By Charles Stampul
It’s not the actions on the ground and in the air, but the financial war measures enacted by the US and EU that should have market participants worried. In response to Russia’s invasion of Ukraine, Western governments are going after Russia’s currency and banking system with seemingly no awareness of the risks of either retaliation by Russia or contagion.
At the moment of writing, S&P futures are only down about 1%. Crude oil is up 4% and gold has only risen 1%.
In response to the arguably the most severe sanctions imposed on a world power since world power since World War II, Putin could cut off gas to Europe, demand gold for oil, trade dollars for RMB, and sell of US Treasuries.
The actions against Russia’s central bank have caused the Rubble to crash by 40% and is sure to make some large Russia’s bank illiquid. This is sure to spread to other financial institutions around the globe. There is a high likelihood of a Lehman bank like collapse which has not begun to be priced in.
This is all to say nothing of the possibility of Russia China alliance and World War III.
Another sign of a market detached from reality.
Another sign of the resiliency of the market.
DJ down $166 today…
Traders are betting that the Fed won’t follow through with rate cuts, but that should have already been expected. A similar collapse of the Ruble brought on the collapse of LTCM.