AGF Management : High Stakes as Biden and Putin Talk; Threat of War is Greatly Exaggerated

Insights and Market Perspectives

Author: 8

December 7, 2021

High Stakes Today as Biden and Putin Talk;
Threat of War is Greatly Exaggerated
December 7, 2021
STILL ANOTHER CRISIS: The U.S. and China are at odds over the Olympics, the Iranian nuclear talks have no chance, fiscal policy is a mess as a debt ceiling deadline approaches - and now there's a call this morning between Joe Biden and Vladimir Putin over a potential Russian invasion of Ukraine.

HIGH STAKES FOR PRESIDENT BIDEN: After the inept withdrawal from Afghanistan, the U.S. needs to show allies - and adversaries - that it will confront Russian aggression.

PUTIN HAS SEVERAL OBJECTIVES: He wants assurances that Ukraine will never join NATO, he wants to pressure Western Europe with an implicit threat to reduce natural gas shipments this winter, he wants Western sanctions lifted, and he wants to defend pro-Russian separatists in eastern Ukraine.

THE THREAT OF AN ALL-OUT WAR is very unlikely, even if the U.S. sends sophisticated weapons to Ukraine to confront up to 175,000 Russian troops later this winter. There's no public support in the U.S. for military action, and the Russian public could quickly tire of casualties in a conflict that might bog down.

SO THE CLEAR ALTERNATIVE IS DIPLOMACY, hopefully beginning this morning. We think the temperature will lower a bit today, as Biden makes it clear that the U.S. could ramp up economic sanctions, including cutting off Russia's access to the international financial settlement system, called SWIFT, while also imposing a series of restrictions on its banks like those imposed on Iran.

THIS CRISIS COULD SIMMER FOR MONTHS, with Russia engaging in cyberwarfare and claiming that Ukraine is a threat to Moscow, when obviously it's vice versa. Border skirmishes are possible but Putin is too clever to launch an all-out invasion; he simply needs to keep pressure on NATO and peddle the fake news that Ukraine is the real aggressor.

EVEN WITH U.S. RELATIONS WITH CHINA sinking again and talks with Iran at rock-bottom, there's a major difference between now and a two or three years ago: U.S. relations with NATO are solid, the threat of major new sanctions has teeth, and a tough response from Biden will have overwhelming support in Congress.

THERE WILL BE NO WAR, AND UKRAINE WILL NOT JOIN NATO: An uneasy stalemate is likely for months to come, with Moscow stirring the pot in the Mideast while supporting cyberwarfare against the U.S. The "Havana Syndrome" will persist, an increasingly menacing attempt to affect the health of U.S. embassy personnel.

MEANWHILE, THE MARKETS can focus on very good news: growing evidence that the omicron variant is not particularly lethal, a solid U.S. economy, and signs that policymakers are determined to confront inflation. A 3/4 percent federal funds rate a year from now isn't a huge threat for the markets or the economy, and either is Ukraine.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

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