Geopolitics of Ukraine: Rumors of War Roil the Markets , by Al Martin

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by Al Martin

Geopolitics of Ukraine: Rumors of War Roil the Markets

(11-11-14) Last Thursday the markets were roiled when Ukrainian President Petro Poroshenko held a press conference wherein he threatened to declare war against Russia and essentially announced that he’s “all in” as they say. By “all in,” he means that he has all of the Ukrainian military and all the reserves stationed against the Russian border and against the so-called Eastern line that the Russians themselves have drawn, behind which as Poroshenko correctly points out are Russian soldiers pretending to be Ukrainian insurgents that are occupying a third of Ukraine. Poroshenko sees his position differently now that he got a little support from the European Union. Part of that support -- although the Europeans never expected that it could be drawn on because it’s standard language – was a commitment to support Poroshenko militarily. The money he got from the European Union comes with certain conditions. One of those conditions is a standard term that the European Union makes when it starts passing money out again – that they’re willing to support Eastern European nation-states against Russian aggression. The problem for the Europeans is they never expect to stand behind this because of the way it’s written – that Russia has to be the aggressor.

However as Poroshenko points out, Russia is already the aggressor. They’re occupying a third of Ukraine already, so it becomes a problem of semantics and language. What Poroshenko is doing is forcing the Europeans to pony up as it were pursuant to their agreements to help him. What he claims is that the Russians have already moved military forces across his border and they have in effect declared war against his government.

So could this situation deteriorate into WW III? That’s the hook and that’s what he’s doing because nobody wants a Third World War, which is in effect what would happen if the Europeans get involved in a big way militarily.

What bothered the markets Friday is that when Poroshenko has made these grand pronouncements, you see statements out of Germany’s Angela Merkel’s office and Vladimir Putin’s office about it pretty quick – and you didn’t see that Friday. It was very quiet and that’s what makes people concerned.

The implication is that both sides realize how serious the situation has become and it is likely that Merkel cancelled appearance as did Vlad. It is also likely that the two of them are in discussion now about how to ease the situation because nobody wants this thing to deteriorate into a Third World War.

The timing of making such a statement was right for Poroshenko and he knew it. Uncle Vlad had been making conciliatory gestures to the Ukrainians guaranteeing them gas supplies for the winter. But that ain’t going to happen now.

Putin understood that he had over-escalated the situation in Ukraine and was trying to back away from it. What did he do? Not only is he occupying a third of the country of Ukraine and seizing Crimea but then threatening to cut off their gas supplies and otherwise do everything he possibly could to destabilize the Poroshenko Regime. He escalated the situation as much as it could be escalated and he over-escalated it and he knew it. That’s why the Russians all of a sudden got very conciliatory.

Poroshenko also realizes that after the 2014 elections there’s a change in Congress coming and it will be a regime change that is less sympathetic to him. He understands that now is the time to act and play out his hand. He knew the Europeans were nervous about getting dragged into this situation militarily. He understands that the European economies are now in deflation. The ECB is going “all in.” They’re desperate to maintain their socialist welfare model. The situation on the entire planet is tense, so now is the time for him to try to get Russian troops out of his country.

The market reacted with a “fear bid” coming into the Gold and the US Treasuries as well as the Dollar. The Euro has just got hammered the day before based on Mario Draghi’s remarks wherein he delivered a lot more than what the market was looking for when it came to the specification of the new trillion dollar QE 4 program for Europe. He delivered much more detail on that than the market was looking for. He hammered the Euro down which was his intent. That had already forced up the Dollar so the price of Gold should have declined. And US Treasuries should also have declined. That’s how you can tell the situation is tense.

In other words, any asset that is essentially a hedge against the US Dollar -- which Gold certainly is – should have actually declined and it didn’t. You saw an overnight low at 1130 in the Gold and then a substantial rally ensued and that rally just gained momentum throughout Friday because people were afraid to go home short. Traders had gotten used to no longer being fearful about going home short over the weekend. People are now frightened of that because they understand that the calm that has prevailed over the last 8 weeks or so is no longer there and has been replaced by even greater tensions.

The conclusion for the markets is – assuming the Third World War doesn’t begin in the Real Borsht Belt of Ukraine and Russia -- the fear bid will come out of the market and US Treasuries, Gold and Oil will move lower. We shorted all of them on the close Friday when nobody else would because everybody was scared shitless and covering their shorts. That’s what forced the price up.

However with the understanding that nobody wants a Third World War, Poroshenko’s intent is to force Putin and Merkel to work out some sort of a deal regarding Ukraine -- whilst he still has support from the Obama Regime to do so. Because once Congress changes hands, suddenly you have Wealthy Bushonian Republicans, in control of Congress in the way they haven’t really been in control since 1930, who are sympathetic to Putin because they have so many cross-financial interests with Putin personally and the Putin Gang of Billionaires. As Mitch McConnell said the first thing they’re going to do is to tone down the Obama Regime sanctions. Why? Because too much Republican money gets intertwined with a lot of Russian money and that’s particularly true in the Oil business.

Putin knows that he’s got a much more sympathetic ear in Washington coming -- but it’s not there yet. He would have to give up something to get Washington’s support in Congress. He wants the sanctions lifted. Bushonian Cabalists who now control Congress want the sanctions lifted because they’re also getting hurt by them in a way. They are being put under the same scrutiny that Vlad is because so many Swiss and Liechtensteinian banks where not only Russian Billionaires but Bushonian Cabalists are being put under the microscope.

Stay tuned…

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.

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