Mid-Week Updates, No 2
Putin, Iran, China, Markets, VC reserves and Liz Truss
My goal is to put out the Mid-Week Update to you as the name implies, mid-week, but it is Thursday already and while this delay was unintentional, it was probably good given what is unfolding around us.
Putin
Of course Vlad. In a few weeks it will be his 70th birthday and the self-declared gift of a defeated and conquered Ukraine is more than ever out of reach. His speech announcing a part-mobilization and the now obligatory nuclear threats was not well received anywhere. As this moves the war closer to everyday Russia, dissent is beginning to spill over in the streets again. This in turn will be the right fuel for the other dissenters, the hardcore nationalists, who are more than happy to see Putin go and unleash their own version of warfare on Ukraine and beyond. China and Turkey are beginning to distance themselves with Erdogan even suggesting the Crimea should now be vacated. Instability and uncertainty have both been ramped up a notch.
But we are exactly where most commentators feared we would be once Ukraine started to make real headway on the ground. The embattled Putin is boosting his rhetoric and military efforts while ramming through a few referenda in a haze of desperation. It appears that the West is largely aligned and to let Ukraine push forward and settle the ground war before moving to any ceasefires. Yes, there is real and potentially catastrophic risk in this position. A hasty move to the negotiating table to pacify Russia may actually entail equally negative long term consequences.
The biggest proponent of talks is China, reiterating its call for dialogue this week while offering no material support for Russia. With demonstrations taking place on its streets and its military failing, Putin is serving up pretty much everything Xi does not like and need when he looks at his role in history. A strategic pullback to a more neutral stance from China will be helpful in trying to end this conflict without any nuclear expeditions. That is, if Biden does not unnecessarily antagonizes Xi which he probably did earlier this week.
Iran
The other nation more or less aligned with Putin is of course Iran who have been one of the few if not the only country supplying him with much needed weaponry. Earlier this week I reported on the protests erupting across Iran following Mahsa Amini’s murder and this week these protests have spread across large cities in Iran. We have been here before in 2009 (remember Twitter postponing its scheduled maintenance outage to support the protestors?), 2012, 2018 and 2020. Each time the retribution of the ruling ayatollahs was brutal and sadly effective. The question is if their rule can continue amid rising energy prices, shortages and general economic malaise. The fact that protestors are now fearlessly on the streets in both Iranian and Russian cities is a sign of hope and better things to come.
Markets
The increase in interest rates by 75 bp yesterday was expected and therefore most considered it to be priced into the market going into Wednesday’s trading session. Despite a good start it ended in a blood red screen with most sectors tanking as the reality of more aggressive hikes sank in. If you hold US$ assets you can at least take some comfort from their rising value relative to other currencies. It has made it easier for me to digest the new stock prices in my Canadian $ denominated portfolio. But fun, it ain’t.
I gave a talk yesterday to the employees of a software company I am on the board of and I tried to explain how the insane monetary expansion has fuelled a tech boom that is now being corrected. Consumers will cut spending, investors will make slower and fewer investment decisions, yes almost everyone will sit tight and we just have to wait and see how long it will take for dollars and markets to move again into sustained positive territory.
But do note that the last few years have demonstrated we need more innovation in health, energy, climate, security and food and the markets will return to support and revitalize our economy. The money to do it is there:
Truss
It is weird that from Queen Elizabeth and Boris Johnson we are now in King Charles and Liz Truss land. So … one more piece of Britannia in this somewhat crazy and momentous week. It was of course quite the start for the new prime minister who during the day of her majesty’s funeral was identified as ‘minor royalty’ on Australian TV. The press on Liz has been mixed, which is why I was pleased with this detailed character sketch of Britain’s new prime minister. It’s a good and informative read, and Liz may yet surprise us all. And so may Charles.