Listen now | Putin's strategy is clear - but how will Europe react, and will it work?
By the way ...Putin is playing Chess. European leaders playing piano. We are sunctioning ourselves in order to support a Nazi friendly Dictator and Commedian in Ukraine who cancel all opposing parties. In addition we pay his army and his bills and for his weapons. As European I was not willing to pay the commedian. But nobody asked me.
Hi Alf, in my humble opinion (only:) your macro analysis are great education and have a huge probability to be the correct guidance, but I start doubting it a bit if you start framing “EU against Putin” talks. For me its clear that the USA needs a next “Palestina” situation at the East of EU to keep the $ nm1 as long as possible. The poor East Ukraine and Etnic Russian people are paying the price since 2014 illegal intervention of the USA & EU and now ofc even worse. Russian government is not one person and they are defending souvereignty (Kanzler Schröder was right and his time ahead) just as the 90’s proved that Clintons democracy was only a way to steal their commodities. It was the EU that disrupt/canceled the cheap longterm Russian contracts in 2020/2021 on behalf of Biden Team. It was Team Biden that pressured Scholz to sabotage Nordstream. I know Im picking sides now, but Im just hoping that your macro analysis stays neutral as framing “them” as one bad actor or enemy and “us” as troubled policy makers, would let me doubt your macro view (which I dont want:). Ofc, its just my Maastricht:) opinion.
True a long war with no winners. Actually the whole energy spat is a massive transfer of wealth from market oriented economies to rentiers, a pretty bad outcome for world growth. Being short EUR is the trade, especially vs USD and CHF. Central banks are badly caught between a rock and a hard place. And by the way, higher energy cost, stronger USD, higher rates are a bad recipe for several EMs.
What Russia wants in my opinion is what most of the oil/gas producing countries want which is to squeeze the West like never before. The West has treated all of them very poorly and I see them teaming up to punish the Western - especially for the wars that the West wages on friends of oil/gas producing countries and nutty/juvenile/retaliatory sanctions. Sanctions punish citizens not leaders and authoritarians aren't as much sensitive to citizen pain. It is pay back time. The West has alienated all of them not just a little over many decades. They can produce less so prices go up and still make a good living and since many oil/gas producing countries are authoritarian, they don't necessarily care that there citizen will suffer while leaders go all out to punish the West.
I hope energy can bring some equalization between the West and the others - some mutual respect. Good things can come out of a crisis.
I kind of thought that after Trump questioned NATO's existence, the warmongers would do something to make NATO relevant again so they provoke Russia into Ukraine and the pump money into Ukraine until the last Ukrainian dies. The US used to be a peace negotiator, but now the US is an eager war machine ready to test its latest weapons.
Russia's warmonger footprint is tiny compared to what the US/NATO has done all around the world.
Imagine complaining about China's human rights issues and kissing Saudi's ass for more oil. The nerve! The difference, China has no oil, Saudi does so get on a knee, kiss the ring, whirl around on all fours to please what someone not too long ago said Saudi was a pariah state.
Does this mean continued “Imaginary Wealth” build without productive economic growth for the coming future? Can CB’s ever get out this paradigm because defaults will not be tolerated. These “winks” with free money to industry seems to destroy all price discovery based on economic fundamentals. What a great way to run a Bank. I know it might be necessary to fight an economic war but gee get free money and make money on it? Is this was the United States is becoming? I’ve been investing for 38 years, when I first started it was 1. Company fundamentals 2. Industry outlook and then 3 Central Bank posture. Now its 80% central bank monitoring because of these “winks” you speak of. Always pay attention to your outlook and summaries. Very helpful. Thanks Alf, Mike
"There was also no mention of QT discussions at all." - just wanted to note there were headlines late in the afternoon saying it will be the matter of the October meeting. What are you thoughts on this?
Alf, Curious if you think European politicians have the political will to see this through and stand up (longer term) to Putin.
I really enjoy this refreshing view of global economics that is lacking in mainstream US media.
Nice one Alf!
Hi Alf, excellent hint on liquidity/banking side of ECB decision. Thx so much!
What I do not understand yet is, how you balance this vs. the effects in currency markets. As far as understood ECB action strengthens EU bank balance sheets (by enabling an easy arbitrage keeping this money in the EUR) while at same time keeping rate differential to FED in check a bit. That should be positive for the EUR at the margin IMHO. We need to consider (counteracting) balancesheet increase as you point out. How do you balance these two forces to come to the conclusion to stay short EUR/USD?
Great work! Many thanks Alf
I LOVE the fact you include a voice-over summary. It helps me understand the write up tremendously more. Keeps my thoughts in order.
It'll be interesting to see how this will all play out. Your detailed insight on this is especially critical in a macro understanding of the current environment between EU and Russia.
Since more EURO dollars are getting printed as deficits, I am also short EURUSD.
Alf - Good stuff. Hope you enjoy NYC. Since we're adding geo-politics into the mix...any thoughts that EU (and most govts actually) love Putin's maneuvers bc they want inflation and if they can get it and blame someone else, how great is that?? So the conclusion is that authorities won't try very hard to fight inflation, so LONG inflation is the best macro call out there..?
North Carolina, USA
￼Great summary, as usual, Alf.👍
About 30 minutes in on his Cato talk yesterday (https://www.youtube.com/watch?v=fVSmA30qWu0), Jerome answers a question on the topic of returning to a scarce reserve framework vs stopping tightening at a level that satisfies the public but continues an ample reserves regime. He also makes it a point to say that they are open to adjusting the details of the plan regarding balance sheet runoff to reach that level as the environment dictates. 2 Questions: Does this mean that the fed is eyeing a similar stance as the ECB just announced and that you covered here (hike but be prepared to also stop tightening and/or ease)? Also, do you think it makes it more likely that we will end up in Quadrant 1 after leaving Quadrant 4 (vs moving towards Quadrant's 2 or 3)?
Interesting comment Alfonso, The analogy to EM and external shocks is the appropriate one. Using the ECB balance sheet to avoid short term pain, is the strategy the ECB will always adopt. That is as certain as gravity. As long as everyone still wants to use the Euro as a means of exchange, long live MMT. Who cares about any fundamental arguments for hard money? all these are good arguments for bitcoin. Long term, probably the euro goes down. But against what? every other major currency is just as bad.