The world is living through a perilous moment. Ukrainians are offering it a lesson in fortitude.

Birdsong above Kyiv.

Soon, the curfew on the city will lift.

And millions can emerge from their bunkers.

From our conversations over this weekend, many are hungry, tired and fearful.

But the spirit among Ukrainians – here and in other parts of the country – is remarkable pic.twitter.com/VaMjzM6c9b

— Nick Beake (@Beaking_News) February 28, 2022

For us, the impact of the Russian/Ukranian war has, until mid-Sunday afternoon, been more voyeuristic than threatening. Now there is an existential threat to us, albeit one that still seems remote.

The realisation that a nuclear attack could be launched by Russia against any ally of Ukraine came as a cold chill to me and my family as we read the breaking news on our phones.

It would  of course be the last act of desperation for Putin to launch such an attack. We have no idea whether Nato could defend itself against an air, land or sea-born cruise missile with a nuclear warhead. But once has been deployed, the Nato rules make a quick and drastic escalation of the situation almost inevitable. Hence the chill.

And if you discount the existential threat, even the escalation we have had this weekend, brings new risks. As Robert Armstrong’s column reads this morning

The world should be in no doubt that further escalation in Europe can lead to a global economic crisis, given its likely spillover effects into inflation and growth at a time when we are just exiting Covid-19. G4 central banks will then have to quickly forget about tightening monetary policy.

Given Russia and Ukraine are so important for the global grains market, any hit to crops or exports would just be reflected in higher prices for so many EM countries and particularly Africa, where foods account for a huge portion of their CPI baskets.

That means further falls in the value of our pension pots etc..

From an investment strategy point of view, economic uncertainty is increasing, with the risks around inflation higher, and the risks for growth downward. This tends to suggest a downward bias for equity valuations.

For those of us who look after other people’s money, Derek Scott offers this diagram , he used to train trustees about fortitude.

Learning from Ukraine

Ukraine has harnessed not only a national identity few of us knew it had, but also considerable military power. Clearly the lessons of the Crimea have been learned. It is inspiring Western nations to put in place sanctions that will destabilise Russia, but with such an unstable man in charge, destabilising carries its own risks.

It seems that over the past few days Europe , Germany in particular, has raised its game. Britain’s stance last week of not allowing Ukrainians into the UK, looks even feebler in the light of Europe’s universal acceptance of Ukranian refugees.

Europe’s decision to not just provide finance but weapons to Ukraine, seems to have mobilised Belarus to direct military involvement. But it now seems unlikely that a blitzkrieg annexation will happen. The consequences of a protracted occupation of an unwilling Ukraine, on the resources of a financially hobbled Russia, may be what’s driving Putin to launch his elephant – the use of weapons of mass destruction.

There are a few supporters for Putin in the Western Hemisphere, Brazil unsurprisingly and a few “morons” in the USA, but the West seems unified in condemnation and action.

In the East, the two major power-blocks, China and India are sitting on the fence, neither deciding for or against Russia, hoping – it would seem – for a realignment of Russian trade their way.

Indeed Russia now looks not so much the sick man of Europe, but the sick man of Asia.

The unspoken losers in this are the Russian people, who will bear the brunt of the sanction’s impact and will feel the vilification of the world as Russia is isolated from sport and culture (the 2018 world cup seems a world away). They have nothing to fall back on – if Putin fails.

Whether “mother Russia” will be proud of its war comes down to the degree Russia has moved away from serfdom and towards a modern democracy with access to independent information. From what I hear, there are two cultures, one looking forward and one looking back, Putin is looking back and so long as he can rely on the support of enough of his people, the views of progressives will count for nothing.

Which is why I am , and will remain,  worried about the threat of Putin to escalate this war. If he still has a sufficient power-base, he can stop at nothing, for he has so little to lose. It is only if he loses the power he has from “mother Russia” and the military, that his game is up. But there seems no sign of capitulation within either of these groups. So we will need to be resilient over the next few months. We will need to step carefully , for there may be trip-wires which could trigger escalation.

Meanwhile , we pray for the peoples of Russia and Ukraine who will suffer more than we can imagine.

Ukrainians making Molotov Cocktails in Kiev.

On hope

A thread to brighten a Monday morning.

Stipulating that we have no idea how this will turn out, it is worth tallying some of the surprises thus far.

— Eliot A Cohen (@EliotACohen) February 27, 2022