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Putin Thoroughly Demonized: Speed Chess to Become Blitz Chess

Jeffrey C. Borneman | December 17, 2014

Two noteworthy shifts in US foreign policy related to Russia were lost in the din of news last week, each of which will have an effect on both Energy prices and Defense spending. The first policy adjustment involved weaponry that is conventional and the second nuclear. We shall see if the impact of these shifts follows suit. Investors should pay close attention as the Russian situation has definitively accelerated from Speed Chess to Blitz Chess.

First, the conventional move: Congress passed The Ukraine Freedom Support Act of 2014, which not only expands Russian sanctions but far more importantly, provides "lethal assistance" to Ukraine's military.

The US has, until now, denied Ukraine offensive weapons but supplied all Eastern NATO allies with weaponry in anticipation of further Russian 'aggression' in the region. The president has now verified his willingness to ship offensive weapons directly to Ukraine. The US seeks to box Putin in and force him to act quickly, giving him increasingly limited options. Either withdraw from Crimea (which he will not do) or prompt a hurried Russian invasion of Ukraine before US weapons arrive in the region.

The US appears to be a gambling that Putin has little capital - political or monetary - for an invasion and occupation of Ukraine and/or that Putin's popularity (which has thus far risen with the hardship of Western sanctions), will finally collapse driving Putin from power. After a full year of demonizing Putin the US goal of deposing Putin could be near.

"Lethal aid will shortly begin arriving in Kiev, which in turn will be just the pretext needed by Sergey Lavrov and the Kremlin to escalate the recent events in Russia as a direct attack by the West ... and as a result Russian tanks may have no choice but to enter the separatist territories in East Ukraine," reports Zero Hedge.

Secondly, the US is considering a redeployment of its nuclear cruise missiles to Europe. As background, last week's joint hearing on Russia's treaty violation brought together members of the House Armed Services Subcommittee on Strategic Forces, and the House Foreign Affairs Subcommittee on Terrorism, Nonproliferation and Trade. The reason? The US accuses Russia of cheating on the 1987 Intermediate-range Nuclear Forces (INF) treaty by deploying its new cruise missile with an extended range beyond the treaty's limits, says Brian P. McKeon, Deputy Undersecretary of Defense for Policy and reported by Business Insider.

Also testifying at the hearing was Rose Gottemoeller, Undersecretary of State for Arms Control and International Security who accused Russia of violating no less than eight treaties including: the Chemical Weapons Convention; the Biological Weapons Convention; the New START arms treaty; the Open Skies Treaty; the Moratorium on Nuclear Testing; the Vienna Document on Confidence Building Measures; the Missile Technology Control Regime, and finally; the Budapest Memorandum on Security Assurances.

The administration fears that Russia may have moved, or is about to move, nuclear weapons into the Crimea based on intelligence reports, although no such movement has been seen," said McKeon. Gottemoeller was asked directly if the administration plans to continue planned nuclear arms reduction in the final two years of President Obama's term in office, to which she replied, ' ... because of concerns about Russian aggression in Ukraine and the INF violation that "I'm happy to tell you that such unilateral reductions are not on the table.' "

Further fueling of the fire, it is now clear to even the casual observer that Russia has lost control of its economy and desperation gauge is flashing RED. "The situation is critical," said the central bank's vice-chairman, Sergei Shvetsov. "What is happening is a nightmare that we could not even have imagined a year ago."

The demonization of Putin has been accomplished and the next step in underway. The US has sufficiently armed all the surrounding NATO allies and now is preparing to supply arms directly to Ukraine with the threat of redeploying its nuclear deterrent (NOTE: The administration's claim that it is "considering" redeployment likely means much more. The mere announcement of moving nuclear weapons generally indicated that nuclear cruise missiles are either in-theater now, or will be shortly). Couple the events above with the current reality in Russia - pain of economic sanctions, the fall of the ruble (60% as of this writing), Inflation in excess of 60+ and the elimination of all access to the capital markets - and we have a recipe for war (aka: Bullet Chess).

What is the investor to take away from current unfolding events? Of greater salience, what is the safest haven for capital in this perceived chaos? The world is heading to a pivot point, a tectonic shift in the status quo. While much of it is planned, unexpected events will have an impact as well. Regardless, it is the reason the MDEF™ Investing strategy was created: Own only the essential market sectors that both governments and individuals must rely on for survival. As events unfold, and DEMAND for non-essential goods and services wane, investing capital rotates into areas of confirmed need and reliable returns.

If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.

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