Ukraine

I'm writing this while reading the headlines that Russia is preparing for some sort of military action in Ukraine.  This follows behind what looks like the effective beginnings of a Russian military occupation of the Crimean peninsula which began yesterday and a warning last evening from our President to Russia to stay out of the Ukraine's internal affairs.  

I'm not going to waste the time discussing how we came to this point or the geopolitical implications of what's going on in Central Europe.   I'm going to briefly come about this from an investors perspective. Unless this gets resolved this weekend I think it's possible the market could have some trouble with this at the beginning of the week.  Then I think it sort of goes away.  Maybe not immediately,  but unless I'm really missing the mark on how this is going to play out in the real world, this should not be a major defining moment of 2014.  Here's why.

Ukraine has a large Russian speaking and Russian aligned population in the Eastern part of the country and in the Crimea.  The Crimea is also the home to the Russian Black Sea fleet.  It is the Western part of Ukraine that wants to become more aligned with the West.  The closer you come to Russia's borders the fiercer the Russian bear becomes.  Russia will act in its own interest in Ukraine because it will see itself as having no choice.  Think about this.  What would we do, how would we react, if the southern thirds of Texas, New Mexico, Arizona and California wanted to become part of Mexico?  Would we simply stand by and let this happen.  The answer is no and reasonable people should not expect the Russians to act any differently.  If Ukraine wants a split with Russia then the price will be high.  That price will likely see at a minimum loss of some eastern territory and what will amount to de facto Russian sovereignty in the Crimea.  The West will yell and cry about this.  We will make speeches and in the short run there may be economic threats or boycotts. But that will be all.  There will be no war and the world will go on as before.  It is too far away and the economic costs will not justify the means.  

I don't think that's what you'll hear if you pay attention to the news this weekend.  Expect to listen to all sorts of historical parallels. Somebody will dust off old books on the Crimean War along with references to the Prague Spring or 1956's Hungarian Revolution.  None of these will matter.  I think in two weeks tops this will be forgotten at least as it matters to the investment world.  Maybe not by the political class, but it will be a nonevent in the views of the people who buy and sell securities.  

Now a word about the painting above.  "Triumph of the Victorious Motherland" is a painting by the Ukrainian Artist Mykhaylo Khmelko, a Ukrainian and Soviet era painter.  It is a stylized depiction of the Moscow Victory Parade held June 22, 1945 celebrating the end of the War in Europe.   People in the West often forget that Russia was intent on setting out World War II until attacked by Germany.  War came to them at a level in size and sophistication that the world may never see again.  Their costs were horrific and not completely understood by the West until Soviet era archives were opened at the end of the Cold War.  But the Russians, when war came, rose up and ground the Germans into dust.    They'd suffered two invasions by western powers in two separate centuries and they've said "nyet" to that again.  I've never met any Russians but I've heard that when you get to know them that they are a very warm and friendly people.  I do know that when provoked they can be stone cold killers.  President Putin has ice in his veins.  The bear has been aroused and marked his territory.  "Nada mass" or whatever is the Russian equivalent he says.

I think when all's said and done, the world will heed the bear, he'll slink off behind his borders and life will go on as before.  If I'm wrong we'll get out the defensive pages of the playbook.