When Will The Ukraine War Stop?
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One of the curious accoutrements of the Kremlin are the very large benches that sit just outside it, almost too big for comfort such that the first time I passed them I imagined giant Cossacks resting themselves as they visited the capital. What those giant Cossacks might make of today’s Russian army would be interesting to know, especially with Monday’s ‘Victory Day’ military display in and around the Kremlin.

It is expected that the Russian President will use the occasion to formally declare war on Ukraine and call up a full mobilisation of troops (especially conscripts). Such as move will deepen the conflict around the invasion of Ukraine, may result in the use of heavier and more deadly armaments and further entangle Ukraine in a proxy war.

Of course, another avenue open to Vladimir Putin may be to use Victory Day to engage in some much needed risk management, and to declare a ‘mission accomplished’ in the context of a much degraded Russian army. If he did so, it would be in keeping with the current macro climate where in the context of the unravelling of monetary policy and the business cycle, ‘strategy’ has given way to risk control.

War Crimes

While Vladimir Putin and the Nasdaq don’t ordinarily have much in common, this week’s pronounced volatility in the financial markets (an assortment of some of the biggest daily moves in over 50 years), and Mr Putin’s behaviour, together signal that we are at the end of an era – that was marked in particular by peace and by the benevolence of central banks.

In many ways as we leave globalization behind, we are unwinding its many positives, and those who puzzle the fact that there are so many ‘events’ should step back and consider the very big picture which is that economic, geopolitical and financial cycles have left the ‘globalization phase’ and entered what I have called ‘the Interregnum’.

End of Globalization

The Interregnum is not a well defined phase, but rather involves the breaking down of established things (from political parties in France, to the WTO, and more recently apparently Roe/Wade to give a few examples) whilst more optimistically building up ‘new things’ (the digital economy, better healthcare, a more robust EU).

My suspicion is that from an economics point of view, one of the key factors that will define the ‘Interregnum’ with respect to ‘globalization’ is that we will have much shorter business cycles, certainly compared to the two very long ones that characterised globalization (i.e. ‘92-‘01, ’11-’20) as the effects of QE, indebtedness, questionable productivity rates and digitisation all unfold. This will necessarily make financial markets more interesting.

If this is the case it will make life more difficult for companies at large, for real estate in particular and at a guess may mean that more capital flows to companies operating in areas defined by new technologies and innovations (healthcare in particular) and that are part of secular trends (the ‘building up’ part of the Interregnum). Here it is important to state that companies that rely on leverage and that masquerade as innovators, will find life difficult.

Another emerging challenge, if we are to enter a period of shorter business cycles, is how to organise institutions, companies and the process of innovation. Digitization and the growth of the venture capital industry means that new enterprises can start and grow very quickly (TikTok is the example many think of). Adaptability will be another criteria and here there is a growing focus on how the Ukrainian army has organised itself in a much more flexible way compared to the Russian one, and how this particular case study reinforces the idea of decentralised, dynamic organisational models.

This neatly brings me back to Mr Putin, and makes the point that in the 21st century institutional quality, freedom of thinking and human development will continue to be important determinants of country success. He has neglected all three.

As such, I would like Mr Putin to act the risk manager rather than grand strategist or evil dictator on Monday, but I worry that the risk of a tail military event (isolated strike into Poland or against a Scandinavian/Baltic state) is still too high.

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