LUONGO

The annual Valdai Discussion Forum is going on this week. This is Russian President Vladimir Putin’s pride and joy. More than any other speech he gives annually, this is the one that is the most important as Valdai is how he’s built the relationships he has with leaders of the Non-Aligned World.

This year in particular is important because we are 18 months into the War in Ukraine and Russia has not only survived the shock and awe campaign of the collective West to destroy Russia, one could easily make the credible argument that Russia has thrived because of it.

At the outset of the war I laid out what I thought was Putin’s overall strategy, a grueling war of attrition fought on multiple fronts — militarily, economically, diplomatically. While we can certainly argue about the effectiveness of each leg’s effectiveness, esp. the military leg, what cannot be argued is the overall strategy itself.

Putin put Russia in the West’s crosshairs, turned on the boombox, and blasted Pat Benatar’s “Hit Me With Your Best Shot” on auto-repeat with the amp cranked up to 11.

It’s still playing by the way because Ukraine hasn’t been able to find out where the damn boombox is.

Putin’s Valdai speech this year is important because this time he’s not saying what he always says from a position of weakness, negotiating with people incapable of even finding the word in the dictionary. He’s doing so from a position of strength.

He put the call out to the world to follow his lead in Ukraine, and to the amazement and consternation of many, they followed.

He outlined an awful lot in the speech, but this is the key gauntlet he threw down yesterday:

“We have been talking for decades about the indivisibility of security, about the fact that it is impossible to ensure the security of some at the expense of the security of others. Indeed, harmony in this area is achievable. You just need to put aside pride, arrogance and stop regarding others as second-class partners or as outcasts or savages,” Putin noted
For how long have I used the talking point in media appearances that the fundamental problem is the arrogance of old Colonial Europe and their fellow travelers in the US?

That to these people, the rest of the world is to them nothing but “the help.” Well, “The Help” are simply no longer interested in being happy to be fed a few scraps from the table.

The arrogance of people like EU ‘Foreign Minister” Josep Borrell calling Europe a garden and the rest of the world a jungle is emblematic of this type of thinking.

In the US we simply have mafiosi characters like Hillary Clinton, Dick Cheney, Joe Biden, Bill Kristol, and Larry Fink. They believe in nothing but leverage. All stick all the time, no carrots. Their disciples, like Victoria Nuland, Jake Sherman, John Bolton and Janet Yellen, exist as leg-breakers, nothing more complicated than that.

The issue in Europe, however, is far different because the ruling classes there have been in power for so long, building up and tearing down multiple empires over nearly a millennia, that there exists a dangerous solipsism where they can’t even conceive of the idea of losing because those they subjugate have been so easily manipulated in the past.

They really do, as my dad used to say, “Believe their own press clippings.” That’s a very dangerous conceit when you also control the press.

This is what has led us to the current situation. Putin, in his gangster way, made the world a better offer than the one the West’s gangsters tried one last time to make everyone not refuse.

From here forward it is all downhill as long as he can contain the domestic political fallout from the costs of this war on Russia in the near term. This is why the wild card of British/Baltic/Ukrainian belligerence is so dangerous.

The good news is that the Poles have finally realized they have to act somewhat reasonably. One has to wonder, however, how much of that is just pre-election maneuvering by the leadership there who will revert to type after securing victory.

I’d say the odds are not in humanity’s favor there.

Wither the Euro-zone Bond?
The connection to FOMC Chair Jerome Powell by this point should be obvious to long-term readers. Powell’s ultra-tight monetary policy since the beginning of the war has assisted Putin in tightening the economic noose around what is clearly a politicians’ war.

Raising the cost of dollars has eroded the political support for this war, forcing domestic populations all across the West to decide what’s more important to them, their vaunted principles or their pocketbooks. It’s the simplest of choices really.

With the yield curve now normalizing on the long end as the Bond Vigilantes come out from their decades-long hibernation, this is forcing even more hard decisions, not just on the US but also everyone else.

Europe’s response has been to sell hundreds of billions in new European Commission Eurobonds. They have nearly $500 billion of a projected $800 billion over the past two years. The initial tranche, $142 billion, were launched in 2021 yielding a princely 0.086%.

Clearly, there was no thought that Powell would force rates higher this fast and this angle just makes my arguments that much stronger that the Fed is not going to allow fiscal integration of Europe to happen without an immense amount of pain.

The EU have been furiously trying to sell as many of these as possible in order to finally launch a futures market in them as well as have them listed in indexes around the world next to Italian BTPs, German Bunds, etc. They believe they’ll reach that goal by some time next year.

This is clearly the first step for the EU to fix its biggest structural weakness, the inability to house all of the EU-27 debt under one structure. The economist is calling their plans “a fantasy” given the budgetary nightmares across Europe.

But if you want to know why the ECB’s Christine Lagarde is so adamant about not letting European bond yields rise too far, it is because of this program. Only the establishment of a real pan-euro bond market trusted by investors can make this idea fly.

The real problem, of course, is that if you’ve already cost your initial investors half of their original capital how are you going to get them to come back in again, especially, if rates have to go higher?

This week’s market action was a good indicator of where we are headed going into tax season. As expected, the US dollar ate everyone’s lunch. It forced the Bank of Japan to intervene, mildly, twice. Equity and commodity markets got the back of the hand and, in general, a whole lotta reality took the air out of a whole lotta people’s sails.

This is, in the end, a good thing. Powell has tightened credit to the point where difficult decisions are being made. They are forcing people to look seriously at both valuations and policy trajectories.

Their conclusions are sell first, ask questions later. And that’s why Matt Gaetz’s gambit to oust former Speaker Kevin McCarthy was timed so perfectly.

Fast out of the Gaetz
There are a lot of people really angry at Matt Gaetz now. For the first time in a very long time forced a Hobson’s Choice onto the politicians who are the enemies of the people.

While he didn’t expect to be successful in getting rid of McCarthy, he forked the Uniparty into an unwinnable decision. Which piece were they willing to lose, a rook (the illusion of the Democrat v. Republican division) or a bishop (the supremacy of the RINO cult within the GOP to enact the Dems agenda for them).

What Gaetz did was nothing short of monumental. It reminds me of Putin’s move into Syria in 2015. Then the US tried to make everyone believe that ISIS was unbeatable and that’s why we needed to go into Syria to stop them. When the reality was we weren’t fighting ISIS, we were backing them.

Putin moved in and in 3 weeks blew the entire operation up. Six weeks in the UK/US had to create a false flag to try and get Russia to declare war on Turkey for shooting down an SU-24. We were so desperate to maintain that illusion we risked a NATO Article 5 scenario over it.

Putin didn’t take the bait. By early 2016 everyone knew that ISIS was a nothingburger and Syria turned around.

By the Democrats deciding to choose to maintain their separation from the RINOs and not come to McCarthy’s aid, Gaetz now has neutered the RINOs and set up a primary season which can finally begin cleaning house.

We can’t go back to business as usual in the House after this. Now we will finally get some real horse-trading for who becomes the next Speaker.

Trump now gets to play kingmaker within the GOP. We know that the Dems will do exactly the opposite of what he wants. He’s backing Jim Jordan, apparently, so that means it will be up to the RINOs to decide if Jordan gets to be Speaker or not.

If they nix Jordan, then what? Scalise? He’s not even in Congress, being treated for cancer.

What happens now is that a lot more members of Congress get to show the leadership that they are more than just “the help.” They have agendas, perspectives, wants and needs.

They are looking at the future in a few months and they will have to answer to constituents who will be ready to dump them for anyone with a pulse who isn’t them.

To use a football analogy, this was an off-tackle right that was supposed to be 3 yards, a cloud of dust, and a 1st-down. But somehow the line collapsed and we’re into broken field running.

And we know what happens at that point… anything.

Believe me, Putin is watching this and smirking