Dumpster Fires
Dumpster fires are spectacular. They draw a lot of attention, they stink, cause a lot of commotion and soon after they’re put out, they’re quickly forgotten. We had two big dumpster fires this week, with the media all in a twirl over the calamities unfolding. The OceanGate submarine search captured our attention at the beginning of the week, but quickly faded into oblivion, as Yevgeny Prigozhin marched toward Moscow for a potential coup in Russia. The OceanGate calamity lays bare a high-level global theme that continues to drive migration and population change. The geopolitical ramifications of a coup in Russia are vast and would have profound implications on global markets. While both fires have died down for the moment, we’ll look at some of the various market implications of these two events.
The OceanGate disaster highlights the high degree of income inequality across the globe. People of means have the propensity and ability to spend their money. They choose to do so in often dangerous and adventerous pursuits. Climbing Mt. Everest or descending the depths of the Atlantic to take a look at the Titanic seem like great ways to spend a few bucks. The search and rescue attempt for the five people aboard the OceanGate sub was a massive operation that utilized U.S. and Canadian naval and Coast Guard vessels. On the other end of the spectrum, hundreds of lives were lost in the Mediterranean Sea when an overloaded migrant smuggling boat sank. Bodies are still being found from that recent disaster. Income disparity, poverty, and a desire for safety drive people to seek a better life. However, life isn’t fair and never has been. Despite the inherent inequities, people will always try to improve their lot in life.
Putin’s overthrow in Russia would have forced a reclassification from “dumpster fire” (a nonevent) to “major event” (something big) with many lasting repercussions. How would that outcome change the world and what can investors do to insulate themselves or gain from such an event?
While Putin has avoided the immediate threat, his regime has been weakened. The fact that Putin allowed a negotiated settlement for Prigozhin and the removal of the “mutiny” label from his troops shows that Putin’s hardline tactics have taken a severe pause. His infallibility is gone and the adverse consequences of the war with Ukraine will undermine Russia for years. Putin’s power base has been shaken and it is unclear what resources he has at his disposal to strengthen his position. He has to now worry that one of his allies could turn against him. He seems out of bullets.
If he were to fall, who would the losers be? China is a clear major loser. China and Russia have enjoyed a partnership, but if Russia were to fall, China as the senior partner would no longer have a reliable junior partner on the international scene. Domestic infighting would likely trump foreign policy, as internal power and succession squabbles would take precedence in Moscow. China would be unable to rely on Russia to support it in the United Nations. Iran and Syria would be major losers as the power void created by Russia’s collapse would bring increased pressure from the West. Notably, both countries would lose a key supporter that held a veto in the UN Security Council.
OPEC would likely be a loser, as Russia would likely ramp oil production to generate maximum revenue to address its floundering domestic economy and disastrous foray into Ukraine. This could put downward pressure on oil prices and producers. Marginal producers would be squeezed.
India’s reliance on Russia as a military supplier would be sorely tested.
On the other hand, who would benefit from a potential regime change in Russia? Ukraine, the U.S. and the West are clear winners. Ukraine would have an opportunity to evict Russian forces with their attention drawn elsewhere. Putin might even need to withdraw forces to protect himself from Prigozhin or other potential rivals. The Russian troops in Ukraine would have yet more reasons to question why they are in Ukraine and many could simply go home. So, the Russian effort in Ukraine could collapse very quickly. If so, Western Europe would then turn to rebuilding Ukraine, which would surely set off an economic surge in Western Europe that could also benefit U.S. companies.
Are the fires really out? Oceangate for sure, with a sad and unfortunate outcome for the five lost souls. Russia? Perhaps, but it’s still smoldering. Portfolio diversification across sectors and countries has never been more important.
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