Putin Bad, Gold Good
New Cold War Will Push Gold Higher
Make no mistake: Russian President Vladimir Putin is an enemy of America. In fact, he may even be the enemy: a bigger threat than China, terrorists, and Iran combined. . .
And the thing is, I don't think the U.S. is at all prepared for a return to Cold War-style antagonism and confrontation.
It seems as though America's political leaders — and Europe's, for that matter — think the world has evolved. That once you make it to the U.N. Security Council, we all suddenly respect each others' borders and sovereignty. That war-mongering and aggression only exist in the small-time, so-called rogue states like Syria, or Iran...
This complacency, or outright misunderstanding of the world, plays right into a man like Putin's hands.
After our stupid excursion into Iraq, the U.S. is not eager to enter into another conflict. There's no stick behind our talk...
Putin knows this. He counts on it. He used it to bring Georgia back into the Russian fold. And he knew he could walk into Crimea, too. The U.S. and Europe weren't going to stop him.
As you can see on this S&P 500 futures chart showing yesterday's pre-market action, the price rallied sharply around 7 am...
This was right about the time Putin said all he wanted was Crimea, and he wasn't interested in splitting the Ukraine. And the traders swallowed it, hook, line, and sinker.
I find this troubling. Not only do we believe Putin's lies, we want to believe his lies. We want to be deluded into thinking that Putin has no greater ambition, that he has no desire to continue taking back all the territory Russia lost when the U.S.S.R. fell, that he will fall back in line and be good little President Putin — because the alternative is just too painful to imagine.
The Cold War Comeback
A couple of weeks ago, after Putin seemed to back off Crimea, I wrote that it would be naive to think that he was done with the former Russian territory.
He wasn't. He's annexed it. It's Russian now.
And I contend that it's naïve to think that he doesn't want all of Ukraine. He stands to gain pipelines and huge wheat fields. He stands to become a Russian hero, the man that restored Russia to greatness.
Are we really so naïve to think that sanctions will stop Putin from meeting his date with destiny?
Putin's playing for a lot more, and the U.S. better take notice.
Here's a bit of his speech to the Russian Parliament:
"Our Western partners headed by the United States prefer not to be guided by international law in their practical policies, but by the rule of the gun...They have come to believe in their exceptionalism and their sense of being the chosen ones. That they can decide the destinies of the world, that it is only them who can be right."
He got a standing ovation.
Personally, I don't much care if Crimea is now part of Russia. And it won't be some misplaced moral outrage that hits me if (when) Putin moves to take the rest of Ukraine. I will be mad because I know that Putin is playing a different game than the U.S. and Europe.
And this isn't a zero-sum game. Putin intends to win this game, and he intends to make America the loser.
The Russian people have given him the green light. His approval rating is reportedly over 70%. The next step will be for him to consolidate his power by changing the rule that keeps him from staying more than two terms as president.
The trouble started when Ukraine president Yanukovich said the country would seek to join the Russian Federation as a trade partner, rather then the European Union. The Ukrainian people preferred the EU for obvious reasons, and they revolted.
At that point, we had a choice. We could have faced the fact that Putin doesn't care about democratic processes. We could have respected this enough to ask Putin what he wanted and offer to turn a blind eye while he made a token land grab.
Instead, we chose deference to our European allies and our own world view, and we demanded that Russia leave Ukraine alone and respect the democratic process. That was a big blunder. It place Putin in the role of the bad guy, a place he's happy to be. And it put him in a position of using force, a position we are loathe to be in ourselves.
And so the scoreboard now reads Putin: 1, US/EU: 0
I'm not certain what a new Cold War will mean for America. Economically speaking, we are not really exposed. Russia owns maybe $185 billion worth of Treasuries. As much as he may not want to hear it, sanctions will hurt Russia more than they hurt the U.S. or EU.
Two outcomes that seem somewhat certain are stronger prices for Treasuries (and lower yields) and stronger gold prices. I've already shared my favorite gold stocks with you, Allied Nevada (NYSE: ANV) and McEwen Mining (NYSE: MUX). You can't buy MUX now though. Earnings estimates have headed lower and the company is slowing production at a couple of its mines.
I can also suggest a nice gold fund that trades around $10 a share, has 25% upside and pays a solid 10% annual dividend. The details on this fund are right here.
Until next time,
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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