Everybody has his own view on Russia’s annexation of Crimea… 

A righting of historical wrongs? A breach of international rules? A land grab? Colonization? A rescue mission? Self-determination in action? Take your pick. 

What is clear is that Russia will now add Crimea to its territorial and political map. And this has the EU and the US in a flap. 

So, how should you respond to events in Crimea? 

First off, resist the temptation to invest on the basis of headlines… unless those headlines are helping create opportunities to buy quality assets at steep discounts. 

If you already own Russian stocks, in other words, don’t let scary news headlines distract you from your original investment case. 

Second, always stay diversified. Most investors ignore “boring” diversification considerations. Instead, they spend their time chasing hot stock stories. 

Simply put, the more diversified you are the less any single event (such as a Russian incursion into Ukraine) can hurt your portfolio. If events in Crimea are having a significant impact on your portfolio, something is wrong. And you need more portfolio diversification. 

Third, ask yourself: Cui bono? 

In this case, what assets will benefit from heightened tensions between Moscow and the West? 

It’s likely that liquefied natural gas exporters will do well, as Europe looks to alternatives to piped natural gas from Russia. 

The nuclear industry… and uranium producers… are also likely to do well, as Europe looks to reduce its dependence on Russian natural gas… something leaders there are going to be a lot less comfortable with following the Ukraine-Russia crisis. 

“Safe haven” investments such gold will also benefit from heightened geopolitical uncertainty – especially if an emboldened Putin decides to press on for territorial gains in Ukraine. (After all, who’s going to stop him?) 

We recommend you always have some gold in your portfolio as “insurance” against these kinds of unforeseen events. 

Fourth, go bargain hunting. 

The Russian stock market is ridiculously cheap right now. You want to keep any positions relatively small. But at 5.1 times 12-month reported earnings… and a dividend yield of 3.7%… the Russian stock market is screaming value right now. And it looks like most of the bad news has already been priced in.

Ed Note: Below is the Russian MICEX BMI BROAD MARKET INDEX (Additional Charts HERE)

Democracy? Forget about It…

by Bill Bonner – Diary of a Roque Economist

They say we have violated international law. At least they remember about international law – better late than never. 

Once again, world politics dominate the news. The Crimea drama is over… finished… done. The Russians did what you would expect. So did the Crimeans. 

Crimea has voted overwhelmingly to join Russia. And the markets seem to be celebrating. The US stock market, as measured by the Dow, rose 88 points yesterday. Gold – the antidote to crises of all sorts – dropped $13 an ounce. 

We promised a second foray into the time that land forgot – that dark future where things that couldn’t go on forever finally stop. The question on the table yesterday was “when.” We had no answer to it. 

The question today is “how”… about which we have more to say… so much that we will have to leave it until tomorrow. Instead, we will riff on world politics… about which we know even less than we know about economics! 

The people of Crimea have spoken, at least according to what they claim to be fair referendum results (although the EU and the US dispute them). Naturally, the defenders of democracy are appalled. The LA Times reports: 

In the most direct East-West confrontation since the Cold War, the White House and the European Union imposed sanctions against more than two dozen Russian and Ukrainian officials Monday and threatened more penalties if Moscow does not back down in Crimea. However, Russian President Vladimir Putin issued a decree that recognized Crimea as “sovereign and independent” after Sunday’s overwhelming vote there in favor of secession from Ukraine.

CNN continues: 

Vice President Joe Biden, meeting with Polish Prime Minister Donald Tusk Tuesday, accused Russia’s leaders of “a brazen, brazen military incursion” and said NATO would “emerge from this crisis stronger and more unified than ever.” 

UK Foreign Secretary William Hague, speaking in the British House of Commons Tuesday, said Russia was “choosing the route of isolation, denying the citizens of his own country and of Crimea partnership with the international community.” 

Hague also warned of “a grave danger of a provocation elsewhere in Ukraine that becomes a pretext for further military escalation.” German Chancellor Angela Merkel said the “so-called referendum” and the acceptance of Crimea to the Russian Federation was in violation of international law. 

Convenient BS

Why are folks in the West so animated? Isn’t the principle of self-determination enshrined in the Declaration of Independence… and wasn’t it repeated in the setup documents for the League of Nations… as well as the United Nations? 

Isn’t the right of people to decide for themselves by whom they will be misgoverned the sacred foundation stone of democracy? 

Oh, dear reader, sometimes you surprise us. “Self-determination” has always been convenient BS. It is only handy when you have the guns to back it up. Otherwise, it is just air. 

America’s greatest and bloodiest war – the War Between the States – proved it. You can talk about democracy all you want; but when push comes to shove, the pushers always shove you around. 

Compare Putin with Lincoln. Putin invaded Crimea, where people overwhelmingly wanted him to come. Lincoln invaded Virginia, where no one wanted him. 

As far as we know, Putin’s men didn’t fire a shot. Lincoln’s troops shot at everything that moved. By the time they were finished, one out of four white men of fighting age in the South was dead. 

And then, after the troops were firmly in control of their prize, do you remember Lincoln offering the South a chance to vote on whether they wanted to rejoin the North? 

And where was the declaration that the South was sovereign and independent? We must have missed it. 

Nobody really gives a damn about democracy or self-determination. And perhaps for good reason. Alexander Boot in Britain’s Daily Mail: 

According to Freedom House the world didn’t boast a single democracy in 1900. However, in 2007 there were supposed to be 123 democracies out of 192 existing countries… 

As the shift from zero to 123 occurred in the 20th century, then, according to democracy worshippers, it ought to be regarded as the sunniest period ever. Instead, somewhere between 400 and 500 million people died violent deaths at the time – more than in all the other centuries of recorded history combined. 

Moreover, some of the most horrific massacres ensued after failed attempts to implant the saplings of one-man-one-vote democracy into a soil all too ready to reject them. Russia and Germany spring to mind, but then you can name your own examples from just about every continent. 

Woodrow Wilson, one of the neocons’ icons, dragged America into the First World War under the slogan of “making the world safe for democracy.” The principal warring parties were perplexed, considering that France was already a republic, Britain a constitutional democracy with a fine parliamentary tradition, while Germany, Austria and even Russia had functioning parliaments, even though the last had been struggling to come to terms with it. And all those parliaments craved war. 

Regards,

Bill

Russia confirms our tracking of capital flows. Adopts our figure of $50 billion for the quarter.

We have been investigating the Russian capital flows in more detail. We see two trends emerging that is reflecting the war tensions. Foreign capital that invested in Russia is pouring out, but at the same time, the Russian Oligarchs are pulling back money in western banks. They do not yet seem to be investing in Russian banks for they fear the ruble. They have been buying the euro and taking cash home rather than dollars. This is giving some lift to the euro. Clearly, capital is confused on both sides of the conflict.

Nonetheless, prior to every war, capital flows give advance warning more often than not. It appears those who know, move money appropriately. This time, the Russian Oligarchs are grabbing the euro in cash for that can be obtained in larger denominations than US dollars, plus they have no idea whose currency will survive given it could be cancelled as well or counterfeited as part of the economic war (another reason to cancel the currency and move totally electronic using war as the excuse). The Oligarchs are between a rock and a very hard place. The ruble looks risky, but then the USA is the enemy.

Here is a German counterfeit British 5 pound note from World War II. It was very, very good. So beware. War at this time would have the benefit of eliminating currency altogether to prevent counterfeiting, but then again that has been the goal to get every penny of tax. It is also suggested that it will eliminate crime.

Keep in mind eliminating currency will also eliminate bank runs. It is a win-win for government and war may be the excuse they need to eliminate all cash and that would help Europe right now who is staring straight in the eye of perhaps the worse banking collapse in history of banking.

The propaganda war still rages. There is all sorts of disinformation hitting the internet under the pretense of being part of the Anonymous movement, but this is just counter-intelligence right now. There are a lot of fake emails and claims of reports and phone calls all designed to move the public opinion in one direction or the other,

Then there is the missing Malaysian plane. Rumors now fear that it was taken someplace to be used for a terrorist attack later in China to get the masses there outraged. This is purely speculation at this point, but we are trying to test the veracity of this theory. Of course it could just be aliens who escaped from Area 51 or the White House – hard to tell the difference sometimes.

Ed Note: Here is a long explanation by Martin of the Russian people and how to understand them, that you can understand their likely moves during crisis:

Putin Plays for Keeps in Crimea

For those investors who have grown used to the relatively minor geo-political crises of the past few years, the developing situation in the Ukraine and the Crimea must come as an unexpected communiqué from the early 20th Century.There can be little doubt that the drama will impact financial markets.

While President Obama is doing his best to invert Teddy Roosevelt’s “speak softly and carry a big stick” approach to foreign policy, the real issue is how Crimea’s proposed secession from Ukraine will lay bare the opacity of international law with respect to issues of sovereignty.  Recently, President Obama said, “Under international law, force can only be used in self-defense or by a decision of the U.N. Security Council. …” But Obama considered using preemptive force in Syria without U.N. approval. Laying aside U.S. adventurism in the Middle East over the past 20 years, in 1998 President Clinton intervened militarily when Kosovo attempted to separate from Serbia.

Although the stakes are far lower, in many ways the current situation on the Black Sea parallels the Cuban Missile Crisis of 1962. Only this time, the roles of each player are reversed.

The threat posed by Russian missiles in Cuba was acute and targeted at America’s vital interests. President Kennedy simply could not accept a Russian victory, even at the cost of all-out war. Popular and military support for a tough line against the Soviets, both at home and abroad, allowed Kennedy to go “all-in” to force the Russians to ultimately back down.

This time, it is Russia that has by far the most at stake. The threat to Russia’s key warm water naval base in the Crimea, and the potential for an expansion of NATO into its traditional sphere of influence is acute. President Putin cannot accept defeat, even at the risk of war. And like Kennedy, he enjoys the support of his military and his people. Despite the relatively weaker economic hand being played by Mr. Putin, do not expect him to fold.

From my perspective, Putin may see six major geo-political weaknesses in the U.S. position. First, he recognizes that the U.S. military and the U.S. public have grown weary of ill-advised foreign interventions. Second, Russia’s close trade and energy connections to Western Europe are causing dissension among NATO allies at the prospect of a Continental conflict. The potential for Putin to drive a wedge between the U.S. and wavering EU allies is a risk that Washington must consider.

Third, Putin is acutely aware that a “victory” of Ukranian interests at the expense of Moscow will further weaken Russia’s ability to maintain the allegiance of the remaining scraps of its old Soviet empire.

Fourth, Putin knows that Obama needs Russian support over key U.S. initiatives in Iran, Syria and North Korea. Further confrontation of the Crimea may come at a very high price to other interests that are much more vital to Washington.

Fifth, Putin knows that the United States does not wish to see Russia revert to a closer relationship with China, just as China expands her maritime and territorial interests in the Pacific. It is no accident that Beijing has been eerily silent with respect to Russian policy in Europe. Putin knows that oil rich Middle Eastern rulers feel deserted by the U.S. over its proposed nuclear deal with Iran and are looking for new ‘protective’ allies. It is a power vacuum that China and Russia would be glad to fill.

For its part, Washington must be conscious of the possibility of Russia striking back at the U.S. economically through disruptive sales of its $138 billion war chest of Treasury bonds. Such a move could trigger a financial panic in the West, especially if the moves could be coordinated with Russian allies.

It has been suggested that President Obama and Secretary of State John Kerry are looking to offer Putin a ‘face-saving off-ramp’ similar to the one that Kennedy made to Kruschev in 1962 (cancelling a planned deployment of medium range NATO missiles in Turkey in return for a Russian stand down in Cuba). However, for the reasons outlined above, Putin must have a strong instinct that Obama will not go to the mat over Crimea. As a result, he may not accept anything that fails to keep the Crimea firmly under Russian control.

However, the bigger issue involves the stand-off between Russia and western Ukraine. With armed soldiers and civilians facing each other, the local situation remains tense. Given the lack of discipline in newly formed units, the possibility of accidental aggression in the heart of central Europe is real. 

Due to the late week sell off that took the markets back below the breakout level of 1850, I just wanted to issue out a very short update.

The combined escalation of a potential conflict in the Ukraine and the rapidly deteriorating economic data coming out of China has weighed on the markets in the past week.  Another concern is the upcoming meeting of the Federal Reserve this week and the potential for further reductions in the ongoing monetary interventions.

However, as I will show in the chart on the next page, the recent sell off has not changed the current trend of the market. However, the deterioration in the technical underpinnings is concerning.

>> Download This Weeks Issue HERE

France: A Case Study In Socialism: Does It Work?

For several years I have been saying that France will be the next big financial shoe to drop in Europe and the repercussions will be felt by everyone. France offers a case study in one of the easiest to understand, yet most often ignored facts by those that push big government.

That is – when prices and costs change – people’s behavior changes.  It is never as easy as saying governments receive more revenue by raising taxes because at some point people will leave the country or change other behavior that reduces government revenue.

The following article by Anne-Elisabeth Moutet published in the Telegraph received unprecedented response. It outraged some French people because it challenged France’s well entrenched welfare state while others are outraged that the government is blind to the consequences of its actions

The point is that the results in terms of record numbers of people without work, record youth unemployment, record debt and flatlining economic growth speak for themselves.

The question is – how far down that same road do we want to go? – MC

By Anne-Elisabeth Moutet

A poll on the front page of last Tuesday’s Le Monde, that bible of the French Left-leaning Establishment (think a simultaneously boring and hectoring Guardian), translated into stark figures the winter of Francois Hollande’s discontent.

More than 70 per cent of the French feel taxes are “excessive”, and 80 per cent believe the president’s economic policy is “misguided” and “inefficient”. This goes far beyond the tax exiles such as Gerard Depardieu, members of the Peugeot family or Chanel’s owners. Worse, after decades of living in one of the most redistributive systems in western Europe, 54 per cent of the French believe that taxes – of which there have been 87 new ones in the past two years, rising from 42 per cent of GDP in 2009 to 46.3 per cent this year – now widen social inequalities instead of reducing them.

This is a noteworthy departure, in a country where the much-vaunted value of “equality” has historically been tinged with envy and resentment of the more fortunate. Less than two years ago, the most toxic accusation….

Continue reading the full article HERE