Monday 4 July 2022

Setting The Bear Trap

It's been another three months and I thought to update my current thoughts to the situation.

In short, Russia has taken over bigger territory swaths, the Nato allies responded by providing larger amounts of weapons and many diplomatic visits were conducted with no result thus far. Putin remained adamant on his justification while Zelensky also appeared defiant. For consumers, we continue to see various exports limitation that partly contribute to the escalating inflation. 

So how do I think this military conflict will end?

The conventional thinking would be a stalemate via a treaty, possibly ceding some Ukrainian land in return for Russian security guarantee and funds for rebuilding. But this increasingly doesn't look like happening if (and that's a big IF) the conflict drags on. I say this because of the following.

If this was a purely Russia versus Ukraine situation, then by virtue of size, the Russian army should win eventually by mutual attrition. Both sides had expended much ammunitions and lives as they won and conceded ground simultaneously. At the moment, the area controlled by Russia is rather big and it would have to spread its resources thinly to defend. It's possible to hold on due to weakening forces on both sides. Then Nato decided to wade in with promises of more firepower support. A significant show of intent. This drastically tilt the balance into Ukraine's favor. Consider this, the US and EU combined will be able to supply more advanced weaponry if they so choose. For now, I think they are content to give just enough for defending purposes and thereby encourage a longer battle. Why? As the timeline extends, the Russian morale and spirit will weaken while improving Ukrainian's. This also buys time to find alternative energy and food sources or allowing the global demand to moderate and adapt. At the right opportunity, launch a counterattack with Nato's backing and try to reclaim lost territory but also inflict damage on the Russian army and land.

I see two potential end points. One, the exhausted Russians concede this was not worthwhile and sign a peace treaty. Two, the ordinary Russian people find a way to force the government's hand to stop although this can be disguised to save face. An unlikely scenario would be Putin suffering ill health or him being toppled which would be an abrupt disruption. Therefore, if any of the above happens, I consider it a Ukrainian victory.

Putting myself into Nato's shoes, this conflict is a good reason to legitimately change the status quo. Russia has been a long time adversary and economic integration was not a strong enough deterrent. Assuming China does not step in, it would be great to cripple the Russian military and set it back, extract oil and gas concessions and disarm nuclear capabilities. All these for thirty years. Why so? Just to ensure Putin would not be around to plot another Soviet renaissance.

This is just a simple analysis. In the end, I'm more concerned about living cost and retirement planning. I feel more financial pain is still to come and the year should end in a not so positive way for most investors. When this situation has a definite resolution, it could start a strong rally for the markets which I'm looking forward to.

Tip: Koshino Kanchubai Ginjo Nama Chozo, clean and refreshes the palate, very dry

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