March 2022

For anyone who thinks that Putin’s invasion of Ukraine represents an isolated incident — simply a despot extending his buffer zone – rather than a global threat, think again.  The next Cold War has begun.

A word of caution: the following is a summary from one of Arthur Bavelas’ Family Office Insights webinars that took place on March 17, 2022. The two presenters offer a thought-provoking analysis of the state of globalization.  Some will disagree with their thesis.  In our efforts to highlight potential direct private investment opportunities, we find the webinar of sufficient value to bring to your attention, regardless of the presenters’ points of view.

 

Since the end of the Cold War, the world has enjoyed growing globalization – interconnected economic cooperation between state-sponsored, autocratic governments (think Russia and China), with state-controlled capitalism, and democratic countries.

However, the speakers paint a dour picture about the end of globalization and return to the doctrine, albeit in a new formulation, of “mutually assured destruction (M.A.D.)” that had been employed by the post-World War II superpowers, the USSR and the United States.

Their thesis was outlined in three “Acts”:

Act 1: By invading Ukraine, Russia, the 11th largest economy in the world vs. the 57th largest economy, secures, at the very least, the eastern provinces of Ukraine.  Russian benefits: A gateway to warm water access, the port of Odesa, one-third of Ukraine’s food production, most of the manufacturing capacity, and a buffer against the surrounding European Union countries of Poland, Slovakia, Hungary, and Romania.

And do note, with…

  • 31 healthcare facilities attacked (a/o 3/17/22 (Remember, medical facilities in Syria reputedly were bombed 200 times by Russian and Syrian forces, so stay tuned…),
  • Several key cities encircled,
  • Ports captured, bombing intensified, etc.,

Putin will push as far as he can into the country.  He will need room to negotiate when either his war machine runs out of money (think potential future bond defaults, SWIFT freezes, the Ruble’s radical devaluation of 40-50%, and soldiers’ pay becoming worthless) or the democratic (and autocratic — a distant possibility) international community forces his hand.

Act 2: Iran’s actions further undermine globalization.  Despite assurances that it will reverse all its violations of the Joint Comprehensive Plan of Action should the sanctions imposed by the agreement be lifted, Iran is determined to develop its own nuclear weapons arsenal.  The once exclusive club of nuclear weapons nations will then include the United States, Russia, France, China, the United Kingdom, Pakistan, India, Israel, North Korea … and Iran.  On a side note, Russia, surprisingly, appears to be playing the role of intermediary in the ongoing negotiations between Iran and the U.S.

Act 3: Finally, Xi Jinping undoubtedly is gauging the Western world’s reaction to Putin’s gambit.  Just as Russia wants to build a barrier around its borders, Xi wants to protect its own.  Taiwan and South Korea are likely in his sights.  Furthermore, both Russia and China (and India) have taken a keen interest in Nepal, largely because it is one of the world’s richest countries in terms of water and, therefore, hydroelectric resources

In short, the growing trend over the past 30-40 years — the interdependent capitalistic cooperation between formerly opposed sides in the Cold War – is running out of steam.  Collaboration has shifted to competition and growing conflict once again.  The Eastern bloc, to use a 50-year-old term, is strengthening its buffer against the Western nations, whether via outright annexation (e.g., Crimea, 2014), war (Ukraine and, potentially, Taiwan), or economic consolidation.

The question is, what form is this realignment and M.A.D going to take?

The Next Stage:

In a theme picked up five days later by President Biden in a press conference, the new warfare model will be economic and technological, and the tools will be cyber-attacks. The limited cyber disruptions played out in Ukraine and elsewhere by Russia, as well as by other actors, are finally ready for the main stage.  Large-scale asymmetric cyber-attacks are in the offing.

“For Russia, the war with Ukraine has been likely serving as a live testing ground for its next generation of cyber weapons.”

Immediately preceding the invasion, for instance, the Ukraine government was attacked by “malware designed to wipe data.” This is the latest, but not the first such example.  Russia has a history of testing its capabilities on Ukraine, disrupting airports in 2017, and disabling electric power to the western provinces in 2015.

These capabilities don’t respect geographic borders.  The world has seen steel mills and gas pipelines destroyed – even centrifuges in a uranium enrichment facility.

What’s at stake?  The power grid, banking systems, water treatment facilities, pipelines, communications systems – all these and more.  Critical infrastructure everywhere.

Unfortunately, according to the presenters, the United States is well behind in this impending “arms race.”

Investment Opportunities – Imperative for our protection:

If you believe that the speakers’ perspectives are correct, then federal governments, states, and private enterprises are going to pour billions into protecting against cyber-attacks.

Their recommendation: seek out early stage venture opportunities, either through direct investments or dedicated funds/ETFs, in artificial intelligence, robotics, surveillance and reconnaissance, and quantum and hypersonic technologies that will enhance our national security.

If interested in learning more, watch the webinar, The Impact of the Ukraine Crisis and Opportunities and Considerations for Family Offices.”

Thanks to both presenters for their insights.  Hamlet Yousef, Managing Partner of IronGate Capital Advisors, recently worked for the Federal Government in the National Security/Diplomacy sector and carries active security clearances.  Ryan Morfin is CEO of Wentworth Management Services, a lead aggregator of RIA / Wealth Advisors.

Photo by Nico Smit on Unsplash