Ukraine update
and what you are likely to hear at the state of the union speech
The war propaganda was laid on thick over the weekend. Keep in mind, the mainstream press are reporting as accurately about Ukraine as they were about Covid. This is becoming a major distortion to the markets. There are three primary things that I’m taking notice of.
First, this has become a big handout to the defense contractors. All the big ones were firmly in the green as I type.
The European Union kicked off the “defense” spending binge with the announcement of a $500 million dollar weapon handout to Ukraine. Biden announce an additional $350 million. Then the Pentagon awarded defense contractors a $1.8 BILLION dollar deal. It was split between Lockheed ($700 million), Northrop Grumman ($692 million), and York, a private firm ($382 million).
The second observation I had was that the sanctions that are aimed at Russia ring hollow. There has been a lot of talk about cutting Russia’s access to the SWIFT system. This would essentially lock them out of doing any deals across the international banking sector. However, there is still trade going on. Germany is still buying Russian natural gas and Ukraine is still allowing Russian gas to traverse the many pipelines that are in their country. The most dramatic effect you can have on a country’s finances is to inflate their currency. Russia has recently seen this in the exchange rate market.
Today saw the USD/RUB move over 30%. This is unheard of in the currency markets. The Russian central bank has taken extreme measures (closing the country’s stock market and blocking short sales) to try to stop the bleeding. These measures never work and only cause headaches down the line.
The final observation I have for today is that this “war” is creating cover for the Fed to slow walk interest rate hikes. With the market in turmoil, J. Powell and company can continue to talk-the-talk without needing to walk-the-walk. This will cause the economy to continue to run hot and inflation to run rampant. Gold, oil, silver, and soft commodities as well as the miners, producers, etc. are all attractive here. In time, if the war rhetoric ceases, oil could see a drop. That drop should be a buying opportunity as none of the fundamentals of the oil situation are changing.