February 2022 – Patrick McIntosh – Chartered Financial Planner

Here are our collective thoughts on where we see the situation on several different fronts.

Putin can win the war, but he cannot win the peace, does he really appreciate this (there are signs of Napoleon and Hitler appearing in his management presentation)?

The West is just as guilty of misrepresentation since the collapse of the Soviet empire and in particular the reality that the Germans never supported the idea that Ukraine should be in NATO.  The Americans went over their heads without consultation, much to everybody’s annoyance in misleading Ukraine into thinking that they somehow had protection which does not exist.

The Minsk II accord remains on the table, and we suspect that this will form the basis of some solution even with some incursion onto Ukraine territory in the short term. The only reason that it has not been implemented is because the Ukrainians have refused to ratify the treaty, this annoys Russia which is why they invaded Crimea.

The problem for the West is that Ukraine is not a strategic country and therefore there is no point acting in defiance if you really have no determination to follow through.  There is every sign that, the West will act, even if a whole range of sanctions are imposed and the pipeline is turned off.

What Russia wants is for Ukraine to be a neutral buffer state, however, Russia is also much more concerned that Ukraine joins the EU rather than the issue of NATO and this is really the nub of the problem.  Ukraine has an awful lot of Russians living in it, who do not want Russia to invade because they know their quality of life will decline and they do not wish to move back into a totalitarian state. Putin should know that winning the peace will probably destroy the Russian economy and a stalemate will evolve, weakening Russia at the same time, as it must devote more and more resource to controlling the nation.

The problem for Russia is people and resource and Putin is running out of cards to play. Now he has a pretty strong hand because he has over $600 billion in currency reserves and all the carbon in the world to supply Europe and the Far East in power supplies.

Another problem for Russia is that the supply of carbon is going to rapidly diminish which will reduce its economy dramatically. We estimate about 40% of Russian GDP is orientated around carbon.  On top of this, Russia has a land mass that’s 70 times the size of the UK, but a population that is only twice the size.  Russian demographics are terrible due to an ageing population dying early due poor healthcare, diet and past bad government and like the rest of Europe the children simply are not having babies.

If Putin is to take over Ukraine, he is going to have to complete this by Easter if not before, otherwise the window of opportunity reduces.  This is partly because the West will gear up supplies of alternative carbon energy and will continue the inexorable move away from carbon as rapidly as

possible, (there is nothing like a bully on your border to force the rest of the world into action more rapidly than boiling the planet). The fact that fusion, let alone fission power, is going to be dramatically ramped up in the future is a good simple example.

So where does that leave our investment strategy? We are long enough in the tooth to have lived through numerous crises over the last 60 years and one thing is absolutely certain each crisis lasts less time and each bounce back from market correction is quicker than the last.  The most rapid of course being March 2020 when markets fell by 20% to 30% and recovered within six months.

Our view remains therefore to be fully committed to our longer-term investment strategy, to cope with the slings and arrows of outrageous fortune in the short term over the next 18 months.  Remember that life goes on. Most importantly at the moment the revolution in the fourth industrial age, together with the incredible amount of liquidity in the global system suggests that timing the market is impossible, and we must just live through the problem.