and I am wondering how much effort to spend hedging the US election, both financially and personally, and if the US will indeed leave Ukraine in the lurch.
Normally, when it comes to investment decisions, I ignore such events. In a country like the US, the government is a lumbering beast. Nothing happens fast that has a material impact on the pricing of stocks and bonds or, in general, my life. And that’s a good thing. The big disruptions—Great Depression, WWII, 1970s inflation—have been due to the central bank or war, not Congress.
But there are exceptions, and this election may be one of them. The worst-case scenario is violence. The next worst is erratic financial policy that leads to a bond market implosion. There are financial tools like options I can employ to mitigate financial loss. Insuring physical safety might require more extreme action, like leaving, something my friends in both China and Russia have had to do recently. While that sounds dramatic, and I certainly hope unlikely, it isn’t inconceivable. I talk about politics first and then, for subscribers, the economy and markets.
Politics
To help navigate this terrain, this week I spoke with Congressman Jim Himes (D., CT). You can hear the full conversation here. Jim is a Rhodes Scholar, Harvard graduate, and rower. I voted for him and will vote for him again. He is more centrist, the type who will work with moderate Republicans, and who in Europe would probably be considered conservative.
Our conversation confirmed my worst fears about Congress, which is that inane, attention-seeking members are having a meaningful impact on policy. I had assumed much of what goes on in Congress is made for TV or, now, social media. Both Jim Jordan and Alexandria Ocasio-Cortez have Twitter followers in the millions versus Himes’ 100k. To hear Jim tell it, however, in addition to preening for Twitter, a small group of extremists have indeed hijacked the legislative process.
The distinction I draw is on legislating, not rhetoric. When Ocasio-Cortez says capitalism is “not a redeemable system for us to be able to participate in for the prosperity and peace for the vast majority of people” it rings both false and sophomoric to me, but does not have much practical impact. Shutting down aid to Ukraine and impinging election integrity by endlessly repeating the Big Lie (that Trump won) is a different, far more serious matter.
Giving Russia the green light to invade neighbors is dangerous, plain and simple. It is easier and cheaper to stop Putin in Ukraine where there is a clear violation of borders than it is to do so in Transnistria, Ossetia or wherever else Putin strikes next. And can’t we agree that a neighbor climbing over your fence, stealing your stuff, and trying to kill you is bad? Evidently not, based on my conversation with Jim, though he does hold out some hope aid will indeed get passed.
Stepping away from Ukraine seems particularly egregious when it looks like Russia is beginning to crack. Videos are circulating of wives of Russian soldiers, within the very tight limits Russian law allows, challenging the conditions in which their husbands work and kill. There is little moral reflection by these women, though it is hard to know whether this is due to the political strictures or their wiring. Instead, it’s practical, like how come the soldiers don’t get more vacation? I’d share the video with you, but it is in Russian. Something like 100,000 Russians have died, maybe more. With an astonishing lag, it seems Russians are starting to wonder why. The same thing happened in World War 1.
The last issue Jim spoke about dovetails to the market. The possibility of a close election that descends into violence is not merely the scenario of an inflamed imagination. “They are doing exactly the thing you do if you don’t stand in the way of violence,” he warned. Violence, particularly if the police don’t intervene, is probably my top criterion for leaving the US. My grandfather fled Russia when it became dangerous, so it’s only logical I’d do the same.
Investment Implications
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