The Unended War and the Unending Crashes

• 27-May-22
• admin

In Ukraine, the unconditional surrender at the Mariupol Azovstal Steel Plant last Monday would appear to be a watershed event in the war.

 

A few weeks ago, the 2500 defenders besieged in the catacombs of the factory were described by Zellensky to be an unspent force and was a sustainable defence preventing a total Russian victory in Mariupol. Even Biden added to that claim that this would be a continuing defence. Expectations were set high; these Ukrainian defenders would be fighting to the death and never surrender.

 

As it turns out, it is another BS story emanating from the Ukrainian side. In this blog, we have listed the large number of lies that have come out from Ukraine that understandably were meant to keep westerners fooled so that they would continue to pour money and weapons into the country. But anyone with some exposure to military history, as this writer has, would know how implausible the Ukrainian claims were. I wrote a couple of weeks ago that the trapped Ukrainians were basically equivalent to being caught in a dungeon, incapable of a break-out.

 

Sure enough, throughout the whole of last week, the defeated force in Azovstal emerged in unconditional surrender. The first batch of troops came out probably without permission from Kyiv, but as the numbers multiplied quickly, Zellensky started to create the narrative that he ordered an “evacuation”…to save the heroes of Ukraine. “Evacuation” is another falsehood. It was unconditional surrender, and it accelerated over three days, originally without orders from the Supreme Command in Kyiv, until all 2,430 defeated soldiers were taken away to Russian-controlled areas, and one would imagine, eventually to Siberia.

 

It is the beginning of the end of the war in Ukraine.

 

Why?  One side calls the Azov battalion “nazis”, and if the disfiguring tattoos on them are anything to go by, there is no doubt that they are such. Some even carried WW2 Waffen SS formation insignia and one man has a huge portrait of a well-known nazi sympathizer tattooed on his arm. The other side calls them “nationalists”. Whatever they are, they have been fanatical, and if the Waffen SS in WW2 is anything to go by, fanatical soldiers are typically “elite”.

 

This week, the elite forces of the Ukrainian forces in Azovstal have been succumbed, and there were no firefights to the death, as was preferred by their supreme commander, or more appropriately, comedian. They just gave up without a fight.

Mariupol is a major turning point in the war.

 

The less elite forces in the Donbas, comprising of territorial army soldiers, are now front and centre in the war against the Russian invader.  The ideologues of the Azov battalion plus well-trained marines in Azovstal gave up without a fight at Mariupol after just one month (after the rest of Mariupol was taken) of a siege - in contrast, the siege of Leningrad during WW2 lasted more than 3 years with a million deaths due mainly to starvation. What then should we expect normal men, however brave, of territorial units to do in the face of intense Russian artillery attacks in the Luhansk and Donetsk fronts?

 

Ukrainian units in the Donbas are beginning to see desertion in the ranks. Apparently, there is photographic evidence that a unit called the 115 Brigade has seen two platoons leave the battlefield, disobeying orders on the basis they have no logistical support.  Will it spread to the larger force in the Donbas? We shall see.

 

You will not hear about these incidents in the Western media, more concerned about putting up a brave front than in recognizing the stark realities of the situation. Look at this article in the Wall Street Journal this week…

 

Here is the link: https://www.wsj.com/articles/ukraine-russia-war-end- 11652967707?reflink=desktopwebshare_permalink

 

This is behind a pay-wall, so let me cite some highlights in the article:

“Moscow failed to achieve its initial goal of a lightning strike into Kyiv to take down the government. And success for its Plan B, a scaled down offensive to push Ukrainian forces back in the east and southeast of the country, looks increasingly difficult.”

 

“Given the new realities on the ground, here are five possible scenarios on where the conflict could go, some of which could follow from another.

 

1. A Russian collapse
2. A Ukrainian collapse
3. Quagmire
4. Ukrainian advances
5. Escalation”

 

The article explains how each scenario would play out. It is basically the standard Western media view. The author argues that Scenario 1 will likely happen, being the worst-case scenario for Russia with all the other 3 (other than No 2) being different versions of No 1.

 

Well, since I don’t buy the western narrative (and neither do I accept the alternative narrative lock, stock and barrel), because I have seen too much analysis and evidence of the unfolding events in the war, I think there is a No 6 scenario – “Russia advances”. As a matter of fact, it is already happening.

In this scenario, there is no Ukrainian collapse. After all, if there were not all the American and NATO military and financial support of the country, Zellensky would already be gone. But the massive aid is a fact, with US$40billion from the US approved by Congress just a day ago, and a couple more billions from other NATO countries on the way, the current Zellensky regime won’t just disappear. Since this is a proxy war between Russia and the US and her allies, there will be enough Ukrainians left to last to the last man standing… It’s just going to be a terrible fate awaiting the long-suffering but competent Ukrainian army. They will be fought to the death by their masters, or surrender.

 

At this moment in time, the action in Ukraine is focused entirely on the Donbas front. The battle for Mariupol is over, and so is the counter-offensive in the northeast of Kharkiv, where small units of the Ukrainian army moved into a vacuum left by a tactical redeployment of the Russian forces there a couple of weeks ago, relieving shelling of Kharkiv defences. Since then, the Russian army has retaken most of that area, pushing out Ukrainian forces.

 

In the Donbas, the Russian army has been making advances. Three cauldrons are being established with a total force of about 16-17000 Ukrainian troops being trapped in these encirclements. The Russians captured a major objective (Popasna) in the middle of the front several days ago and pro-Ukrainian maps are showing a salient extending to the west of the region, looking like it will turn north and south to complete the encirclement.

 

If the morale of the defenders is negatively impacted by the Azovstal surrender and do the same further north, the battle of the Donbas will also be soon over. No one knows if or when this will happen, but it completes the 6th scenario. Russian Defence Minister Sergei Shoigu just announced that Moscow is nearing full control of the separatist region of Lugansk in the Donbas region, saying that the liberation of Lugansk is “nearing completion”.

 

Unfortunately, even if Scenario 6 happens, the war is unlikely to end there. A successful Russian campaign in the Donbas is unlikely to mean the end of hostilities. This is mainly because the American government does not want it to end. They have stated the war objective in no uncertain terms, use Ukrainians, not Americans, to wear down the Russians in this military showdown. How can it end?

 

The Western media, being the propaganda machine for the US government, bleats on and on how the Russians are being defeated. I do think they actually believe all the crap they are putting out because they simply do not want to believe the information from the other side. They cite the defeat of the Russian army in the Battle for Kyiv, the fact that it has taken nearly three months to take Mariupol, the battle in the Donbas developing into a quagmire, as well as massive Russian manpower and material losses, and that the execution is not the short blitzkrieg success Putin expected.

 

When did Putin discuss Russian battle plans with Ukraine or the West?

Voluminous analysis on the other side by independent media, with links to embedded reporters on the various fronts, reveal a very different picture. It is said that Kyiv is a feint with no serious losses there, diverting Ukrainian defences away from the Donbas and the south. The Mariupol/Azovstal battle turned out exactly as the alternative version expected to happen, contrary to empty boasts by Zellensky and Biden.  The “massive losses” suffered by the Russians have not brought in any of the rest of the Russian army (80 percent are not involved in Ukraine) into the fray. And finally, the Donbas campaign has a Clausewitz objective – destroy the enemy’s army, not occupy territory - in contrast with the Hitlerian strategy used by Zellensky and the west - stand and fight.    

We all know who was the better general.

 

The battle is now an artillery war – and Russia has way more artillery than Ukraine does. What’s more, the 100 pieces of M177 artillery sent by the US and Canada to bolster Ukrainian’s hopes of evening the odds are seen in drone footage to be hit as soon as they start firing and while being transported to the front.  Russian resources, including time, are not being depleted in a war of this kind. As a matter of fact, the Russians have just announced the destruction of a large shipment of western arms in the ongoing air, rocket and artillery offensive. They have all the time in the world to turn the Donbas into a WW1 type Western front of trenches, artillery duels and shell-shocked soldiers. That took four years to play out a century ago, and we have not even finished a third month today.

 

Anyway, while I have read military histories for more than 50 years, I am not some retired general. I read both sides’ analyses with great interest and given that the Ukrainian accounts have had too many tall tales (from ghost pilots, “unkilled” Russian generals, failed fights in Snake Island and Azovstal to “dead” civilians resurrecting to dispute official accounts), I tend to take whatever comes out of the Ukrainian and western media with a huge pinch of salt.

For what it is worth, Russian sources are usually correct in time (ie confirmed later by Ukraine), and that boosts confidence in what they say.

 

With that said, the Russians do not discuss their plans with any of us. They generally just state boring statistics. If those are halfway correct, then Ukraine has lost, and is only on life support from the west that will end soon with democratically-elected politicians being voted out of leadership positions because of their mistakes in this catastrophe, long before Putin leaves office.

 

Yes, the war in Ukraine is not yet ended, even if the Donbas battle will likely end in weeks rather than years. This is not the battle of Verdun or the Somme, or the battle for Seelow Heights before the Soviets took Berlin in 1945, where millions of combatants were involved in artillery duels using tens of thousands of heavy guns. In the Donbas, we are looking at several thousand soldiers (17,000 on the Ukrainian side) and a few hundred artillery pieces. It pales in intensity and scale with WW1 and 2 artillery battles. Current Ukrainian casualties are estimated at 100,000, with 20 percent of that in the fight for Mariupol while Russian losses seem to be around 15,000 to 20,000.

 

It’s a lop-sided battle. They should end it as soon as possible. But no, the Americans want to prolong it…the last Ukrainian is poetically already standing in a queue.

 

While the battle for Donbas will end soon, the war will go on. I suppose in response to the West’s desire to embroil Russia in a forever war, hence weakening them, the latter will do tit for-tat.

 

After Donbas, the Russians will free up resources to continue building the land bridge to the west, across to Mykolaiv, and then Odessa. I don’t even know if the Russians will launch an attack on Odessa, since that is a very difficult military objective as it is a much bigger version of Mariupol with 2500 kilometers of underground tunnels. Besides, the population of Odessa is 35% Jewish, and will put up fierce resistance in urban warfare.

 

One thing we already know about Putin and the current war.  He is evidently very sparing in the use of military resources. He avoids urban warfare, probably based on lessons learned in Grozny, although the Russian army is now deploying the formidable Terminator BMPT tank in Donbas cities, specially designed to fight in built-up areas.

 

An essential element of the Scenario 6 that I have described above – that of Russian advances in the Ukraine – is that they continue to enjoy a win in the sanctions war with the west. The oil and gas war against Russia has become a spectacular defeat for Brussels. Firstly, European countries are opting into the gas-for-rubles scheme, plus some 40 German corporations who value their own survival more than the lost war in the Ukraine. Justifiable indignation and intense fear, over Russian aggression is not yet at the same level of distress as immediate pain caused by the loss of gas from the East.

 

Secondly, the Brussels campaign to organize an oil embargo has met with strong resistance from several EU countries led by Hungary who see this as an attempt to cause trouble in the pipeline-oil dependent economies of land-locked EU members, with leaders whom the EU leadership would want to become the victims of regime change. That contest of will has ended with a trouncing of the Brussels proposal. Dead on arrival.

 

Thirdly, the financial sanctions, aimed at the Russian economy that was designed to inflict on ordinary Russians so painful an economic recession that they would throw Putin out or at least starve the country of resources to continue the war, have also failed. Yes, there was a flare-up of inflation in the first month after the sanctions were imposed but this has fallen back down into a comfortable range for the Russian central bank to manage. Putin specifically mentioned that Russia’s inflation is now manageable in a recent speech. Exports are booming. Even the Russians’ gourmet food, MacDonalds, is being bought over by local Russian business, and it is unlikely that they won’t know how to fry hamburgers. To put it simply, before military activities end, the sanctions war is already over.

 

There is no better evidence of this than the amazing rise of the Russian ruble. The currency, on the back of global demand for oil before it goes much higher, is now at the level of 62 Rubles per USD, an unbelievable recovery from about 135 Rubles per dollar when Biden crowed in Congress that the sanctions were going to make the Ruble valueless. Now it is priceless. If you want Russian gas…

 

Or Russian grain. The Russians are enjoying a bumper harvest this year and they have plenty of it. And if anybody else who is unfriendly wants any part of that harvest, it will be some form of Rubles for Food scheme, similar to gas. The EU has already gone into a panic over this, lifting sanctions on Belarus in exchange for allowing transhipments of Ukrainian grain. And General Mark Milley, Chairman of the US Joint Chiefs of Staff, requested a phone call to his Russian counterpart to discuss allowing Ukrainian stockpiles of grain to go through Odessa, now under a blockade.

 

At the same time, the British are sending anti-ship missiles to the Ukrainians to sink the Russian fleet outside Odessa to get food exports out of bountiful Ukraine. Haven’t they heard of mines and drones that can do the same bottling up of that port?

 

All in all, the expectation of an impending disaster on wheat exports from Ukraine is scaring the shit out of the politicians in the west. Even if the physical supplies get through, they will suffer from a massive increase in prices, given the logistical complexities and the war risks. This will incite a peasants’ revolt in the populations of the west.  Driven by the food and fuel shortages and the “cost of living” crisis, the populations of the western economies are going to vote out the current imbeciles running those governments. Bet on that.

 

The military conflict has not ended. It’s not in favour of the Ukrainians.

 

The economic one is intensifying.  The west is losing that one, unequivocally.

 

All this while, the political conflict has also just begun. There is the thing about Sweden and Finland applying to join NATO, and Turkey objecting. And some EU members are calling for the expulsion of Turkey from NATO without bothering to listen to the rationale for the objections. Perhaps nothing will happen, either on the admission of the Scandinavians or the expulsion of Turkey. This is before any hot war. If that happens, it is a big question of whether they can all agree to join the fight. If so, it is a toothless organization.

 

When you have a political organization that has 28-30 members in it, all with different economic structures, and political histories going back a thousand years, a hundred of which are still relevant in today’s decision making, it is not going to work. A European continent comfortable with itself is not likely to happen in a short time of two decades. And the America that was founded by emigrants who were escaping the politics of Europe will soon find itself confounded by the fractious political environment of the old continent and may retreat into the isolationism of the 1920-30’s. When that happens, the EU and NATO may develop tendencies to become more regional than continue as a divided unwieldy entity. In other words, a split-up.

 

In this environment, the Biden attempts to grow an Asian extension of NATO will end up in smoke. The Americans have already tried to woo ASEAN, the unambitious and low-key association of South East Asian countries which recognizing their own irrelevance, are telling the Americans in no uncertain terms that they are too small to want to be involved in big power politics, especially the one between the US and China.  They don’t want any part of it.

 

Every one of them, including the one closest to the US, the Philippines, where the new leader, Marcos Jr, has already said the country wants to build trade relationships with China. Who doesn’t? That includes Vietnam, which has been dominated by China for a thousand years, fought a war with them in 1979 and has continuing bilateral territorial disputes with them.

This attempt to buy influence in ASEAN with an embarrassingly tiny economic “aid?” package of US$90million for all ten, or $9 million each, is not getting the US anything except polite smiles. Thailand does not even want to see Blinken land in Thailand.

 

Every ASEAN country seems to be following the pragmatism of tiny Singapore. We just want to trade. Leave us alone.

 

But the Americans won’t give up. They do have a better chance with their two existing allies of S Korea and Japan. Both these countries have an aversion to a China dominant in the Western Pacific as Japan used to be Number 2 economy and Korean fashions itself as the new economic giant of Asia. Both are resisting the rise of China but yet cannot give up participation in its gigantic economy. Besides they have historical baggage between them, which the Americans cannot be unaware of, but are obviously trying to use the “external enemy” situation to pull them closer to become an Asian NATO.

 

I would give marks to Biden for trying to think out of the box in Asia. But nothing for the quality of the thinking. It’s not going to work.

 

There is of course good ole Australia, the faithful partner of 29 million people in the Pacific. Wow, that’s a lot of people for an Asian country. There have been hiccups over the role of Australia in Asia.  First there was an economic war against China that the latter standoffishly ignored. Then there was ANKUS, a submarine building program that will deliver nuclear boats in about twenty years, when the intended foe would already be on Mars.

 

Unfortunately, they just lost the guy who was the cheerleader for Anglo Saxon solidarity, mad Morrison, who got kicked out in an election which again saw voter discontent over poorly executed economic policies. The conflict with China was totally uncalled for, and Australia is shooting itself in the foot. Worse of all, Morrison represents the worst of Western politicians when he double-dealt his own ally, France, on the submarine deal.

 

As outgoing French foreign minister Jean-Yves Le Drian, put it, “I can’t stop myself from saying that the defeat of Morrison suits me very well….I would even be tempted to say (he’s) a form of notorious incompetence.” In unusually brutal diplomatic language, all that translates to “good riddance.”

 

By the way, those submarines to be delivered in two decades have a price tab now estimated at 130 billion USDollars. With inflation, that number will likely be $200 billion. And given the lack of a nuclear industry in Australia, maybe even $300 billion…

 

Labour is back in power, and if the stalwarts of that party, like Paul Keating, represent the bedrock of their revival, then it is likely that Australia would move back towards integration into Asia. All good.

 

A NATO in the Pacific? If it is not even working in Europe, what are the chances of it working on the side of the planet where China has many friends? Zip.

 

The sacking of Morrison is a sign of things to come for the current crop of western politicians. They are not going to survive the ongoing inflationary pressures. When each of those countries reach election time, inflation would be so bad (whether or not the Ukraine war ends), their leadership will be called to be accountable. Since my view is that the western economies will not enjoy any amelioration of inflationary pressures simply from interest rate policy, the political crisis will also grow.

 

Worse is to come on the economic front in Western countries. Besides accelerating inflation (many EU countries are already suffering from double digit rates), the fear of tightening action by the central banks have led to a massive implosion of stock prices in major equity markets. Because these stock markets have come to represent a major source of wealth for most citizens in the west, the ongoing crash is a severe loss of purchasing power.

 

Added to the withdrawal of liquidity that was inundating the financial systems to prevent a covid depression, the rise of interest rates which impinge on business borrowing costs as well as all kinds of credit from student loans to mortgage costs, plus the ongoing loss of wealth from the market meltdown, a serious recession is almost certain.

 

There are many moving parts which make it very scary. The war, if it goes on in ways which the western leaders want, will lead to rising energy prices in unsurprising ways. Since China and Russia are doing deals to reinforce their energy security (one buys, the other sells), that part of the world economy will be isolated from oil/gas price fluctuations. The US is self-sufficient, and Europe will be the only ones to take it on the nose. But the Americans will still be paying higher global prices on their own product.

 

The food crisis that will hit EU will be the same. Even if they all agree to pay for everything in Rubles. These economies will spiral out of control, as it will take a few years for the west to switch to LNG, ship-borne oil and green energy. And rice.

 

I hope that the idiots running the show everywhere will come to their senses soon. Or risk bringing the world down on themselves.

 

I wrote about the crypto currency crisis last week. Like the stock market slump, this is far from over.

 

A reader wrote back hopefully. He posited that young people everything - I suppose he meant millennials - are deep into crypto investing. It is not a fad. It should survive, he said.

 

Am I surprised with that view? Not at all, everybody has to go through the pain of losing everything before they learn the lessons of investing.

 

Twenty-five years ago, I was also young. I was neck deep in the Dot Com bubble. I started a Dot Com company that raised millions in funding. It was part of the huge growth that saw the Nasdaq rise to 5000. Made a lot of money and when Nasdaq dropped to 1000, gave it all back. So, yes, I know how the young crypto investors feel about the crypto crash.

 

And over the last 45 years, I have seen crash after crash – US equities 1987, Japan 1990, 9/11, GFC 2008 and now this current crash.

 

People don’t recognize a crash until it is over. Less a lot of money. I know. So if you think you got it bad, no you don’t.

I will have to maintain my view that the crypto crash is not over. Here are the reasons I think so.

 

The crypto crash does not even compare favorably with the dot com bubble. I was in that one and knew it well. The dot com boom was based on a real economic transformation. It was a technology that upgraded the bricks and mortar economy. It was an information revolution. It was much deeper than the crypto phenomenon. The only problem with that boom was that it went too far ahead of itself. Many businesses that had viable business models took on generous VC funding to pay for expenses, overcoming revenues that would take a lot longer than even the most optimistic projections to gather.

 

In the end, the dot com model was not incorrect. The internet did change the world with many dot com companies taking on business models that were in the end a mixture of both old economy and technology-based. But how did Nasdaq go to 5000 points, crashed back to 1000, and then drifted for 20 years before it got back up to 5000?

 

Human greed and fear. No different from Dutch tulips and Japanese real estate.

 

The problem with crypto currency is that it is not nearly half as good as the dot com craze. The dot-com business model was a true tech breakthrough.

 

Crypto currency is nothing more than a Ponzi depending on the greed of other people to take it to a higher price. Operationally, it is just an external database of transactions, rather than an internal one like the ones at Visa or MC.

 

All cryptos are essentially the same idea. It is not the proliferation of transformative ideas that turned brick and mortar businesses into better companies in many industries.  And crypto has chosen the only industry that it should not have – the financial industry.

 

Let me explain why the financial industry is different. It is the monopoly of governments. They will never surrender control of its currency, even if it is going to hell, to a bunch of kleptocrats and money launderers. The power to outlaw usurpers of that right to issue money also rests with government. History tells us it will never happen. 

 

In addition, problems like the crypto crash are bound to crop up. In the end, when fraud and huge losses happen, those who wanted government out of their lives, go back to government to say, please protect us. What is that?

 

Here is an example of a demand for regulation by crypto currency investors:

 

Crypto Might Have an Insider Trading Problem

Anonymous wallets buy up tokens right before they are listed and sell shortly afterward By

Ben FoldyFollow and

 

Caitlin OstroffFollow May 21, 2022 5:30 am ET

 

Again, as this is behind a paywall, here is a single extract that makes the point of the article:

 

“The crypto ecosystem is increasingly grappling with headaches that the world of traditional finance tackled decades ago. The collapse of a so-called stablecoin from its dollar peg earlier this month stemmed from crypto’s version of a bank run. How cryptocurrency exchanges prevent market-sensitive information from leaking has also become a growing topic of concern. The focus comes as regulators are raising questions about the market’s fairness for retail users, many of whom just booked major losses on steep declines in crypto assets.”

 

Well, for our bright-eyed and bushy-tailed crypto investors, it is time to realise that you are putting your hard-earned money into a computer program to organize a data base of transactions which is only necessary if people use it. There is no other business model. It has no other commercial use – just ask El Salvador – led by a fool who thinks that he is riding on the coat-tails of a crypto currency boom.  There are few bitcoin transactions in that sorry place.

 

Without the possibility of an earnings stream, crypto cannot have a proper valuation. Even gold ornaments have a use because pretty ladies like to look pretty in them. Crypto? Nah it is just a string of 1’s and 0’s.

 

Peer to peer? Independent of government regulation and brokerages? Well, the first listed brokerage, Coinbase, which should have no reason to exist has proven that exactly. In just one year, it has lost 85% of its value. WTF?

 

And the governments will regulate. It has become fact in China and India. Everywhere else, where there is “self-regulation”, fraud and human error will inevitably bring about pleas for regulation.

 

Unless there is a crypto ponzi scheme run by angels, the crypto world will end up with government again.

 

And my point in last week’s blog is simply this.  That the rapid rise in the values of crypto came mostly in the period when money was freely dropped out of a helicopter. There were not enough investment channels to absorb all that liquidity, and it all ended up in places which has a story, even if it eventually turned out to be a fairy tale.

 

Did you buy crypto because it protects you from inflation? As broadcasted by the influencers? You believed that one? We have the worst bout of inflation in a generation and crypto is going south quickly. It is not living up to its promises. It is useless.

 

When the liquidity fuelled boom is over, 99.9 percent (yes, I changed my mind from last week when I said 99 percent) of cryptos will vanish.

 

The other .01 percent of cryptos will not even enjoy the recovery of the best dot-com companies that fell in Year 2001-2002. They will just become mementoes of gung-ho and foolish ventures all humans are guilty of.

 

 

Wai Cheong

Investment Committee

The writer has been in financial services for more than forty years. He graduated with First Class Honours in Economics and Statistics, winning a prize in 1976 for being top student for the whole university in his year. He also holds an MBA with Honors from the University of Chicago. He is a Chartered Financial Analyst.