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Are We Drifting Into Another Cold War?


November 5, 2014

Written by Sandy Stuart

The major powers of the world seem to have thrived on a relatively peaceful environment (excluding religious fanatics). The Cold War ended with the dissolution of the Soviet Union. The Iron Curtain came down. Russia and the other individual countries that comprised the Soviet Union had to compete in the open market and did so with varying degrees of success. But it was Communist China that did the best in the open market. The Chinese showed the way on how to compete successfully, despite being a one party political state.

It was so nice. All countries were competing and trading. It seemed we were becoming economically interdependent. Were world wars a thing of the past? Logically it would seem so.

However, with economic success came stirrings of international power plays. China is building up its armed forces and is asserting claims over various islands in the South China Sea. Russia has been making a power grab  for areas in the Eastern and southern Ukraine that have Russian speaking majorities, drawing comparisons to Nazi Germany’ s World War II annexation of lands populated by German-speaking peoples. Remember the Sound of Music?

One can only hope that economic self –interest will trump nationalistic feelings that have been reignited by economic success. But don’t bet the farm on it.

Unfortunately peace is fundamentally at risk by a conflict of common values.  It is disheartening to see the policies approved by Russia and China through the U.N. It seems that brutality and oppression are just fine with them.  The not-so-hidden message is that, “We support such behavior because we may have to resort to it someday, and we don’t want other countries messing with our “internal affairs”, regardless of how nasty we have to be. ” Standards of right and wrong revolve singularly around what is favorable or unfavorable for the particular country represented. Universal values are absent.

It is an historical truth that the people ultimately allow rulers to rule. It is so today. The governments of Russia and China have improved things economically for their people and are riding a wave of nationalistic approval, despite (or perhaps because of) aggressive international policies. Approval ratings among the citizens are the envy of our politicians, who are mired in the 30 to 40 percent approval range. What they wouldn’t give for ratings in the 80 to 90 percent range, as sported about by the Russian and Chinese leadership! The U.S. people are war weary. We no longer want the role of “the world’s policeman”. Our military is being cut both qualitatively and quantitatively. The only thing that seems to be keeping the military from being totally decimated at this point in history is the fight developing with the ISIS fighters, who have set a new high water mark for sheer brutality and religious fanaticism. But whatever we do militarily will be “on the cheap” to allow for continued reduced force structure.

So what is the impact of this mess on investments? They flow to where there are profits that can be realized. But if overbearing governments preclude investors from taking their profits, investors will avoid those situations.  But watch out for the bad guys. They can lure investors in, but can also turn on a dime, nationalizing industries when they believe it to their advantage, regardless of past agreements or treaties.

Military spending will continue to increase in Russia and China while it decreases in the “free world”. We can also anticipate that Russia and China will attempt to undercut the U.S. in international trade.  Power and influence in today’s world is gained by building military and economic power.

Russia is providing a text book demonstration. Its military power is such that no one can effectively oppose it by force of arms in areas where there are significant numbers of Russian-speaking citizens.  Russia’s grab of eastern and southern Ukraine was virtually unchallenged. The west has implemented some selective sanctions with only limited effect.  Russia’s economic power is rooted in its being the major supplier of gas and oil power to Europe. When the temperature drops, expect the European Union to “make nice”, despite aggression in Ukraine.

It’s a big world out there.  The key to future investing will continue to be to maintain a global perspective.

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