Buy the Rumor, Sell the News

“Imagine a room awash in gasoline, and there are two implacable enemies in that room. One of them has nine thousand matches. The other has seven thousand matches. Each of them is concerned about who’s ahead, who’s stronger.”

― Carl Sagan’s metaphor for nuclear arsenals

Addison WigginDear Reader,

In a textbook demonstration of the trader’s mantra “buy the rumor, sell the news,” gold rallied nearly $40 on the London open yesterday. Fears of a Russian invasion of Ukraine drove new purchases…

Then Russian helicopters started raining rockets on military installations throughout their neighboring country to the east. The invasion had begun. On the open in New York, gold sold off nearly $60. Buy the rumor, sell the news.

What happens next is of utmost concern. Putin’s rhetoric for some months now has indicated he thinks now is the right time to invade because the West is weak. Yesterday, he reminded the West that Russia is a nuclear power, so they better not interfere with his plans in Ukraine.

Out of curiosity this morning, we looked up how many nukes Russia has pointed roughly in the direction of Western Europe or the United States. They have 3,309 available for deployment. The U.S. pointed in the other direction? 2,361.

Alas, it only takes one to dismantle our modern era of relative peace… possibly even civilization itself.

Let’s assume no one with their finger on the button or access to the codes is dumb enough to launch one. What are the economic implications for a protracted war in the Ukraine? Maybe $7 gas, as Bill Bonner forecast yesterday?

In his “World at War — Russia, Ukraine and the Coming Global Powderkeg” webinar yesterday, Jim Rickards pointed out that gas prices would be heading there even if Putin had kept his troops on his side of the line.

He cites the Biden administration’s decisions to “shut down the Keystone XL pipeline, put new regulations on the frackers and prohibit new leases for oil and gas exploration on federal lands.”

“We were selling oil to the rest of the world,” he adds. “Now we buy it from the rest of the world.” Including Russia.

So sanctioning Russian oil will just make the supply situation dicier — which will have an impact on your wallet. But the sanctions won’t hurt Putin much at all. That’s because if Europe and North America reject Russian supplies, Asian nations will buy them instead.

“You can cut off the energy from a single cell or single buyer,” Jim explains, “but you can’t cut off the global supply.”

After all, “it’s a global market; it’s fungible. Everyone’s going to get paid because the world needs the energy.”

But that’s not all. We’re still dealing with worldwide supply chain issues, especially when it comes to things like semiconductors and microchips. Trying to cut off trade with Russia will only exacerbate those problems.

“You can’t make semiconductors without neon gas,” Jim says. “Guess who supplies 70% of all the neon gas in the world?”

Other high-tech raw materials like platinum, palladium, titanium, nickel and aluminum mostly come from Russia, too. Preventing companies from buying them from Russian sources means “you can’t build semiconductors, you can’t build batteries, you can’t build aircraft.”

In other words, if you think things are bad now… hold on tight. “It’s a pretty good recipe for a recession at a minimum,” Jim says.

And that’s just with sanctions. If U.S. troops get involved, Russia will likely demonstrate its abilities to hack into our computer systems. Forget nukes. “When you get into critical infrastructure and cyberattacks,” Jim warns, “you’re talking worse than a nuclear war.”

There’s also a fear that the United States’ inability to keep Russia out of Ukraine might embolden China to move on Taiwan. But Jim doesn’t think the Chinese will invade anytime soon. “I don’t see it right now,” he says. “I don’t think it’s automatic, even though Biden is incredibly weak.”

But, as we’ve said before, China holds all the cards anyway.

The United States has been effectively sidelined, unable to do more than make angry grumbling noises. Decades of running deficits and compiling debt — especially in a time of relative peace — has put society in a very precarious position.

We’re simply not prepared for an aggressive Russia and/or China.

Is this how the U.S. dollar loses its reserve currency status?

Follow your bliss,

Addison Wiggin

Addison Wiggin
Founder, The Financial Reserve

Addison Wiggin

Addison Wiggin

Addison Wiggin is founder and executive publisher of Agora Financial LLC, an independent economic forecasting and financial research firm. He and Bill Bonner began writing the firm’s flagship Daily Reckoning in the midst of the tech boom and bust. It was one of the first widely distributed email newsletters on the Internet. The publication’s critical eye on finance and economics continues today. He’s also creator and editorial director of Agora Financial’s daily missive The 5 Min. Forecast.

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