The Gladstone
Economic Newsletter
Volume 17, No. 5
March 27, 2022
Everything Changed February 24th.
The World Economy Will Never be the Same.
DISCLAIMER: The following is not intended as investment advice, but is rather intended to promote your own analysis of markets and the economic climate. The author is not a registered investment professional. Any action taken as a result of this analysis carries a high degree of risk. This newsletter contains the personal opinion of the author.
Dear readers-
Some readers may be wondering why I have devoted the last two issues of this newsletter to the war in Ukraine instead of economic discussions. The answer is simple: The war in Ukraine is creating a radical re-ordering of the world economy and currencies on a daily basis. People who “get this” have a chance of surviving the economic turmoil that is coming. People who prefer to put their heads in the sand like ostriches are going to be economic road kill in what is coming. Sorry to be as blunt as that, but bluntness is needed now.
For the first time, I am truly afraid that the criminals in the Biden Administration are driving the world into a major conflict. This reminds me of how the world sleep walked itself into World War I. Or how the FDR Administration imposed existential, crippling economic sanctions on Japan in order for the US to enter World War II. Sound familiar to the Russian sanctions? The World War III scenario very much scares me at this point.
Before he left for the NATO summit, Joe Biden said the following, which summarizes the reasons for the US in bringing about this war and making it continue:
“We’re at an inflection point, I believe, in the world economy, not just the world economy, the world, that occurs every three or four generations….Now is the time when things are shifting and there’s going to be a new world order out there, and we’ve got to lead it. We’ve got to unite the rest of the free world in doing it….”
If that bellicose statement doesn’t scare you, then try out the following:
Joe Biden speaking to members of the 82nd Airborne Division in Poland on March 25th:
'You’re going to see when you’re there... you’re going to see women, young people, standing in the middle, in front of a damn tank,'
Joe Biden was referring to the troops being in Ukraine soon. Joe Biden has called Vladimir Putin a murderer and a war criminal on more than one occasion. In Poland on Saturday March 26th, he went one further, essentially calling for regime change in Russia:
"For God's sake, this man cannot remain in power"
The White House was quick to walk back both remarks. However, I take them as representative of the discussions being held at the upper levels of the Biden Administration. Gonzalo Lira, who broadcasts from the now encircled city of Kharkov, figured out this phenomenon of Biden saying what is being discussed, I believe. Gonzalo Lira had two grandparents who died from Alzheimer’s and senile dementia. He points out that when they got in the later stages of both diseases, someone could tell them something confidentially, and they would forget and announce it to whole room ten minutes later. As Gonzalo Lira said, “They had no filter.” Ditto Joe Biden. For the record, Gonzalo Lira has also noted that the Ukrainian SBU (secret police) really want to find him in Kharkov and haul him off. Lira’s broadcasts are available on Youtube.
When I published the last two newsletters, I expected some pushback from some readers. On the whole, readers have been very complimentary in their emails to me. The sole exception to this have been readers who attended Harvard. Last week, I included the comments from one reader calling me to task for using or relying on Russian news sources. Unfortunately, the only good news sources on this conflict are from Russian oriented sources. Today, I talked with a roommate from my Harvard days. He won a Rockefeller Foundation fellowship to go spend a year in Moscow during the Soviet Union. He then attended graduate school (or as I called it “gradual school,” others called it “hiding out from real life”) at MIT for ten years studying Soviet defense policy. He married a Russian woman and brought her back to the US. I asked him today what he thought about the Ukraine war. He said “Putin has committed a colossal blunder that he can’t recover from.” I pointed out that Putin took the least bad choice available to him. He asked me what I meant. I said “What about the 30+ US biowarfare labs in the Ukraine?” He said “That is ridiculous to even say.” I said “Victoria Nuland confirmed their existence in a Senate hearing.” He said “This is so insane I am not even going to discuss it.” I am so glad I resisted my indoctrination at Harvard.
The third pushback I received was the following email, also from a Harvard graduate:
“Todd, you’ve really gone off the deep end this time. LOL One country invades another and somehow you find a way to blame the country being blown to bits. Originally, you seemed to work hard to do your research and be objective. You previously understood that most conspiracy theories were fabrications that couldn’t withstand any real scrutiny.”
“In particular, because of your real world experience, you were aware of how difficult it is to pull of or even just hide a conspiracy (especially because there almost always are dissatisfied parties). My sense is your desire --- whether conscious or not --- to believe many of these convoluted (tortured?) paths has taken you on some quite strange side-trips. “
“OK, maybe not just “side-trips” these days I should say “off the rails” perhaps? Ha ha ha”
“Anyway, this is a circumlocutious way to say I value your economic and financial analysis the most and was disappointed it has gradually become a minor part of your otherwise entertaining, if somewhat incoherent, ramblings. You have the proven ability to assess what current conditions might portend but, just as your path has resulted in your going down the conspiracy rabbit hole, you have almost totally abandoned your financial analyses.”
Okay, I have not spent much time in the last two newsletters on economic analysis, as the Ukraine war is determining the entire world economic order for the next twenty years or so. I am still watching and trying to figure out what is changing, and what the new world trade flows will look like. We are not going back to normal (2019) or even the weirdly semi-normal of 2021! Everything is changing.
Dear readers, if you even have the least desire to understand how the Ukraine war came about, I am assigning you the homework to watch Oliver Stone’s “Ukraine on Fire.” If you watch this and understand it, you will be appalled. “Ukraine on Fire” is on Youtube, which should appeal to those readers who are as devoutly cheap as I am. While you are on Youtube, I would suggest you also watch part of the commentaries by Alex Christoforou (from Athens), Alexander Mercouris (from London), and Gonzalo Lira (from Kharkov).
When it was announced that Europe was going to supply MIG 29 fighter jets from eastern European countries to Ukraine, I concluded this would trigger open conflict beyond Ukraine’s borders. Fortunately, it appears enough sensible parties have survived the Biden purges of the Pentagon to convince whoever is running the US government at this time not to allow this. Hungary is the sole NATO country to figure out what is happening and declare its neutrality in Ukraine. Turkey has chosen to egg Azerbaijan on to re-start the war in Nagorno-Karabakh in order to involve the Russian peacekeepers there in another war.
There is the very real danger that the flames of the Ukraine War will fanned enough to spill over to other areas. Today, a Polish general suggested that Poland should take over the Russian territory of Kaliningrad (formerly Konigsberg) on the Baltic. Poland proposed that it be allowed to send a peacekeeping force into western Ukraine. Fortunately, this was not approved by NATO, and it was seen as a land grab for the western eight provinces of Ukraine that were Polish until 1945.
The sanctions the Biden administration convinced the G7 to place on Russia are backfiring as we speak. These were designed as a knockout blow to the Russian economy. They were designed for the Russian economy to fail, and force the regime change the Neocons so desperately want in Russia. Instead, Russia is rapidly adapting to the sanctions and is reordering trade flows to non-western partners. A new currency unit should be announced in the coming week for trade between China, Russia, Kazakhstan, Kirgizstan and Armenia. Other countries will join this trading currency unit. Russia did a masterful move this past week and announced that “unfriendly” countries (those that imposed sanctions) can pay for their natural gas in rubles. This forces western Europe and Japan to buy rubles on the international market to pay for Russian natural gas imports. This strengthens the ruble and internationalizes the ruble. At some point, I expect Russia will announce a two level ruble- the domestic ruble will be gold backed to preserve the buying power of the Russian consumers, and the international ruble will be used for trade. South Africa did two currencies with the rand during the apartheid years.
How well is Russia adapting to sanctions? Somewhat well, it appears. McDonalds closed its 850 locations in Russia and ceased doing business. The Russian government seized the restaurants and reopened them with local management. The supply chain for McDonalds was all Russian. The chain has been rechristened “Uncle Vanya’s” and they took the golden arches, turned them to the side, added a vertical line to form a golden “B” (the Cyrillic letter for the V in Vanya’s). The result is actually a hoot:
The Russians are still getting their “Big Macskies.” Okay, I made that sandwich name up. The Burger King franchisee for Russia refused orders from corporate headquarters in the US to cease operations, and instead has just remained open. The rest of the Russian economy will adjust to the sanctions given some time. The sanctions have only served to unite the Russian people more behind Putin, as it has demonstrated that Russia’s attempts over 30 years to become part of the west have failed and Russia must forge an independent path.
The danger at this point that I see is the potential for a false flag attack to justify NATO forces going in to Ukraine to save the Ukrainian army and government. A large part of the Ukrainian army is in the process of getting wiped out in the eastern Ukraine. This takes time, but is happening. The Ukrainians are almost out of fuel and ammunition. The Biden administration has been warning about a chemical attack in Ukraine by Russia. This is difficult to understand, as Russia has destroyed its chemical weapons years ago under verifiable circumstances. The Ukrainian army tried one chemical false flag attack already by blowing up ammonia tanks at an industrial complex they were evacuating. A nearby town was spared as the winds shifted the ammonia away from the town. The US still has chemical weapons stocks, and the West invented chemical weapons attack stories in Syria to stoke hate against the Assad regime. (yes, these were false. Pearson Sharp of One America News actually went to the town where the chemical weapon attack was supposed to have occurred, and had Syrians relate that western NGOs had staged the footage of children in a hospital). A larger concern is that the US uses a small tactical nuke in Ukraine or against a weapons supply site in Poland to blame Russia. Russia doesn’t need to use tactical nukes in Ukraine. The Russians have thermo baric bombs instead, which accomplish the same task.
I will also warn my readers that there were two rules concerning Mr. Putin:
1. Don’t screw with Putin
2. In case of doubt, refer to Rule #1
I use these same rules in relation to my name. Parties who have ignored this have rued the day they decided to ignore the rules. The western sanctions have caused a lot of damage to Russia, but Putin has survived. Now that Putin has survived, at some point he will get even. Unfortunately, that means he will get even with us. History has taught us that the man does not forgive…..
Buckle your economic seat belts. The going is going to get brutal.
On to this week’s graphics: