Europe Grows a Pair? Bet the Russians never expected that!

The risks in Ukraine are escalating as Russia shows the nuclear card – but markets are behaving as if its Russia has been backfooted as the West finally wakes-up to the threat. Russia might have miscalculated some aspects of its strategy, but it would be wrong to think much has changed – yet!

Blain’s Morning Porridge 28 Feb 2022 – Europe Grows a Pair? Bet the Russians never expected that!

“A riddle wrapped inside a mystery wrapped inside an enigma.”

This Morning: The risks in Ukraine are escalating as Russia shows the nuclear card – but markets are behaving as if its Russia has been backfooted as the West finally wakes-up to the threat. Russia might have miscalculated some aspects of its strategy, but it would be wrong to think much has changed – yet!

I am liking Ukrainians more and more. From the driver who offered to tow a broken-down BMP back to the border, the Grandmother giving Russian soldiers sunflower seeds so they will sprout when their bodies are buried in the soil of her country, to the 13 border guards who told the Russian Navy to “reproduce and travel far”. The Russians are right in one regard – the Ukrainians are defending their land and rights just like Russians. You have to admire them. Gallus.

How to play the crisis in markets?

Trading is not the game of understanding exactly what is happening, or buying/selling on perfect knowledge of events. It’s about understanding what the market thinks! It’s an exercise in the psychology of crowds. The market is a great big voting machine weighing up the beliefs of each participant.

On that basis, I confidently predict another fraxious week on the uncertainty around Ukraine, the increasing likelihood it accelerates the developing inflation trend as Oil remains high, (watch the Opec meeting), and what it means for the recession/growth conundrum – pay attention to the US employment number on Friday. The market seems to be betting central banks will delay any tightening, thus juicing stock markets through the current choppy conditions.

And keep an eye on the European Union – which suddenly seems to have grown a pair! It not only surprised me, but must have caught the Russians and their careful calculations on how a cowed energy-insecure Europe would react. Suddenly Europe is taking risks and encouraging arms deliveries to Ukraine.  If Europe gets this right – then the outcomes could be dramatically different.

Last week we were laughing at the German army holding “a values day” just before the invasion. The General in charge of the Bundeswehr blamed political ineptitude for the perilous state of his army, saying it won’t be ready to fight a war for at least a year. Surely, the politician responsible will punished…? Well, she was.. Ursula von der Leyen is now the unelected President of the European Commission.

Laugh? Well.. Actually I was impressed watching Von der Layen on TV last night. Germany has spun.  Europe…. Europe is suddenly collectively pulling together in the right direction. Agreeing on SWIFT sanctions and to run the energy risks their sanctions on Russia, Russians and Oligarchs will entail was necessary, but seemed unlikely. Something changed. The Russians may well have miscalculated that one.

Europe has agreed tough action: European Leaders agree to second wave of Sanctions. Even the Germans have woken up. Suddenly they are re-arming; Germany does 180 degree turn in Defence Spending.

If the Kremlin assumption was Europe would complain, but eventually accept Russia’s landgrab, then it was wrong. A united Europe (I surprise myself writing that!) agreeing massive emergency LNG infrastructure spending to import gas from the US and Middle East could well upset Putin’s calculus.

To trade this market – what is the market thinking?

I am worried market sentiment is overly positive. There is a dominant narrative that’s being established and pushed across Western Medi; that Putin is a frothing mad-dog, an out-of-touch, unbalanced megalomaniac listening to no-one in his Kremlin fortress, advised by a clique of yes-men generals, and that he’s become dangerously unbalanced and unpredictable.

Don’t trust the narrative…

It’s too easy a story to buy-into. Last week we simply didn’t believe the Russians would really invade – Putin was winning by doing nothing. It felt like a bluff. But we were wrong – although the West’s intelligence services had actually got it right. This week the stakes have risen on the battlefield and on the financial front.. and it’s potentially all change as Europe coalesces against Russian aggression.

The world has become a much more dangerous place. The risks of escalation have mounted quadratically. Putin has become predictably unpredictable – which is standard Russian operating procedure. It’s exactly what the Russians would want us to think to paralyse risk/decision making in Nato. Putting Russia’s Tactical Nukes on Special Warning, threatening retaliation, and spooling up his boomers in the face of “Western Aggression and Provocation” is dangerous in the extreme. All it takes is one itchy trigger… but it keeps the West nervous.

According to Western Media reports Russia’s war is not necessarily going well. I would love to believe that is the case – and if it’s true, then it magnifies the risks Putin will lash out.

On the financial front, cutting Russian banks from SWIFT is crushing the rouble this morning, and will create massive internal dislocation (SWIFT apparently accounts for 80% of Russian domestic financial traffic.) Freezing Russia’s central bank’s assets abroad will be problematical in the extreme. The pictures of queues at ATMs in Moscow, Russian tourists finding their credit cards no longer function, and stories of mass protests across the Rodina are fascinating. The West’s hope is Russia will rise-up and depose Putin – but hope is never a strategy, and it’s highly unlikely to succeed while the nation is on a war-footing.

On the battlefront, the Western Media would have us believe the Russians have suffered reverses and higher casualties in their drive on Ukraine’s Eastern Cities. They may or may not be true – in 1939 the papers reported the plucky Polish Calvary taking out Panzer divisions, which patently proved a triumph of hope over the actuality. We simply don’t know what the Russians planned for – photos of Russian trucks on City streets don’t suggest it was an dramatic armoured fist approach. Maybe this week they will step up the attack with something more aggressive.  They may be forced to – the message the Russian trained Ukraine military is sending back is they will fight to achieve a Stalingrad stalemate in the Cities. Putin may need to get brutal to force a surrender – which means going all-in.

On one hand the Markets think the tide is shifting back in favour of the West. On the other the risks appear to be multiplying. The more Putin finds his plans frustrated, the more dangerous it gets. It might be the slowness of his invasion, taunts by the charismatic Ukrainian president, by a rising tide of internal protest, or maybe it might be his erstwhile allies, the Chinese, deciding not to finance Russia trade in order to avoid US Sanctions, that triggers something dramatic.

In short – this ain’t even begun..

Five Things to Read This Morning:

BBerg – Does Putin’s Military Order Raise the Risks of a Nuclear Exchange?

WSJ: Car Parts, Sunflower Oil, Chips: War in Ukraine threatens new shortages

FT – Six Factors to Drive Investors during Ukraine Crisis

Master Investor – Food Security: our increasing reliance on imports

CapX – Close Down Londongrad

Out of time, and back to the day job…

Bill Blain

Strategist – Shard Capital


  1. to the 13 border guards who told the Russian Navy to “reproduce and travel far”.

    You have learnt surely by now that the 13 border guards are part of an 80 man group transported by bus to Crimea. They all laid down weapons.

    The misreporting on Ukraine is clear. In Iraq a 100-200k people were killed in first 2 days.
    in Ukraine we are talking perhaps 100-200, and not much evidence to confirm even that.

    When defenders line up on the balconies of tower blocks either there are large numbers of death or progress is very slow.

    Out of interest – Will BP get a penny back from its Rosneft investment?
    If Russian national bank can’t get its dollars back, why would foreign investors in Russia get anything back? One of the benefits to the US of being massively in net debt.

    • Seriously??
      There is film of the first two incidents; the driver and the sunflower seed wielding grandmother addressing Russian invaders, and a recording of the Snake Island assault by a Russian warship attacking the sovereign territory of another nation.
      I absolutely hope they did survive and have been taken prisoner… What actually matters is their words and the signal of defiance it sent.

      What point are you trying to make Mr Droy?
      That the Western Media is making it all up? And the Russian are not? C’mon.

      Anyone is welcome to make polite fact based posts and question the market and economic outcomes, but I will be blocking any further posts by Russian apologists, propaganda bots and downright liars. Not because I’m woke, or close-minded, but because I can smell the stink of a shill coming off the page.

      In the words of the Ukrainian Border guards .. they can all go “F**k Off!”

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