Nevsky's Choice
Putin has made his choice, are we listening?
In 1242, Princeling Alexander Nevsky of Novgorod and his assemblage of Orthodox Rus defeated the German Catholic Teutonic Knights on a frozen lake.
Historians call it “The Battle on Ice.”
Famously, Nevsky encircled the western knights in a maneuver reminiscent of Hannibal at Cannae, albeit on ice.
This goes down in Russian history as the critical battle that preserved the Orthodox church in Russia. Recall the the Germans and Estonian Catholic Knights were in the neighborhood explicitly on a crusade of conversion.
What’s less reported is that immediately after successfully defeating the Germans, Nevsky decides to be one of the first Rus principalities to submit to Mongol rule, paying tribute and engaging in foreign policy under their shield. Even going so far as to quell an internal rebellion with force when his people refuse to pay the Mongols tribute.
So here we have a nascent Russian empire, forced to tradeoff cultural assimilation coming from the West, and military assimilation from the East. Almost a thousand years ago.
Sound familiar?
Oh and if those parallels aren’t enough, there’s the historical irony that Novgorod was known as one of the only REPUBLICS at the time among the by and large autocratic Rus principalities.
So a Republic based in the ‘city of trade’ elects a sovereign who beats the Germans, submits to Asia, and then uses that foreign policy for the basis of the nation state now centered in Moscow. Sandwiched between the Scandinavians in the North, the Pols in the west, the Turks in the South.
History is weird sometimes. By 1328, the Mongols appointed a Muscovite prince named Ivan as Grand Duke and principal tax collector for the Rus' lands, a development that, by some accounts, laid the foundation for the modern state of Russia through its vassalage to the Mongols.
Well, imagine my surprise when this week, we heard from the latest version of Nevksy. A man seemingly tasked with protecting the orthodox slavs of Eastern Europe from foreign threats. Balancing a chaotic, lurching, unaccountable West, vs a rising power in the East. Or, at least that’s the image he choose to project on this particular day.
It is with this lens that I watched Putin’s interview with Tucker last week. Listening to man himself, he speaks as if the choice facing Russia mirrors that of Nevsky:
Do you double down on the unreliable, chaotic West, always trying to break you into pieces and convert you to their ideology?
Or do you turn East, and make an alliance of economic and military convenience, even if it puts you in the role as a supporting character?
As with any politician, his speech was a mixture of fact, fiction, and signaling. To be clear, I’m not writing this to support any of these claims or legitimize Russia’s invasion of Ukraine. Rather, my training from years of debate and game theory says it pays to write down your opponents logic, if only to understand their mind and how they promote their ideas. Even, and sometimes especially, when they are full of bull.
Listening to the man, there are times Putin comes across like a jilted ex-lover. Speaking longingly of that fifth date in Munich that went awry. Putin’s Russia isn’t the aggressor, it’s the practical guardian of the Orthodox and Russian traditions going back a thousand years.
At least, that’s the basic argument coming from Putin. In long form:
There are thousands of years of back and forth in Eastern Europe, much of it unknown to the average westerner but still felt deeply in what is essentially a traditionalist, orthodox culture. In reference to Ukraine, Putin both repeats the narrative that Ukraine is a state that has been manufactured (and hence can be torn apart by her neighbors) as well as the dog whistle of giving western Ukraine “back” to Hungary. Interesting though he appears to acknowledge Zelensky as the legitimate leader of Ukraine, implicitly recognizing the very state he is in the process of carving up.
Rising amidst powerful neighbors, Russia has time and time again pulled itself together on the basis of these traditional values, and come to the rescue of the “oppressed” people’s in it’s sphere of influence, particularly slavs and the
After the fall of the USSR, rather than pick up Russia and her people and integrate them into the international system, the West sought wholesale regime change and the carving up of national power into ever smaller regional and ethnic groups. A process eerily similar to the way China felt during the fall of the Qing around the time of the Boxer Rebellion. After the wall fell, rather than brotherhood and open arms, the west brought vultures.
In spite of this, numerous opportunities to forge a peaceful new era were squandered by an ever rotating assembly of Western leaders, each less consistent and accountable to the last. Here he lists a series of missed opportunities for rapprochment:
Star Wars, Kosovo (‘99) and Iraq. Even an offhand remark to Clinton about joining NATO (that was rebuffed by back room and unaccountable agency heads).
US/NATOs unilateral efforts to develop and assimilate Russia’s former satellites into regional competitors convinced Putin full reconciliation was impossible. There was not a reliable or accountable leader from which to forge this new world, not an interest in letting Russia participate in the dialogue of what that world could be. Poland’s rise since the fall of the USSR hence represents both a ideological and military threat, hence the random assertions it causes WWII.
After the CIA supported Yanukovych’s “coup” in 2014, he hardened to the idea that the West was still an existential threat to Russia, except one now much closer to the motherland. Yielding a simple and easy solution: a pivot to China.
In response to the war in the Ukraine, the US has deployed it’s most powerful weapon, that of sanction, seizure, and exile from the international dollar system. In response, the economic and social links between the Russian bear and the Chinese dragon grow. Meanwhile Crimea, Deonetsk and Luhansk remain largely in Russian hands.
Again I do not listen to Putin to validate him but to understand. In showing an early draft of this ramble to some friend’s more knowledgeable on Russian history than myself, they came away almost offended by trying to read legitimate historical points out of Putin’s ramble.
He’s a madman. He won’t stop at Ukraine. Estonia and Poland are next. He must be stopped.
My view is a little more nuanced. Even when you utterly defeat your political / military opponent (ala WWI or WWII), your enemy doesn’t disappear. Eventually the US made peace with Britain, with Spain, with Germany and Japan. You can conceptually get rid of Putin, but if you don’t understand the role of the West in Putin’s rise, his radicalization, and his pivot to China, you can never defeat the ideas he represents.
If you don’t understand the process that creates a Putin, or a Xi for that matter, you will fail to predict their behavior, and ultimately defeat them.
His ramble was intended to speak directly to European’s sympathetic to complex history, and American’s confused as to why Ukraine is all of a sudden an existential problem for the US.
With that in mind, the underlying logic of his argument is simple:
The history of Eastern Europe is messy, complex and prone to instability. WWI started when Russia came to Serbia’s defense and WWII when Poland pissed off Hitler (though this one deserves a ‘ha-ha’). Due to linguistic, ethnic, religious and economic linkages much of this land aught be considered part of Russia’s sphere of influence.
The US-led West ruined the chance for a full rapprochement after ‘91, and has been an unreliable and chaotic counterparty since. One that has consistently undermined the notions of international law and order when her ideological or economic interests are at stake. There is no one to negotiate with.
This weakness in the West will inevitably lead to wider instability, as it appears History is not quite dead yet. The rise of China and BRICS means that the center of the world’s economy is no longer the Atlantic, and so not only is the US disinterested in supporting existing international institutions, it is incapable. It will inevitably be pushed aside for what China calls the “New World Order.”
The events of the last two years make a lot more sense in this context. Not insofar as they represent actual truth, but more they represent a cohesive alternative narrative to the conflict we see today, while laying the ideological foundations for further, expansionary conflict.
Putin isn’t some maniacal despot picking a fight he can’t lose, he’s a sober traditionalist who’s action bends to the arc of history! At least that’s the meme.
Afghanistan, Gaza, Suez, Serbia, Venezuela, Armenia. Each examples of the west losing control over the international system. Each conflict on the borderlands of what MacKinder might call the “Heartland”
Events in the week since the interview add to the pattern of “reluctant” escalation:
“You won’t let us into the Strategic Defense Initiative? Not a problem, we’ll develop new weapons”
Hypersonic missiles that can’t be shot down. Zircon missiles used for the first time this week in Ukraine.
“I’m going to weaponize space.” This week launching what looks to be two space-based EMPs capable of taking down every low earth orbit satellite on earth. High profile evidence that the next war won’t look like the last one. Think “the Machine is Down” but for a ton of global comms, transportation and financial links. Not to mention Balloons over Taiwan and commercial ships cutting internet chords in the Baltics.
Who needs aircraft carriers when we can just strap some rockets to container ships?
“You want to continue to interfere in our domestic politics and support the opposition? Well, turns out opposition leader Alexei Navalny died on a “walk” from sudden death syndrome. “
Conflict is Inflationary
A lot of macro folks tend to wax lyrically on global politics…badly.
Some macro folks try to take the wiser path and try to 'only bet on markets and not politics.’ A common line in an industry where knowing what the Fed had for breakfast is somehow an apolitical exercise.
Me, I got into this game because I had to.
When you invest in commodities, you cannot avoid the role of politics in driving economic outcomes, especially in times of stress or conflict.
I came to this conclusion as a result of data. In particular, looking at (very old) timeseries of financial data. If you spend time investing in gold and oil (as I have been doing off and on professionally since 2007), at some point you pull up a long back-history chart of their prices.
Which begs the question…
What the heck happened in January 1980?
Well, in December of 1979, the Soviets invaded Afghanistan.
Kicking off fears that the Soviet tanks would continue onto the oil fields of Iran.
Turned out the Soviets would get mired in Afghanistan, and both oil and gold would take ~30yrs to regain their crisis highs. A consistent pattern you see over and over in markets where supply is relatively inelastic. If you shut off production, the price has to adjust to the point where the market balances. Usually by destroying demand. In the form of high and rising prices.
This is also where my ‘conflict is inflationary’ principle comes from. Record demand, financed with printed money, coupled with the destruction of supply chains is an explosive combination from the perspective of inflation.
Problem with most investors is predicting conflict or supply chains can be a materially different skill than predicting the vicissitudes of monetary policy. Usually one where you have negative alpha.
I’m going to take the opposite tack in this blog, and say the implementations for your portfolio here are actually pretty clear and not especially timely (considering I’ve been saying the same thing pretty much since 2018): Don’t have too many disinflationary bets (aka fixed income aka government bonds), and make sure to have a positive exposure to rising prices for gold, energy, food, and…fighter jets. At least, that’s where my personal portfolio is currently biased.
With that in mind, I’d like to leave my area of expertise and engage in the very geo-political posturing you have come to know, love (and hate) this blog for. Keep in mind, the following are strongly opinions held weekly, slightly tongue in cheek, and offered with humility as to my lack of education of expertise or experience in the this particular arena.
What can the West do about Putin?
Your answer to “what to do about Putin” depends on your priors.
In particular, your view on 1) whether Putin (and to some extent Xi) represent authentic expressions of their nation’s character, and 2) if you believe we are in the first innings of Cold War II or WW3.
If you think that Putin is a pure madman AND you think that we can keep the war cold, you should argue for the West to double down in Ukraine. Weaken Russia as much as possible, punish them for their transgressions against international law, and rebuild the hegemonic deterrence that keeps Venezuela out of Guiana and China out of Taiwan.
On the other hand, if you believe that either great power conflict is inevitable, or that these dictators represent something real and emergent in their countries (maybe the national “id'“ as it were), then your recommendations are much much different. For those people, of which I increasingly find myself a member, your view might be something more like:
1. Discretion vs Valor in Ukraine
Accept the facts that Ukraine isn’t getting back to the ‘91 borders without a huge commitment from either the US or Europe, neither of which seem currently capable of producing sufficient material or political will to do the job. and Russia’s economy isn’t collapsing anytime soon with financial support from China and material support via North Korea. Unfortunately, they won the battle and are winning the war of production in things as basic as artillery shell production. Time to regroup and prepare for the ‘big one.’
The goal here is not to reward Putin for his transgressions, but engage in the kind of rear-guard coalition building the West relied on to beat Charles, Napoleon, the Kaiser, Hitler etc.
2. Broaden the Negotiation or Walk.
Use the cease-fire negotiations to engage one last time in authentic multilateralism.
Even if only to show it cannot work and there is no positive-sum outcome. If Russia and China are dead set on challenging the hegemony of the US-led West, there’s not much we can do about it but actually prepare. The West tends to do this through a combination of coalition building and trip wires. Belgium. Poland. Taiwan. Make those red-line trip wires unambiguously clear ahead of time and unanimous amongst the Western allies who will be called to enforce them.
This includes places where the previous lines were poorly or hastily drawn Space, Cyber/AI, Bio and Nukes. Putting nukes in Poland because Putin put’s them in Belarus makes us all less safe not more.
3. Win some / Lose Some
Use this negotiation to extract a guarantee of sovereignty for Ukraine and a recognition of Zelensky, which, btw Putin did in his interview (unofficially). Putin get’s what he wants, but as part of the deal, we tell him “Ukraine exists now and it’s coming into NATO along with Finland and Sweden. You didn’t want us on your border, we didn’t want you to invade Ukraine but tough cookies”.
Sweden’s 2024 accession currently being held up Hungary (recall the part in Putin’s speech threatening to return western Ukraine to Hungary, surprise surprise), through being priced at ~60% in prediction markets for this month (though I’m short).
Something that neighbor Norway - recently threatened by Putin over Svalbard(!) - can probably get onboard with…
4. Re-arm Europe and rebuild the US industrial base
Europe in general, and Germany in particular needs to wake up. Spend 2% of GDP today so you aren’t spending 20% of GDP in a rush later.
Energy supply chains will be a key driver in the next global conflict. Russia will eventually trade oil for tanks, and without sufficient naval power, it will be hard to stop them.
We are going to need more boats. In a global conflict, we can’t count on South Korea being able to build them all, or get them to the relevant theatres.
That means more steel.
5. Get Ready for Kinmen
Taiwan continues to escalate, after two mainland fisherman died as a result of a Taiwanese patrol in…
Kinmen.
Of all places.
Recall two weeks ago we learned that the US has stationed Green Beret’s on the remote Island. A stone’s throw from a city of 4m called Xiamen.
Which we have been tweeting about since 2022…
and is central to my “proactive peace plane for Taiwan.”
Now would be a good time to try (one last time) to meet in the middle in the name of long term peace.
5. DO NOT PAUSE AI!
Technology in general, and AI in particular, remain strategic advantages for the West. China knows this and is furiously investing in both the hardware and software to compete. While it probably makes sense to try to get both sides to agree to not let machines control the big red button, there is no chance the new Axis will stop competing here. To unilaterally pause AI, would be suicide for either side.
Disclaimers
I don't know why would he negotiate (a ceasfire) while also for sure knowing what are you saying, among others to let buy the time for rearments and to then fool them again, similarily as after Minsk peace agreements.
Many thanks for sharing