Tags: Ukraine Russia | Putin | Crimea

We Could Be in for Rough Times if Ukraine Situation Isn't Resolved

Tuesday, 04 March 2014 11:37 AM Current | Bio | Archive

Tuesday morning, Dmitry Peskov, the press attache for Russian President Putin, told Russian press agencies that Russian troops taking part in military exercises near the Ukrainian border have been ordered to return to their bases. As an investor I would certainly remain extremely cautious and might consider this act as a promising sign the Ukrainian crisis is on its way to a "real" solution that pleases Russia as well as the West.

On the contrary, in my opinion it's the confirmation that Putin's geopolitical chess game is "fully on" and he certainly didn't have a change of heart today when he ordered his troops near the Ukrainian border back to their bases. No, not by a long shot.

By the way, the back to bases order didn't involve in any way the 16,000 Russian troops in Crimea, which is a peninsula of Ukraine located on the northern coast of the Black Sea with the Autonomous Republic of Crimea.

I don't think it's an overstatement to say that many investors as well as non-investors were caught off guard by the events that took place over the last few days in the Ukraine.

Maybe it's good to remember that in December 2006, Sheila Gwaltney, deputy chief of mission at the U.S. Embassy in Kiev, warned in a "confidential" cable titled "Ukraine: The Russian Factor in Crimea — Ukraine's 'Soft Underbelly?" saying among other important things: "discussions with a wide range of contacts in Crimea November 20-22 and officials in Kyiv discounted recent speculation that a return of pro-Russian separatism in Crimea, which posed a real threat to Ukrainian territorial integrity in 1994-95, could be in the cards."

Seven years later, we now know Gwaltney was correct at the end of 2006 in her estimates about Russia's intentions about Crimea and that's precisely one of the reasons I don't think Putin is going to back down on his intentions about the Crimea.

Besides that, we'll have to wait and see if Russia will comply by Thursday with the European Union's ultimatum and 48-hour deadline, whereby the European Union demands Russian troops be called back out of Crimea. The ultimatum will be given to Sergei Lavrov, Russia's foreign minister, personally by EU Foreign Policy Chief Catherine Ashton during talks in Madrid Tuesday.

On Monday, the European Union also stated: "In the absence of de-escalating steps by Russia, the EU shall decide about consequences for bilateral relations between the EU and Russia and will consider further targeted measures." Maybe not surprisingly, EU member states still remain divided over possible sanctions on Russia.

Again, we'll have to wait and see if the European Union has really drawn a line in the sand. Contrary to the European Union, the United States hasn't drawn any line in the sand yet and was on Monday certainly less pressing when President Obama stated during a press meeting together with Israeli Prime Minister Netanyahu at the White House that Russia is on the wrong side of history.

Looking early at the markets Tuesday, it seems many are convinced the actual and still-evolving situation in the Ukraine and Crimea getting out of control is a highly unlikely outcome due, in a big part, to the threat to Russia's economy.

I really hope the optimists are right, but history has taught me over and over again that assumptions about the importance of trade links in mitigating the threat of conflict can be seriously flawed. As an investor, I would keep a cautious stance toward the further evolving events in the Ukraine, which still could catch anyone off guard at any time until everything is settled once and for all, although I still consider this highly improbable. Of course, I could be wrong, as could anybody else.

Also Tuesday, Putin announced there has been an unconstitutional coup in the Ukraine and a military seizure of power. If you ask me, this is explosive material and certainly not a de-escalating action performed by the Russian president.

As an investor, I would try to remain as realistic as possible and certainly try to avoid mistaking my wishes and hopes for realities. If things don't change quickly for the better, we could be in for very rough times.

Besides that, markets are still in a wait mode for a catalyst to start a correction. How deep that correction could go, is still an open question, but I still think it could easily stretch for a couple of years and develop in various waves down where it will be an art to sell the spikes and not to buy the dips.

The overcomplacency that has mandated the markets until now is in my opinion not assuring at all. On the contrary, it is worrisome.

All that said, to me the United States and the dollar remain one of the best places to be invested in, mostly because of possible unpleasant surprises related to the Ukraine that could be in the offing. Please take care to notice I didn't say being overinvested in.

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Tuesday morning, Dmitry Peskov, the press attache for Russian President Putin, told Russian press agencies that Russian troops taking part in military exercises near the Ukrainian border have been ordered to return to their bases.
Ukraine Russia,Putin,Crimea
Tuesday, 04 March 2014 11:37 AM
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