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Rabobank: Clockwork Markets’ Horror-Show

Courtesy of ZeroHedge View original post here.

By Michael Every of Rabobank

Clockwork Markets' Horror-Show

“There was me, that is Assets, and my three droogs, that is S&Pete, FTS-ie, and Dim Jones, Dim being really dim, and we sat in the CentralBanka Milkbar making up rassoodocks what to do with the evening, a flip dark chill winter though dry. The CentralBanka Milkbar was a milk-plus mesto, and you may, O my brothers, have forgotten what these mestos were like, things changing so skorry these days, and everybody very quick to forget, newspapers not being read much neither.” (With apologies to Anthony Burgess and ‘A Clockwork Orange’.)

Markets, central banks, and governments all like things to go like clockwork – in the case of stocks, upwards. Yet all are now confused by a situation that looks like a potential horror-show: that word, and the language and the dark humour that created it, just prompted real volatility.

We started Monday with a risk-off tone due to headlines of shuttle diplomacy, Ukrainian oligarchs leaving the country, and the purported date of today for a Russian false flag attack followed by an invasion tomorrow. Then Bloomberg breathily reported Russian President Putin --replying to Foreign Minister Lavrov saying that even if Russia’s patience is not infinite, he still believed in giving diplomacy a chance-- said “khorasho”.

This can mean “good/well; OK; alright; okey dokey; that will do; fair enough; fine.” It is also the origin of the adjective “horror-show” in the mixture of Russian and English the youth speak in the dystopian Burgess novel/Kubrick movie ‘A Clockwork Orange’. Notably, however, it is not the same as “Ya saglassen.” (“I agree”). Logically, it is also what anyone about to invade would say: which leader shouts the time and date of an attack? Nonetheless, markets reacted as if everything was going to work like clockwork again.

Until Ukrainian President Zelenskiy used Facebook to state: “They tell us February 16 will be the day of the attack… We will make it a day of unity. They are trying to frighten us by yet again naming a date for the start of military action… We are intimidated by a great war and once again set the date of the military invasion. This is not the first time.” And risk was off again….until a presidential spokesperson stated Zelenskiy, a former comedian, was being sarcastic!(!) Yet markets were already mostly closed and in the red.

At time of writing the US was warning of further Russian reinforcements arriving; OSINT show Russian helicopters and tanks moving on roads near the Ukrainian border – a logistical step only taken at the last moment as it damages them; embassies, the IMF and World Bank are leaving; a senior Russian diplomat states “We will not invade Ukraine unless we are provoked to do that. If the Ukrainians launch an attack against Russia, you shouldn’t be surprised if we counterattack. Or, if they start blatantly killing Russian citizens anywhere – Donbas or wherever,” – which some see leaves the door open for a casus belli; Putin reportedly added to his ‘horror-show’ in underlining he wants discussions… that address his demands for guarantees over Russian security – as Western steps so far only address Russian insecurity; as the US admits it is trying to find a land route to channel weaponry to Ukraine --when one should be obvious(?)-- and that the EU are not lined up over sanctions because of their own economic interests – which is not intimidating to Moscow.

Oh, and both the US and EU are considering small loans to Ukraine. If there were ever a time to underline the old economic argument about the relative value of money (and water and diamonds), this would be it: “Here is some money.” “Can I buy German weapons with it?” “Nein.”

So, what is our current horror-show? Is it: 1938 (Germany > Czechoslovakia); 1939 (German/USSR > Poland); 1941 (Germany > USSR); 1956 (USSR > Hungary); 1968 (USSR > Czechoslovakia); 1979 (USSR > Afghanistan); 2003 (US > Iraq); 2008 (Russia > Georgia); or 2014 (Russia > Ukraine)? Or is it ‘Wag the Dog’ from both sides – Russia, to push commodity prices higher and look more important (as it takes Belarus under its wing, unnoticed); the US, as an excuse why the economy is performing poorly and fiscal stimulus is needed, and to claim a foreign-policy victory over preventing an invasion that was never going to happen, while also dragging the EU (excluding Germany?) back into a Cold War stance? The passion with which these different views are held matches the singular gravity of the tail risks involved.

Only time will tell, but to me logic says the best way to show which of the above are not the case would be for the Russian military assembled on the Ukrainian border to go back to barracks: then we could see some risk on again. Yet until then many of those finally discussing this in markets retain the deeply held view that war can’t happen because it would be bad for assets: as Bloomberg reports, some on Wall Street believe a potential Ukraine war could be a ‘Polar Vortex’ risk to stocks that could tip economies into recession. As such, it is far easier for many to just keep saying “khorasho”, not horror-show.

But “Viddy well, little brother, viddy well.”

Meanwhile, although not market-moving against the current backdrop, there has been a major development in Canada. Truckers and their supporters have been protesting across the country for weeks, and in response to the resultant economic disruption Prime Minister Trudeau has introduced emergency powers that allow the freezing of bank accounts and financial assets without a court order and including crowd-funding websites and crypto assets under anti-money laundering and terrorism legislation. Tow-truck owners will also be “compelled” to remove trucks and trailers blocking roads, which they are so far refusing to do out of sympathy. (But how?) It remains to be seen if this draconian regulatory escalation is met by protests now ending or escalating in turn to be even more disruptive – as has happened so far. Let’s hope another ‘hot’ situation in cold land can be resolved “khorasho” and not horror-show. Yet in the same way that Russia’s recent actions have rapidly changed how the West and investors need to look at political-economy and markets, so perhaps do Canada’s: once again, think of the old economic arguments about the relative value of (relative kinds of) money – and of goods, and who provides them.

“You can viddy that everything in this wicked world counts. You can pony that one thing always leads to another. Right right right.”

“You have no cause to grumble boy. You made your choice and all this is a consequence of your choice. Whatever now ensues is what you yourself have chosen.”

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