How We Got Here And Where We Are Headed
The Russia/ Ukraine War, sanctions, the loss of US dollar hegemony.
“There are decades where nothing happens; and there are weeks where decades happen” - Vladimir Lenin
These past few weeks have been nothing but extraordinary. If one were able to watch these events unfold through a merely historical lens, you would be met with fascination and intrigue. Instead, we are living through these world events day by day, with fear and uncertainty.
For the past year I have been warning that Russia was going to invade Ukraine. The signs were fairly obvious, Putin’s increased anti-Ukraine rhetoric, the mass-build up of forces on the Ukrainian border with logistical units, NATO’s consistent provoking of Putin, and the world-view that Putin and his advisors hold. I first wrote that Russia was going to invade Ukraine on April 13, 2021. Here is the article.
In November and December of 2021, I again wrote that Putin was going to invade Ukraine and that the markets were underestimating this likely possibility. Here is the article. Furthermore, on my podcast I spent hours interviewing experts from both the military and financial sector about the possible Russian invasion of Ukraine and the market ramifications of such invasion. I have been shouting this from the roof-tops! However, in the months and weeks leading up to the full-scale Russian invasion, I was receiving serious blow-back on social media from those who thought it would never happen.
On December 8, 2021, I wrote about the market reaction to a potential invasion of Ukraine, specifically in relation to oil and gold. Here is the exact quote from my December 8, 2021 article:
“As the threat continues to build for a Russian invasion of Ukraine, the second and third order effects on energy markets would be extreme. Oil would likely go up 10-15% overnight on the news in addition to a large rally in defense contract companies such as Raytheon and Lockheed Martin. Gold would likely jump above $2000/ oz on a war of this magnitude. Equity markets would likely fall dramatically until traders could figure out the magnitude of a Russian invasion.”
As of this writing, WTI Crude has jumped from $70.94/ bbl on December 8, 2021 to $115/ bbl on Mar 4, 2022. This is a nearly 65% increase in the price of crude oil since I issued my alert on December 8, 2021! Warren Letter subscribers have made an absolute killing with bullish oil trades. Additionally, gold is now hovering at $1974.90/ oz, just shy of my $2000 gold prediction. Price action like this only occurs once in a decade.
I don’t mean to be glee about the situation occurring in Ukraine. I want to be very clear that what is happening in Ukraine is horrific on a humanitarian and geo-political level. However, I want to reiterate my position that although I could very easily see that an invasion of Ukraine by Russia was coming, there was nothing I could do to stop the events from happening. The only thing I could do was attempt to protect and increase my wealth for my family.
This Ukraine-Russia situation is very similar to the COVID crisis. Two months before the markets began to reacting to Covid headlines, I was sounding the alarm on the likely global pandemic facing the world. I was warning people to short equities as a sudden and violent correction was likely coming. Being short the market during the Covid correction netted me a near 500% return on my trading account.
I am not saying these things to “toot my own horn”, but rather to inform my subscribers of the potential returns of trading on macro-economic events. On social media I consistently see people selling services that promote the idea of trading on multiple monitors, following “candle-stick” charts, and even trading penny stocks. These trading strategies have their place, but in my opinion the risks outweigh the rewards. One can do much better by following trends and placing high-likelihood trades based on macro-economic events that the markets are incorrectly pricing. That is what I hope this newsletter can provide to people.
Although the Biden administration has a lot of flaws, I commend them on being very adamant about US troops not being involved in the Ukraine conflict. As a country, we need to be very careful and take every step possible to avoid war with Russia. Russia has the second largest nuclear arsenal on the planet which would allow them to nuke every major city in the United States, as well as every US military base, and still have 4,000 nuclear warheads left over. Russia stayed out of the situation when we invaded Iraq and they have a legitimate security concern about Ukraine becoming a member of Nato. Similarly, a no-fly zone has the potential to create a situation where a direct confrontation “hot-war” with Russia becomes likely. For the sake of the world, let’s hope we can avoid this scenario.
What Happens Next
As a result of the Russian invasion of Ukraine, the West launched a serious of very intense economic sanctions on Russia. They barred the Russian central bank for engaging in transactions involving US dollars, they personally sanctioned and are stealing the wealth of Russian “oligarchs” including Putin himself, they froze Russia’s foreign currency reserves, ended the NordStream 2 pipeline, and cut-off most Russian owned companies from raising money in the United States.
In addition, private companies, wanting to cash-in on the latest “moral outrage”, have issued their own sanctions, effectively cutting off the Russian public from purchasing certain goods and services. Most notably MasterCard and Visa have shut-off Russian citizens from using their services. WarnerMedia pulled the premier of their new movie, “Batman” from distribution in Russia. Just remember, Russia imposed no sanctions on the United States after we invaded both Afghanistan and Iraq.
Without getting political, as my views on the Ukraine/ Russia situation are well-known as to who caused the conflict and what we should do about it, I would like to present my views as to what will happen financially in response to the severe sanctions imposed on Russia.
Since 2014, when the US first imposed sanctions on Russia for the “invasion” of Crimea and the annexation of parts of Russian-speaking eastern Ukraine, Russia has been looking for an alternative currency to shift away from the US dollar. Currently, the US dollar is the world reserve currency, specifically because oil is priced in US dollars. Russia has been exploring ways to “de-dollarize” for many years and has been somewhat successful. In 2013, 80% of Russia’s transactions were in US dollars, by 2022 only about 50% of Russia’s transactions were in US dollars. This trend is likely to accelerate. In early February 2022, Russia and China signed a monumental trade agreement that would increase the sale of Russian oil to China in currencies outside the US dollar. After that agreement was signed, Russian President Vladimir Putin, “acknowledged the importance of the two countries’ joint efforts in “consistently expanding settlements in national currencies and creating mechanisms to offset the negative impact of unilateral sanctions.” The bottom line is that Russia and China are working very closely in attempts to create an economy outside the US dollar system.
The extreme sanctions being imposed upon Russia are being very closely watched by China, as a likely hint to the US response in the event that China attempts to re-take Taiwan. China, seeing how severe the sanctions imposed by the United States on Russia have become are likely to further increase efforts to get as far away from the US dollar as possible.
Unfortunately for the United States, if the US dollar loses hegemony status, the game is over. The United States has been able to impose its will throughout the world because of the dollar reserve status and the ability to use the dollar as a weapon to force countries to comply with our orders. However, if there is an alternative financial system, such as the one being created between China and Russia, the US will lose the ability to provide punishing sanctions to those countries who do not comply with the United States. Since the US has such an enormous debt load ($30 TN as of this writing), the shift away from the US dollar as reserve currency will have catastrophic consequences for the United States. Suddenly, the ability to print endless amounts of US dollars will backfire and the dollar will quickly begin to become worthless as there will be so many dollars circulating and little demand. This would create a hyper-inflationary scenario in the United States leading to severe economic collapse.
Imposing severe sanctions on Russia and its citizens may have seemed like a noble cause, but I do not think most Americans understand the costs this will have on them personally. Americans are already feeling the costs at the gas pump as gasoline prices jumped at their fastest pace ever; soon they may experience a period where the money being held in their bank account becomes worth less and less by the hour.
The only way to prepare for a worst-case scenario like this is to have some of your money invested in physical gold. Physical gold, either stored in a private vault or at home. Gold ETF’s are good for trading, but are generally useless in a serious economic calamity. It seems as if Russia and China are preparing for the eventual US dollar collapse as Russia has almost 2300 tons of gold and China’s reported gold reserves are around 1900 tons, with the real number likely much higher.
Finally, it is important to note that after all the sanctions put on Russia’s foreign reserves, its central bank, its businesses, and individuals, the only thing the US could not sanction are the thousands of tons of gold sitting in the vault of Russia’s central bank. This works on an individual level as well. After the Canadian trucker protests, many of those who donated to the truckers saw their bank accounts frozen and some of their assets seized. Gold, in physical form, held away from a big bank subject to US jurisdiction is likely the only way to avoid sanctions either on the personal or national level. It is also the only way to avoid having your wealth stolen in case of a potential Russian cyber-attack on the United States. It is likely Russia will respond to the severe sanctions being imposed upon them. Putin stated that he views these sanctions as “an aggressive act of war”. He will likely target the US banks.
It is truly ironic that with all the modern technology, online banking, digital currency and the computerization of the modern financial system, the only truly safe way to store wealth is the oldest way known to man, physical gold.
Although I occasionally offer free newsletters like this one, most of the market analysis, macro-economic forecasting, and land investment strategies are provided to paid subscribers only. I have decided to write a lot less free newsletters and focus more on my paid subscriber articles. Things will begin to move really fast from here on out. For access to a paid membership at 35% off, click here to subscribe. Paid members are given access to my entire archive of past articles including the “hierarchy of financial needs”, “land investment strategies”, and my framework for trading the markets.
Make sure to check out my podcast page! I have hours of interviews with financial, geo-political, and military experts. I have even interviewed a British ex-pat live from inside Ukraine. Check it out! https://www.callin.com/show/the-warren-letter-podcast-ErBPMoCkzF
**As Always, this article was not financial advice. For financial advice, please consult with a licensed financial advisor for your particular financial situation.**