Trump and Putin: Big War or Little Deal?

Russian-U.S. relations are about to burst into the headlines with gale force.

Point #1
Russia is on a long march to war.
(Go here for the evidence.)

It is the first major nation in modern history to invade and annex the territory of another nation, directly threatening the world order that prevailed since the end of World War II.

It has the most pervasive anti-American propaganda machine I’ve ever studied or experienced.

It’s rapidly upgrading its firepower in the Baltic Sea and adding warships armed with long-range cruise missiles.

And in the event of a conflict, it could defeat NATO forces in the Baltic countries within 60 hours or less, according to the RAND Corporation.

Point #2
We’re hearing rumblings of nuclear war.
(The full story is here.)

Russia and the U.S. are rapidly expanding their arsenals of what’s called “tactical nuclear weapons.” Although smaller than the “strategic nuclear weapons” that were the hallmark of the Cold War, they still pack more destructive power than the bombs dropped on Hiroshima and Nagasaki.

On both sides, the assumption of military strategists has been that these tactical nukes would supposedly not cause “assured mutual destruction.” As a result, they lack the deterrent power that has so far helped prevent nuclear war.

But the fact is, there’s no agreed-upon dividing line between “tactical” and “strategic.” Thus, their deployment could lead to escalation … the use of the larger strategic weapons … and ultimately, assured mutual destruction after all. 

Kaliningrad, although part of the Russian Federation, has no borders with Russia or even with Russian-allied Belarus. But any missiles that Putin places there are a direct threat to Lithuania and the two other Baltic states, Latvia and Estonia.

 

Update:According to the Financial Times, “Russia is putting the ‘nuclear gun’ back on the table” with “the most intense nuclear posturing by Moscow since the Soviet era.”

In just three weeks, Russia has canceled three nuclear deals with the United States.

And it has moved nuclear-capable missiles into Kaliningrad, the Russian Baltic enclave wedged between Poland and Lithuania, threatening the three Baltic states, all members of NATO, even more directly.

Very Dangerous

I take all of this personally. My grandparents were born in what was then Russia. We have dear friends in four corners of that vast country. And every time we’ve gone to visit them, we’ve never experienced anything other than the warmth of their hospitality. The entire concept of war is very dangerous, unthinkable and shocking.

 

Russia’s Ministry of Foreign Affairs in Moscow, the source of much – but certainly not all – of Putin’s global policy.

 

But it is brewing nonetheless. And as in all conflicts, it’s not one-sided. Indeed, many analysts argue that it was effectively NATO that started the new Cold War by expanding eastward to Russia’s border.

We’ll let future historians hash that out. For now, what’s more important is that there’s …

New Hope in Moscow

Trump and Putin now have an opportunity to change course.

Within the first 90 days after Trump’s inauguration, they have a chance to halt the downward spiral in U.S.-Russian relations, avert a massive arms race, save trillions of dollars in military budgets over the next decade, and, most important, reverse the frightening march to war.

I do not say this lightly. This scenario is possible.

One of our sources in Moscow, a person close to Russia’s Ministry of Foreign Affairs, tells us that decision-makers in the Kremlin are, currently at least, quite open-minded.

They’re as surprised as anyone by Trump’s victory. They don’t know what to expect. They have not yet formulated any particular strategy. And they don’t even have a consensus of opinion overall.

They’re waiting for Trump to make the first move.

Naturally, some in Russia are skeptical of the outcome. But others strongly believe that U.S.-Russian relations can improve dramatically.

It’s a view that’s reflected in new blog posts, interviews and press commentary by some of Russia’s most-respected opinion leaders:

Publicist Evgeny Antonyuk writes: “I can’t recall a higher level of love towards Americans since the first term of Boris Yeltsin’s presidency.”

Russia’s former Minister of Finance, Alexei Kudrin, says Moscow is looking to establish better relations, stressing that “each side has to make certain concessions.”

Mikhail Aleksandrov, a leading expert at the Moscow State Institute of International Relations, believes Trump will pivot from a confrontation with Russia to a confrontation with Iran. Aleksandrov doesn’t like that idea and fears it will fuel new conflicts. But he concedes it might open up opportunities to reduce tensions in Europe.

Overall, despite an undercurrent of lingering skepticism, there has been a major shift in sentiment in Russia: Before the U.S. election, most opinion leaders expressed virtually no hope for restoring relations with the U.S. And they had diminishing expectations of avoiding outright war. Now hope is widespread, strong and genuine.

The bad news is that …

Similar sentiments are not echoed in the United States or Western Europe. Trump seems to be virtually alone in his apparent willingness to make a deal with Putin. Even if he truly wants to move toward better ties, he faces a series of hurdles that he’ll have to overcome from day one:

Hurdle #1
The U.S. media doesn’t get it.

With few exceptions, the hopeful commentary by Russian opinion leaders that I just told you about is exclusively in Russian for Russian audiences. It is not showing up yet in U.S. news stories or editorials after the election.

That’s understandable. But what’s truly unusual is that both the liberal and conservative media seem to be lined up in lockstep against Putin.

They’re both telling the American public that nothing has changed in Russia. They’re both continuing to pound away at Putin’s past aggressions. And they’re making the argument that the U.S. has absolutely nothing to gain from trying to stop the ramp-up to outright war.

Hurdle #2
Establishment Republicans – and Democrats – are fiercely opposed to a Trump-Putin deal.

U.S. Senator John McCain, who chairs the Armed Services Committee, says: “We should place as much faith in [Putin’s] statements as any other made by a former KGB agent who has plunged his country into tyranny, murdered his political opponents, invaded his neighbors, threatened America’s allies, and attempted to undermine America’s elections.”

U.S. Senator Lindsey Graham, also on the Armed Services Committee, agrees, stating: “They’re a bad actor in the world, they need to be reined in.”

Trump’s own running mate is of similar persuasion. During the election campaign, Pence said provocations by Russia need to be met with American strength; suggested that the U.S. should deploy missile-defense shields in Eastern Europe; and directly contradicted Trump by acknowledging evidence of Russian meddling in U.S. politics.

And Obama has just weighed in warning against appeasing Putin with “realpolitik” – supposedly pragmatic deals that overlook America’s and Western Europe’s core values of democracy.

Hurdle #3
Congress is already passing legislation that seeks to limit future attempts by Trump to reset relations with Russia.

Late last week, Republicans in Congress began moving swiftly to stake out a tough stance against Russia.

They started with a bill imposing mandatory sanctions on anyone who financially, economically or technologically supports Syria’s government in their civil war, including Russians and Iranians. Trump supporters didn’t stand in the way, and the measure was passed unanimously.

Plus, they’re now planning a whole series of similar bills that take direct aim at Russia. They want to get most of this passed before Trump meets Putin. And again, even Trump’s supporters in Congress are not standing in their way.

Hurdle #4
The top brass at the Pentagon are dead-set against a reset with Russia.

America’s smartest generals witnessed the scene eight years ago when Hillary Clinton, as secretary of state, symbolically hit the reset button with Russia’s foreign minister.

Then they watched in dismay as the reset seemed to open the door to Russia’s war in Georgia, annexation of Crimea, invasions of Eastern Ukraine and bombing campaigns in Syria.

Indeed, it’s this top brass who’s the primary source of that media view, which I told you about a moment ago, that the U.S. and Europe have nothing to gain from a deal with Putin. They feel that, like before, all it will accomplish is to give Putin more latitude to pursue his mission of making Russia great again.

None of these arguments are baseless. But there’s one fundamental point that they’re missing: The West’s economic sanctions have done nothing to stop Russia’s military buildup and incursions. Quite the contrary, they have served as rocket fuel for Putin’s anti-West propaganda machine. The reason: Russians are hurting badly in their pocketbook, and they blame it all on the United States.

What Kind of Deal Is Possible?

It’s too soon to say with any amount of precision. But based on our sources on both sides of the conflict, here’s a general outline:

Trump makes the first move, offering up the possibility, pending agreement by allies, that the West might consider peeling off some economic sanctions, in stages.

Putin reciprocates with commitments, also in stages, to reduce Russia’s intervention in Ukraine, make no further advances in East Europe, reverse its arms buildup in Kaliningrad, and cooperate in Syria by truly avoiding further attacks on U.S.-supported rebel groups.

That then opens the door to restoring nuclear agreements or at least preventing the collapse of arms limitation treaties.

My Advice

First and foremost, follow President Obama’s recommendation to give Trump a chance. Give him the space he needs to help avert what could be the single most dangerous threat to America and to mankind.

Second, never forget February 21, 1972. That’s the day President Richard Nixon became the first U.S. president to visit the People’s Republic of China — the visit that kicked off the largest trade boom in history.

In those days, everyone, myself included, would have told you Nixon was the last person in the world willing or able to accomplish that seemingly impossible feat. But he did. And today, Trump could potentially do something similar.

Third, don’t count on it. As an investor, you can’t bet on hopes. You need to base your portfolio choices on reasonable expectations. And unfortunately, at this juncture, one must recognize that the four hurdles Trump needs to overcome are daunting.

That means no change in the megatrends we’ve been warning you about — the ramp-up of the war cycle, rising gold prices, falling bond prices and more.

Fourth, regardless of any new negotiations between the U.S. and Russia, the United States will continue to step up its investment in military personnel and big-ticket technology. That’s also a trend you must assume will continue and accelerate.

SUBSCRIBE TO MONEY AND MARKETS

Print this post

Do you like this post?

Add your reaction to this article