THEME: It’s very difficult to un-cook a steak — Russia/Ukraine, China, business, private investments

February 28, 2022

Michael’s CIO (Check It Out) Report on the weeks just past — events, sarcasm, and global macro reflections

Graphics by Michael Ashley

THEME: It’s very difficult to un-cook a steak — Russia/Ukraine, China, business, private investments

RUSSIA/UKRAINE

• War: An 8-year war escalated after Russia recognized the Donetsk and Luhansk separatist regions in Eastern Ukraine as independent and then launched a full scale invasion of Ukraine by land, air, sea, and internet — Russian President Vladimir Putin’s objective is to put Ukraine back under Russia’s thumb
• Late penalties: Imposed sanctions are supposed to raise the costs of conflict for Russia, but A) Their threat didn’t deter, and B) They’ve been levied late and reluctantly because in a Catch-22, they can also destabilize European and U.S. economics
• Support: At least the world seems to be rallying behind Ukraine and Europe will provide a half-a-billion euros of armaments
• Hammer and sickle: Russia ranks as the largest country by land mass spanning 11 time zones (Canada at half the size is #2), #9 by population, #11 by nominal economic size (aka, gross domestic product or GDP), a comparatively low #66 by nominal GDP per person, and a rather low #45 by economic complexity. Russia has a high level of specialization in nuclear reactors, iron, nickel, and other metals, and top exports are petroleum, gas, coal, and wheat. In other words, for all its size, resources, population, and storied history, Russia is economically much more like an emerging nation (highly dependent on commodity production) than a developed country. Russia has little in the way of enviable hardware technology or manufactured exports — no one is eager for Russian electric vehicles, refrigerators, washing machines, microwaves, or smartphones😤but Russia is a world power in military equipment and cyber weapons!
• Admiration: Ukrainian president Volodymyr Zelensky has gained global admiration for his leadership and oneness with his country, “I need ammunition, not a ride.” The bravery of the Ukrainian people has not gone unnoticed. And Elon Musk launched Starlink internet service for Ukraine almost overnight🛰
• Crisis: We have been in geopolitical crisis for quite some time; those who think we “may” return to a Cold War scenario have not recognized forces in effect over the last two decades with Putin patiently playing political chess as the one real leader in Moscow, the Kremlin manipulating western social media, Siberian energy flooding Europe, and Russia influencing and invading Georgia and Ukraine
• Next: Is an energy, migration, or food crisis next? Will Russia cutoff Europe from its energy supplies in retaliation? Will Ukrainian refugees inflame rightwing populism in Europe?😟Will there be famine in many of the world’s poorest African countries if Ukrainian wheat, corn, barley, rye, and sunflower crops and exports are destroyed? — The knock on effects are global not local!
• Imagine: …🕊
• Flop: The 1994 Budapest Memorandum on Security Assurances failed to protect Ukraine — 🤦🏽‍♂️major fail🤯 — Europe’s security architecture is at an inflection point
• Non-NATO: 30 countries are part of the North Atlantic Treaty Organization (NATO) which has security guarantees, not just assurances. Noticeably absent and possibly re-evaluating whether the world or the rest of Europe would defend them in a crisis are Finland (on the border of Russia, but part of the European Union) and Sweden. Also not part of NATO are Switzerland and Austria (in Europe’s center), Moldova (on Ukraine’s border), Bosnia and Herzegovina, Serbia, and Kosovo (east of Italy and north of Greece), as well as the island countries of Cyprus, Ireland, and Malta
• Western narrative: Lets also not forget that fatal conflicts have been raging mostly in Asia and Africa for years, including in Myanmar, Afghanistan, Yemen, Ethiopia, Somalia, Syria, Congo, Nigeria, and Sudan

CHINA

• Contrary to some popular rhetoric, a Chinese invasion of Taiwan is probably not imminent. The Ukraine crisis has made President Xi Jinping’s domestic stagflation challenge harder at a time when stability is desired ahead of China’s 20th Party Congress in autumn 2022, where he will probably extend his rule to a third term — China can be patient

BUSINESS

• Shaky: Stock, bond, and public investment market prices are bumping up and down on a daily basis as people and politicians try to guess and influence what happens next between Russia and Ukraine
• Spendy: Despite goods shortages, omicron, and lackluster sentiment, U.S. consumers continue to spend🙂and support the economy
• BumP: BP (the old British Petroleum) will abandon its 20% stake in giant Russian oil company Rosneft and write down up to $25B of asset value😯
• There is no substitute😎Volkswagen may soon spin off its Porsche luxury vehicle business through an initial public offering of public stock
• No rights: When it comes to the realm of intellectual property law, artwork made by machines can’t receive copyright protection. The U.S. Copyright Office ruled that “human authorship is a prerequisite to copyright protection”
• Unchartered: For the eighth time in 12 weeks, a Tom Holland movie is №1 at the box office. Sony’s videogame adaptation “Uncharted,” starring Holland and Mark Wahlberg, led ticket sales for its second weekend. “The Batman” opens on Friday🦇

PERSONAL

• VC, RE, and CLOs: This past week I attended a Forbes/Shook On-the-Road private investment/alternatives conference, a SuperMint NFT/metaverse conference, and spoke with several firms about private venture capital, real estate, and collateralized loan obligation (CLO) investments
• Niche real estate: Next week I’ll lead a discussion on niche real estate investments at the marcusEvans 35th Private Wealth Management Summit

Best prayers and wishes for the week ahead😃,
Michael
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Michael Ashley Schulman, CFA
Partner / Chief Investment Officer

“We deliver bespoke investment solutions, innovations, and unique perspectives to you and your family.”

Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-22–04

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Originally published on LinkedIn.com.