If You Give A Putin A Crimea…

If You Give a Mouse a Cookie is a fine piece of children’s’ literature.

A little boy offers a cookie to a mouse, who then promptly asks for a glass of milk to wash the cookie down. The mouse continues asking for things: a straw to the drink the milk, a mirror to make sure he hasn’t gotten a milk mustache, and clippers to fix his hair that he noticed was too long when he looked in the mirror.

That pattern continues until the story comes full circle and the mouse requests another cookie—the moral being that as long as the boy is willing to give, the mouse is all too happy to take.

As any parent of a young child will attest, giving in to someone’s demands with hopes of appeasing them rarely achieves the desired result. The most famous historical example of this, of course, is the West’s appeasement of Hitler leading up to World War II—specifically, when Britain and its future allies kowtowed to Hitler’s demand to annex the Sudetenland.

As belligerents always do, Hitler had a justification for invading the Sudetenland: three million ethnic Germans lived there. Not a surprising rationale, given that Hitler’s murderous worldview stemmed from the notion that a person’s heritage was the most crucial part of his being. Germans good, Jews bad. Aryans good, Poles bad. So by annexing the land beneath those ethnic Germans, Hitler was merely restoring unity to his beloved Aryan race. After all, the Sudetenland was once part of the Austro-Hungarian Empire.

As an aside, I wonder what the Nazis would have done with me back then. German is my dominant heritage, and I look the part of an Aryan: 6’1” with blonde hair and blue eyes. But I converted to Judaism last year just before getting married. I imagine Hitler would categorize me as a traitor… I’m thankful that I’ll never know for sure.

Anyway, weary from the previous world war, the soon-to-be allies refused to oppose Hitler militarily and so conceded the Sudetenland to him. The Sudetenland was part of Czechoslovakia, but not just any old part. It contained most of the country’s important stuff—66% of its coal, 70% of its iron and steel, and 70% of its electrical power. As a result, Czechoslovakia’s loss of the Sudetenland effectively neutered its military and economy. And we know what happened from there.

As Putin tightens his grip on Crimea, it’s instructive to remember this bit of history. Putin is no Hitler, and he’s also no mouse—although he only stands at a slight 5’5”, which somehow makes him seem a bit less menacing, and also makes his shirtless escapades even funnier, at least to me.

But Putin’s actions do share some striking similarities with Germany’s 1938 annexation of the Sudetenland:

• Putin’s justification for his takeover of Crimea is that the region’s population is 60% ethnic Russian. (If that’s all it takes, certain parts of Brooklyn should be on high alert as the next potential targets.)

• Crimea was once part of the Soviet Union and of Russia.

• Eastern Ukraine, including Crimea, contains the bulk of the country’s natural resources and is wealthier than the western part. Crimea is also Russia’s only warm-water port on the Black Sea. In other words, most of the good stuff is in eastern Ukraine, where Russia is focusing its efforts.

• Europe and the US offered zero resistance to Putin’s maneuver.

My comparing Putin’s actions to Hitler’s isn’t meant to be a Reductio ad Hitlerum, nor am I trying to paint Russia as the bad guy or the US as the good guy in this conflict. That would be a gross oversimplification or, depending on your perspective, downright backwards.

The parallels are important, though, because Hitler’s gambit set off a nightmarish chain of events leading to World War II. So the real question is: Is Russia’s takeover of Crimea the end of Putin’s plan or the beginning? Neville Chamberlain and his allies made a grave error in assuming that Hitler would stop once he got the Sudetenland. Most of the world assumes the same about Putin.

But what if most of the world is wrong? Territorial expansion certainly fits with Russia’s history—it didn’t become the world’s largest country by accident. During its Tsardom era, Russia grew at a blistering pace of almost 140,000 square miles per decade from 1550 to 1700. That’s the equivalent of adding a Montana every decade for 15 straight decades.

Only in the last 60 years or so has Russia backed off its imperial ambitions. Might Crimea be the spark that reignites them?

Casey Research Chief Economist Bud Conrad tackles that question right now. I’ll check back in afterwards with an update on Casey Research’s storytelling contest.

Political Brinksmanship, Energy, and Financial War: How to Navigate the Geopolitical Chessboard

By Bud Conrad

The crisis in Ukraine is serious, and Putin’s renewed confidence will affect our future in profound ways. Let’s discuss the most important ones.

Consider this an appetizer—I’ll have much more to say in the upcoming Casey Report.

Political Brinksmanship

Putin’s takeover of Crimea was predictable. The US’s strategy of encircling Russia finally compelled him to take action to maintain Russia’s long-standing control over and access to its only warm-water port. I think this confrontation between Russia and Western powers is the beginning of a new Cold War. Russia made a power move, and the US responded by slapping Russia on the wrist with a few minor sanctions—a response so meek that Russia need not even respond.

There’s debate about whether Putin will now move against other regions. I think he will, and he’ll start by making Crimea a showplace to advance the image of Russian takeover. Because Putin succeeded so easily at asserting his position, he may continue doing so until he meets resistance. I don’t expect NATO or the EU to do much since Europe is dependent on Russian energy. So the question is, “Who’s next?”

We got one clue yesterday, when Reuters reported that Russia signaled concern over Estonia’s treatment of its large ethnic Russian minority. Russian officials compared the Estonian government’s language policy to certain Ukrainian calls to prevent the use of Russian in that country.

China has offered mild support for Russia’s actions in Crimea, announcing that it will deal with Crimea after the vote. China also abstained from the US-sponsored UN condemnation of the Crimea vote. This suggests Russia and China may be forming closer ties.

All of these recent events follow on the heels of Putin’s first win in Syria, when he was able to dissuade the Obama administration from turning the country into a bomb crater. Putin feels he just won another important round.

Energy Drives Many Political Decisions

Energy resources are not in short supply, but distribution of those resources is complex. Russia’s recovery is due in large part to its energy resources, as it ranks with Saudi Arabia and the US as one of the top three energy producers in the world. Europe gets 30% of its natural gas from Russia, and most of it comes via pipelines that cross the Ukraine. As a result, Europe has to toe the line with Russia for fear of seeing its energy supply severely curtailed.

Unfortunately for Europe, the US exporting its excess natural gas via LNG tankers is still a dream and several years away at best. Even then, shipping LNG across the ocean could very well prove to be uneconomical. In other words, Europe needs Russia’s energy.

Financial Wars Could Be Dangerous

Kremlin aide Sergei Glazyev announced that if the US were to impose sanctions on Russia, Moscow may drop the dollar as a reserve currency and refuse to pay off any loans to US banks. He went on to say that Moscow might recommend that all holders of US Treasuries sell them if Washington froze the US accounts of Russian businesses and individuals. He added, “An attempt to announce sanctions would end in a crash for the financial system of the United States, which would cause the end of the domination of the United States in the global financial system.”

Them’s fightin’ words. The discussion of financial warfare brings up some basic questions about the petrodollar, which was given special status when Kissinger convinced the Saudis and others to accept only US dollars for oil. Anything that calls the petrodollar arrangement into question could introduce dramatic economic upheaval.

The worst case-scenario would be a coordinated bond sell-off by China and Russia. The effects of such action would be earth shattering. So Russia isn’t bluffing by pointing out that the US could be shooting itself in the foot with financial attacks on a big oil exporter.

So far, US and European sanctions have been so limited that derision was the only response from Russian commentators. But as I write, Obama just issued new sanctions, including ones on Bank Rossiya (the 5th largest in Russia), and 20 more individuals. As with any conflict, the risk is that responses may keep escalating until they get out of hand.

Some Data to Gauge the Landscape for Russia

Russians like Putin, as a survey by the Russian Public Opinion Research Center reported on March 16. His general approval rating is high, as is the approval rating of his actions in Crimea.

The fear of an unknown outcome in Crimea has weighed on the Russian ruble, which in the past few days has managed a small recovery. That suggests the short-term resolution in Crimea restored a bit of confidence in the Ruble. Going forward, the path of the ruble will depend on confidence in Russian policies.

Even more interesting is the Russian stock market’s steep decline of about 30%... followed by its retracement of about a third of that collapse.

In conclusion, we’ve just witnessed some major shifts in the balance of power on the Grand Chessboard of international politics. So far, Russia looks to have emerged stronger, while the US seems weaker, and its strategy looks flawed. But this story is far from over.

I have much more to say about potential investment opportunities around this crisis, which I look forward to presenting in the upcoming April issue of the Casey Report.

Dan again. If you’ll recall, Casey Research held a storytelling contest in January and February. We received almost 100 submissions, and many of them were fantastic. We’ve informed the winner and sent his prize—a beautiful 1924 St. Gaudens Double Eagle gold coin—off to him yesterday.

I’ll announce the winner and run the winning article in next week’s Room. Today, however, I’d like to share with you one of the contest finalists that didn’t win, but came close. Subscriber Brian Nobee wrote about his thrilling experience attending Putin’s Inauguration in 2000, and his account is perfectly apropos with the Putin-dominant world headlines today.

If you like to listen to music while you read, Brian suggests “Dangerous” by Within Temptation—which he listened to while he wrote the piece.

The American Who Snuck into Putin’s Inauguration

By Brian Nobee

The two soldiers walked toward me, hands on their machine guns.

My heart raced. This was a huge mistake. Only a 19-year-old guy could have come up with such a boneheaded idea. Here I was in Russia, May 7 of 2000, and I came up with the brilliant idea to sneak into President Vladimir Putin’s inauguration. But now it looked like I would instead be “sneaking” into a dank, cold prison cell (hoping there was no Russian equivalent of “Bubba” looking for “companionship”). Here I had already penetrated the first ring of security, but wasn’t going to make it any farther.

That morning, I decided that I wanted to see Putin’s inauguration. It was a historical moment touted in the press as “the first peaceful transfer of power in Russia in 1,000 years.” That seemed an odd label to me. After all, Putin was already the president, having succeeded Boris Yeltsin on New Year’s Day this year. He was “transferring” power from himself to… himself?

Being at a university, I asked one of my professors about it. She said that today he was part of Boris Yeltsin’s presidential regime and was now passing power to his own regime. She waxed ecstatic about how historical this was, since most power transfers in Russia’s past were quite violent. She then talked about how he was going to restore order and stability to Russia.

I nodded and thanked her for explaining the “peaceful power transfer.” Still a silly assertion, I thought to myself. No matter. His inauguration was supposed to be a grand affair. He was to reinstitute the grand military revue and weapons parades famous during the later Soviet years but discontinued by Yeltsin. I wanted to see that. It was closed to the public, but I wasn’t about to let that stop me! I needed a plan.

I picked up that day’s version of the English-language “Moscow Times” to see where the street and Metro closures were. It seemed that the streets would be easier to negotiate than the bowels of the Metro system, so I started there. My university being very near the center of town, it was only about a 15-minute walk to the first barricade. Gruff, dour-looking soldiers were spaced several feet apart in front of steel fences. I looked to the right and the left. No openings or spaces anywhere in sight. OK. Not a surprise. I didn’t think it would be that easy.

So I went up to the youngest-looking, least-intimidating soldier (he looked even younger than I). He was still pretty menacing, but maybe I could explain to him what I wanted to do, and as a non-threatening, unarmed student, maybe I could get in. Slowly, as non-threatening as I could (he had no less than three guns on his person at the time), I approached him. His cold stare pierced my optimism.

I was about to turn around when he addressed me in Russian: “What is your business here?”

I hesitated before choppily responding (in Russian), “I am a student and wanted to see the inauguration of Vladimir Vladimirovich (Putin).”

He shot that down pretty quickly. “This is a restricted area. You cannot come in.”

I could have given up at that point, and that would have been the safe, conservative thing to do. But I was a teenage guy. Prudence and safety were not part of my vocabulary! On to plan B: the Metro. The three stations closest to Red Square were closed, as they were within the first security perimeter. So I hopped on the Metro at the station closest to me. It was much less crowded than usual, but not empty. The first closed station was two stations down from my current location. The computerized female voice sounded over the intercom (in Russian): “Careful. Doors are closing.”

I sat down and thought about what I was going to do. I wasn’t sure what this was supposed to accomplish. Was I seriously going to pry open the Metro doors and jump off the moving train as it went past a closed station? No. Not likely. Luckily for me, the Metro actually stopped at the closed station and the doors opened. I jumped out into the closed station without thinking any further. No one else got off.

The train rolled away, and here I was in a dark, empty station in subsurface Moscow. I could hear slowly dripping water behind me. My steps quietly echoed as I moved toward the station exit. The escalator to go up had a barricade in front of it, but no one was guarding it. So I jumped over it and started walking up the escalator. I smiled to myself. I had done it! I was inside the outer security perimeter! I got to the top of the escalator and looked around. I had never seen the streets around Red Square this empty. Usually everything here was so packed that it was hard to move without running into someone. But not today.

That’s when I saw them.

Two soldiers noticed that there was a bumbling university student inside their security perimeter. Hands on their machine guns, they started walking toward me. I froze. Any sudden move could bring a hail of lead my way. Both of them were older than the first soldier I approached, probably in their late thirties or early forties.

The first one asked me in Russian, “This is a restricted area. What are you doing here? How did you get in?”

Not wanting to appear to be hiding anything whatsoever, I explained my entire morning to him, as the other one gave me a full TSA-style aggressive pat-down. The two soldiers whispered among themselves for a minute as I sweated, wondering what my fate was to be. What a stupid idea this was!

The first one, whom I’ll call “Dima,” turned back to me and said “Come, follow me.”

The other soldier followed behind. I quietly pondered what kind of dank cell I was to be calling my home tonight, and perhaps for the foreseeable future (I wonder if you get one free phone call here?). He led me to one of the Red Square gates. For those of you who haven’t been there, Red Square is open on the side of St. Basil’s Cathedral, but somewhat enclosed on the side opposite by buildings and a gate. Dima led me up to the gate.

To my surprise, there were about 20 other people in front of the gate. Not soldiers, but civilians. Several of them gave me odd stares, as if to say, “Who are you and what the hell are you doing here?” There were no other Americans in this group—they were all Russian.

Dima spoke to me. “You may watch from here. Do not take any pictures. If you do, I will confiscate your camera. Do not leave this immediate area. If you do, you will be considered a security threat. I will tell you when it is time to leave and then you must go.”

I meekly said, “Understood.” I’m still not sure who those other people were. Maybe friends and family of the small detachment of soldiers patrolling Red Square?

I actually couldn’t see much. I was expecting to see the full Soviet-style weapons paraded right past the gate, but that didn’t happen. I could see activity in the distance, but most everything was behind the Kremlin walls (Red Square is just outside of the Kremlin). After an hour or so, Dima told me it was time to leave. He escorted me to the security perimeter.

As we walked, he said to me, “I am not sure whether to admire your courage or laugh at your foolishness. You are lucky that I found you. Someone else may have shot you on sight. When I was 15, I actually snuck into the Kremlin during one of Brezhnev’s ceremonies. I was discovered and spent two nights in prison. Be careful here. Don’t try anything like this again. It is too dangerous. Do not say anything as we approach the security fence.”

He led me through the barricade, and I happened to pass the exact soldier whom I had approached earlier that morning! I quickly looked away and kept walking, all of the way back to the university.

As I walked, I thought about the whole thing. No one knew much about Putin at the time. It was amazing how quickly he garnered a hugely popular following in a matter of scant months. While he was still Yeltsin’s PM, he used the well-worn playbook of war by invading Chechnya to boost his popularity and show that he was a decisive and strong leader. That playbook sure gets results quickly!

He often praised capitalism, although with the caveat that the guiding hand of the state was needed to ensure fairness and stability (sound familiar?). He talked little about freedom in his public speeches, but often of stability. He read his population well: practically everyone here valued stability over freedom. It was easy to see how 10 years of rapid inflation, hyperinflation, and general civic disorder could make the majority desire a strong leader. At the time, I never thought such a thing could happen in the US.

14 years later, I’m not so sure.

The adrenaline rush continued the next day with the celebration of V-E day. It’s one of the biggest national holidays in Russia, and this year was the 55th anniversary, so the festivities were even bigger than usual, I was told. I asked my university professor how I could best experience the day, as different commemorations and events were going on all over town. She suggested just walking around, but that the biggest parades would be on the main roads and around the Kremlin.

She also gave me some helpful advice for navigating crowded parks. “Don’t look into the eyes of a gypsy. They have powers. They can hypnotize you long enough to take your money before you know it.”

I smiled and said thanks, not really believing in the trance-inducing super-powers of the Roma population. Her advice on walking around was good, though. I started down Tverskaya Ulitsa (one of the main streets) and saw a drill team of soldiers parading down the street.

Many buildings were festooned with “55” and Soviet symbology.

Russian military band

I bought a little Russian flag, the same size as those little American flags that you get at 4th of July celebrations or political rallies, and a Yarpivo beer from a street vendor and happily strolled down the street. Except for Russia’s distinctive architecture and language signs, it felt like Memorial Day back in the US. I looked up and saw another marching group pass. It was maybe 30 civilians, several of whom were carrying a flag of one of the now defunct Soviet Socialist Republics, along with a Soviet flag and a leader marching with a portrait of Lenin. I decided I would follow along. This looked interesting.

Lenin’s followers pining for Soviet Union redux

Each Soviet Socialist Republic is represented.

They eventually stopped among another crowd. Before I knew it, an older Russian man sneered at me and ripped the Russian flag clean out of my hand and crushed it in his sizable, gnarled hands. I gulped and froze. He gave me a Soviet one instead, and in Russian told me, “This is the real flag. Carry it with pride.”

Not being a confrontational type, especially with a burly fellow who would have had no problem crushing me in those same gnarled hands, I graciously accepted the Soviet flag and held it up as I walked away from him. I started to look around the crowd that was now surrounding me. I was the youngest there by a good 20 years. No one else there looked American. Everyone was dressed in shabby clothes and facing toward a podium. Even the ever-present “Pensionerkie” (pensioners) had stopped their routine of bowing down to the ground and getting back up to their knees repeatedly in order to look at the podium. Someone was getting up to speak.

Surrounded by a geriatric crowd of comrades

It turned out that this was a Communist Party rally. The speaker was quite lively. At one point, he even turned on some music and sang. I don’t remember too much of the song now, but I remember part of the chorus: “Russia and America are enemies! Not ideology but FACT!” Being the “enemy” (factually, no less), I decided now would be a good time to slink away undetected. The speaker was appealing very well to the passions of this crowd, and I didn’t want to be a focal point of said passions.

After escaping the Red Rally, I decided that nothing could better cap off my day then a stop at one of Moscow’s McDonald’s locations. I didn’t think I’d run into any of the comrades here. The rallyers were all pining for a return to the Soviet era (pre-Gorbachev, of course). They celebrated the “stability” of the Brezhnev regime.

The interesting thing to me was that these were the people who lost the most under that system! These were the ones relying on the promises and handouts that turned out to be hollow. They were the ones that propped up that system, and here they wanted that system back, not willing to admit that it was nothing but a fantasy to begin with. Delusions die hard. Ironically enough, they were no fans of Putin either. They literally wanted the Communist Party and its standard bearer Gennady Zyuganov in power, and figured that would turn back time and restore the glory days of Soviet power. Maybe they’re a bit more enamored of Putin now, 14 years later?

I savored every bite of that burger and fries. I actually drooled a little as I opened the burger wrapper. Honestly, up to now I was very good about trying to stick to local food, but there’s only so much of Russia’s delectable cuisine that a person can take.

Can you see the golden arches in the center? It was like coming to an oasis after days in the desert.

A professional nerd and an aficionado of Excel spreadsheets, investments, coins, and history, Brian now works with a multifamily real estate developer in the mid-Atlantic.

Friday Funnies

Cops Mistake Gun Tattoo for Real Gun

This is one of several hundred reasons why you shouldn’t tattoo a picture of a gun on your body, like this guy.

Too Drunk to Walk

An Irishman’s been drinking at a pub all night. When he stands up to leave, he falls flat on his face. He tries to stand one more time, but to no avail. Again, he falls flat on his face. He figures he’ll crawl outside and get some fresh air and maybe that will sober him up. Once outside, he stands up and, sure enough, he falls flat on his face. The Irishman decides to crawl the four blocks to his home.

When he arrives at the door, he stands up and falls flat on his face. He crawls through the door into his bedroom. When he reaches his bed, he tries one more time to stand up. This time, he manages to pull himself upright but he quickly falls right into bed. He is sound asleep as soon as his head hits the pillow.

He awakens the next morning to his wife standing over him, shouting, “So, you’ve been out drinking again!”

“Why do you say that?” he asks innocently.

“The pub called. You left your wheelchair there again.”