Russia’s Bear Case Scenario Political Bully Financial Cripple $RSX, $VIX, $VXX, $OIL, $GAZ, $SPX, $SPY, $DJX

Ukraine and Putin’s latest gambit take up too much ink in front page news. Russia which has been described as a gas station that thinks its a country by Senator McCain has changed bluster and basically has blinked.

Russia wanted Crimea as a physical possession and essentially annexed it by surprise. Imperialistic tendencies drove Russian behaviour. What they did not calculate is the massive flight of capital from Russia by Russian oligarchs.  Russia is doing poorly and the masses have been distracted. The elite know better and are voting with their pocket book.

Putin cannot control the flight of capital. Being a former KGB black ops guy he is used to massive government support and money is no object. Not sure that Putin has truly though through the ramifications of capital flight.

So now he increases the rhetoric about Ukraine’s gas bills and demands up to ten times what may be truly owed. Why? He sees massive Western funds being thrown at Ukraine and he wants most of it. An independent Ukraine on financial life support to the west paying protection money to Moscow will work just fine. Russian speaking interests be damned.

So he will use local dissidents who have been emotionally duped into wanting some kind of union or protection from Moscow as a leverage stick all the while demanding huge ransoms through gas pricing.

The sooner Ukraine and other European countries wean themselves off of Russian Oil and Gas the safer they will be militarily.

My advice frack away big time.

In the mean time if Putin had territorial ambitions he will shelve them in the interests of economic blackmail. BTW the occasional infrastructure problem deep inside Russia would be useful just to change their perspective and get Russians worried about internal security. If you could make Moscow’s lights go out for an hour or  two that would be great.

George Gutowski writes from a caveat emptor perspective.

Bear Case Scenario from Russia $VIX, $VXX, $SPX, $DJX, $XLF

We all saw it coming. The Olympics are over and Putin moves on the Ukraine or more specifically on Crimea. The former KGB thug cannot stand the constant retreat of Russia interests and loss of prestige.

Here are a few points to remember.

Gas to Europe may be a black-mail tactic that Putin can use. But there is only one pipeline into the Crimea and it goes through the Ukraine. He will be hurting the very people he seeks to protect. Despite the propaganda that will come out of the Kremlin Russian interests are not served by a frozen Crimea.

Russia needs the foreign exchange that gas and oil sales bring. he can threaten to cutoff Europe. He probably will remind the west he knows where the shutoff valve is. But he will also hurt his own pocket-book and forever isolate Russia as a supplier. If Russia cannot sell oil and gas it will run short of foreign exchange very quickly.

Putin has his own dissent problem. If conditions in Russia worsen his grip on power will loosen. Maintaining an active hostile occupation of Crimea in a belligerent context is expensive. He needs to keep the game up and that costs cash. He does not have it.

The Pro-Ukrainian sentiment is very strong in both USA and Canada. Elections are nearing. Putin may die the death of a thousand cuts.

Much of Russia’s response is a nostalgic throw back to olde cold war days. The Russian fleet is not what it used to be. Russia does not have the same interests it used to have. Russia is spending resources on prestige and not on factors which will make them strong.

Russia needs access to the western financial system. Iran learned this the slow and hard way.

Syria continues to bleed with a stupid civil war. Russia will find it difficult to continue maintaining their involvement. Crimea will trump Syria when Russia considers its interests.

China is of course watching this very quietly. They know that a distracted Euro-focused Russia will fumble the ball in Siberia and Asia. If Russia is interested in Crimea than China covets much if not all of Siberia.

Russian oil and gas resources are optimized by western energy companies. If this were withdrawn oil and gas resource production would decline rapidly and create more internal dissent.

In the meantime the market hates uncertainty. Don’t do deals where Russia is a factor. No one can assess the wild card factor.

George Gutowski writes from a caveat emptor perspective.