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The People Who Played "Call Of Duty" In Real Life Are Getting Worried
Michael Every

Call of Duty; Duty of Care

I didn’t want to focus on Russia-Ukraine again today. However, when Bloomberg thinks Microsoft buying Activision, makers of the wartime video game “Call of Duty”, is more important rather than the risks of actual war, I have to. That editorial choice perfectly summarizes why one shouldn’t look to financial media for a forward view of the fat tail risks that can truly move markets most. It also epitomizes a generation for whom if things aren’t on their screens, they aren’t happening or didn’t happen, and that thinks wars are games and movies; and an ‘ESG’-obsessed Wall Street that actually doesn’t care about things like that if they aren’t the ones on the end of it.

Anyway, the US has reportedly taken its financial ‘nuclear weapon’ of taking Russia off of SWIFT off of the table, just as its actual nuclear weapons were removed as a threat recently at the UN - after it also indicated it, and NATO, won’t fight for Ukraine conventionally either. The latest decision is allegedly over fears of “short-term market destabilization” and worries that breaking SWIFT would shatter the global financial system. So the integrity of the global/US security architecture is now secondary to the US stock-market. Meanwhile, Russian stocks are slumping, and the Kremlin does not seem to care. Which of the two countries therefore has more real power in this stand-off? Indeed, in flagging Wall St must not be touched to defend US hegemony, D.C. just downsized its deterrent power. This signalling lowers the potential cost of Russian action.

On which note, Russia’s amphibious landing fleet just left the Baltic and is heading for the Black Sea, as its missiles continue to roll West. Yesterday also saw an unusually large number of US navy vessels and aircraft leave harbour/home base. The US now flags a joint threat to Ukraine from Belarus-Russia, who can easily pincer it, as Kyiv calls up 130,000 reservists to supplement its 246,000-strong army. Moscow rejected a NATO offer of further talks, no doubt as playing for time in the hope spring’s mud drives fears of war into it too: yet there have been Russian rumblings that if the US continues to ignore its demands, it may deploy tactical nuclear weapons close to the US mainland, which would take us straight to Cuban Missile Crisis territory. Against this backdrop, US Secretary of State Blinken travels to Kyiv then Berlin before meeting his Russian counterpart in Geneva. We shall see how much diplomacy is in all this shuttling, but it worries lots (though not all) of the people who usually don’t worry: the ones who played ‘Call of Duty’ in real life.

For markets, think of it as simply as this: on the back of Iran-backed Houthis attacking the UAE with drones (as the US keeps appeasing Iran regardless in the hope of avoiding conflict there), and a blast taking out the Iraq-Turkey pipeline, Brent crude was already at USD87.5 this morning in Asia, up 12.5% year-to-date, and double Russia’s budgetary break-even level. Where do you think oil and gas will be if Russia moves on Ukraine? ‘Gamers’ might say “They can’t sanction Russian energy, dude, it’s winter!” Yes, in which case, is Putin worried about acting?

China and Iran are naturally watching every single (mis)step the US and West make over Ukraine: how far are they prepared to go? And will that also apply to Asia given the new focus there? They, and Russia, are also about to hold joint naval exercises . If you can’t see the prospective ‘sides’ being formed, then you must work on Wall Street or for Bloomberg. As such, the US is trying to show it *is* able to confront Wall Street when it comes to China: yesterday saw Alibaba come under US regulators’ crosshairs, as did a US plane maker. Let’s see if there is any follow-through if fund managers squeal.

Indeed, as a Wall Street titan kicks off a Twitter storm with his comments, does broader issue is if The Street has a Call of Duty to venality or, as BlackRock’s Larry ‘$10 trillion’ Fink believes, it has a Duty of Care on key issues. If so, how does an industry that sells bullets to the highest bidder, metaphorically, deal with geopolitics? The easy answer is to just shout “ESG”! On which, I quote directly from @LynAldenContact: “ESG investing” in its current from is similar to people who take selfies of themselves in fancy locations to show they were there, while barely experiencing it for real. Mostly theatre, little substance. For example, we pollute, but buy offsets to make it someone else’s problem. We outsource our manufacturing base to another country to reduce headline energy consumption, but then buy products they make while blaming them for polluting. This is deflection, not reform. Software companies that build a business around addicting teens to their platform with regular dopamine hits & abuse user data sit atop the ESG investment indices, while fossil fuel producers that keep billions of people alive and comfortable are often excluded as a whole sector. She goes on, but you get the point.

The EU and Wall Street cannot avoid being dragged into the China issue. Indeed, as Lithuania remains deleted from China’s trade database entirely --to no EU reaction so far-- Slovenia says it is also about to open a Taiwan trade representative office too: what will it be called?

Worse, the EU (and Wall Street) cannot avoid being dragged into the Ukraine mess. In a worst-case scenario, Russia ploughs through the Suwalki Gap to Kaliningrad, bisecting the EU, and leaving three members with Russian minorities encircled; ends up on Romania’s border via Transnistria; millions of refugees flood West; US threats to fund a Ukrainian insurgency, as in Soviet-controlled Afghanistan, are based in the eastern EU, which sees Moscow focusing on it; or the EU shrugs, the US shrugs too, walks away and,…Я уже немного говорю по-русски? Ты? The former Estonian president is also not holding back on Twitter: “…I think you get the whole stinking awfulness perfectly. The weakness of the West, its smarmy pointless rhetoric to cover self-interest, mediocre, talentless leadership and amazing depths of political cowardice.” 

In central-bank-land, geopolitics is not the concern – yet. However, after this week’s surprise rate cut, the PBOC has pledged to “open the monetary toolbox wider” to avoid a credit collapse, maintain a stable money supply, and exchange-rate stability. So, rate cuts and orders not to sell, and to lend regardless? How rates are cut, and the money-supply stays stable, and credit doesn’t collapse, and the exchange rate remains stable, and inflation remains low, and growth remains high will be interesting to observe, but running a vast trade surplus is going to be a large part of it. It’s ironic the PBOC says it will open the toolbox wider, because it is already doing de facto MMT.  And in Hong Kong, 2,000 hamsters just got killed to stop the spread of Covid. And “Hamster Transmission Mechanism” is my new Death Metal band name.

The Fed, by contrast, is hawkish, and Philip Marey has shifted his call from 2 to 4 hikes this year, noting: “…the turn of the year has seen a pivot by the FOMC from FAITful doves to born-again hawks. Are they already too late, are they going to hike too fast, or will they be able to bring down inflation to target without interrupting the economic recovery? We all hope for the last, but getting a hiking cycle right has always been a difficult task for the Fed. And this one is even more difficult than previous iterations. First of all, the neutral policy rate has fallen over time, but it is unclear where it exactly is now. So there is very little room for manoeuvre, while the boundary is unclear. If the Fed ventures too far into restrictive territory too fast, then it risks causing a recession. In contrast, if the Fed remains behind the curve, inflation could spiral out of control and warrant an acceleration of rate hikes that surely delivers a recession. What’s more, the 2021 response to inflation shows that the Fed has no clue about forecasting inflation. So a central bank that does not understand inflation is going to bring it back to target, without accident? Sounds like another dream from which only a rude awakening is possible.”

Markets are obviously roiled by this far more than they are the idea of a war. Yes, the Fed has no understanding of geopolitics, or ‘Call of Duty’, and talks about ‘Duty of Care’ while not caring; but its true mission is ‘Duty of Puts’. Stocks over hegemony, obviously – for now. How much explodes first though?




Michael Every is the Head of Financial Markets Research Asia-Pacific. Based in Hong Kong, he analyses the major developments in the Asia-Pacific region and contributes to the bank’s various economic research publications for internal and external customers and to the media.

Michael has nearly two decades of experience working as an Economist and Strategist. Before Rabobank, he was a Director at Silk Road Associates, a strategy consultancy based in Bangkok. Prior to this, he was Senior Economist and Fixed Income Strategist at the Royal Bank of Canada based in both London and Sydney. Michael was formerly also an Economist for Dun & Bradstreet in London, covering ASEAN. 

Michael holds a Masters degree in Economics (with distinction) from University College London and speaks Thai.


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