MANHATTAN, NY – As an Investment Advisor, I continually make every effort to understand the world around me – a world stripped of political propaganda and self-serving narratives. It requires constant vigilance and a willingness to admit being wrong if faced with facts that counter any prior views.
1980s: Buy Stocks
Years back, shortly after I started in this business, my reading of various underlying trends led me to perceive that the financial markets, and especially the stock market, were primed for long-term exceptional gains. That was the premise of the first book I wrote, co-authored with my wife: “Getting in on the Ground Floor: How To Make Money Now – And From Now On – In The New Bull Market.” Published in the mid-1980s, the title speaks for itself.
Late 1990s: Buy Gold
Then, in the late 1990s, I became convinced that gold would become a critical investment. That was based on my growing awareness of the rapid emergence of the developing world and the distressing fact that technology was focusing on information rather than on something far more important, materials and commodities. It seemed clear that those two trends ensured that gold and other commodities would be essential to portfolios.
Despite some mistakes, by and large I feel I got the big picture mostly right. Today, I’m facing what I find to be the biggest challenge of my entire career: assessing the investment and other implications of the war in Ukraine. Before February, I didn’t expect Russia actually would invade Ukraine, nor did I foresee the very strong reaction of the U.S. and Europe. I also didn’t foresee the sharp slowdown in China that has stemmed from the Covid pandemic economic lockdown in Shanghai and now underway in Beijing.
Bull Case For Gold & Commodities Getting Stronger
As these events unfolded, though, I have sensed they made the case for gold and other commodities even stronger. But it has taken me time to understand with greater clarity why this is true.
One problem has been the widely conflicting narratives and endless propaganda about the war. The dilemma is that every day it grows clearer to me that this war, regardless of how you view Putin or Zelensky, isn’t about defending freedom and democracy. Rather, it provides further confirmation of how, as I’ve discussed before, over the past half century the U.S. has strayed from its former greatness, with liberty, freedom, and democracy now simply slogans to justify whatever we want to do…
In Ukraine, we are supporting the continuation of a war that, regardless of the outcome, will be devastating for the vast majority of the world’s population. That’s why I see the war in Ukraine as showing that American values have been distorted beyond recognition. And it’s also why I believe that whichever side prevails, a new world order is on the horizon, one in which gold will play a starring role, as I’ve discussed before.
Underlying Realities
Here’s how I see the underlying realities. The two commodity groups most critical to human survival are energy and food. Russia is a major exporter of both, while Ukraine is a major food exporter. Russia accounts for 10% of oil production and 11% of oil exports, second only to Saudi Arabia, while together Ukraine and Russia account for about 20% of exports of corn, wheat, and barley and over 10% of rapeseed, a major source of both vegetable oil and protein meal.
If Russia prevails, it will control the Black Sea ports through which Ukrainian foodstuffs are exported, arguably making Russia the most important player in providing all the commodities essential to human survival. A Russian win would also leave Ukraine a landlocked country with a shattered economy and unqualified for admission to NATO.
If Russia loses, at best we’ll be in a world with significantly less energy and food, the result of a massive economic downturn in that country. Without Russian resources, the chance of developing a sustainable world would be close to zero. And it’s reasonable to imagine a worse consequence. John Mearsheimer among other leading international relations scholars has argued that nuclear conflict is a distinct possibility. In a recent PBS interview, Mearsheimer said Putin would likely strike Kiev, which would cripple Ukraine’s economy without damaging much of its farmland. The farmland is mostly located in the east and southeast, the territory Russia is seeking to control. A nuclear strike on Kiev could give a losing Russia a last chance for victory. The U.S. would then have to decide whether to strike back. It’s a terrifying prospect.
Russia Winning – Will Prevail
However, it seems increasingly likely that Russia will prevail. As I pointed out in my last interview, the ruble has continued to rise and has more than doubled against the euro and nearly doubled against the US dollar since its low following initial U.S. sanctions. It’s also unlikely that President Biden would be asking for an additional $33 billion in aid for Ukraine, with $20 billion going to the military, if the war against Russia was going well. The request comes on top of $13 billion already given. The aid we have given already has so depleted our military inventories that Bloomberg opinion columnist Hal Brands, a chaired professor in international relations at Johns Hopkins, says that sending more aid could compromise our self-defense capabilities. In a separate piece, Brands cites Pearl Harbor as an example of what a losing adversary can do. And in 1941, nuclear weapons were not the choice of last resort.
I think we could have averted it ever coming to this pass. NATO’s eastern expansion has been a source of contention since the Clinton administration. Leading experts on international affairs such as John Matlack and the late George Kennan forcefully argued it could be a catastrophic error of historical proportions. Yet NATO continued to expand right up to Russian borders. Russia had always made it clear that Ukraine was a red line. Not only did it share a long border with Russia, but the country’s east was home to many people who considered themselves Russian.
When a 2014 uprising substituted a pro-Western, pro-NATO government for a pro-Russian government, Russia reacted by annexing Crimea and creating several Russian-speaking enclaves in Ukraine’s east. The lesson that should have been heeded was that Russia was willing to respond with force when NATO membership for Ukraine became more likely. An international agreement, dubbed the Minsk accords, followed but to no avail as Azov and other extreme right-wing groups continued to attack the Russian enclaves. After the election of a U.S. president less friendly to Russia than Trump, the fighting intensified. Russia then began a military build-up near Ukraine…
On December 13, 2021, the Russian Ministry of Foreign Affairs published a list of demands Russia wanted met in exchange for a promise not to invade Ukraine. They focused on guarantees of Russian security, including the guarantee that Ukraine would never be considered for NATO membership. Those written demands followed a conversation between Biden and Putin in which, according to well-respected journalist Pepe Escobar, Putin told Biden that a Russian red line was that demand. In other words, the U.S. had an opportunity to open talks with Russia that could have averted the war. Instead, the only guarantee we gave was that “decisive economic and other measures” would follow an escalation in Ukraine. No one can say for sure what Russia really would have done or not done if we had responded differently. But clearly, instead of seeking a diplomatic solution, we provoked Russia by never considering its security proposals.
This is clearly a war unlike any other, and not just because it involves two nuclear powers capable of destroying the world. It’s also sanctifying a country, Ukraine, that is anything but a model of our values. Kiev has streets named after Ukrainian Nazis who participated in the Holocaust, such as Ivan Pavlenko and Stepan Bandera. Russia, too, of course, is hardly a model country and has its own well-documented history of antisemitism, and it has never had a democratic government or upheld freedom and liberty as sacred values. But it has tried to correct some of its flaws. Putin has gone out of his way to make friends with Israel, the recent Lavrov ham-handed comments notwithstanding.
In a recent interview in the Asia Times, Gastone Breccia, an Italian professor of military history who has been highly critical of Putin’s actions in Ukraine, notes that Europeans, unlike Americans, live next to Russia, which is actually part of Europe, and that on cultural as much as economic grounds, Russia should become part of Europe. He argues this is America’s war being fought by Europe.
I still believe that somewhere deep in our DNA is an America that wants to uphold liberty, freedom, and democracy as sacred values. The only way back to that is through cooperation with other countries, not war. My views have changed in recent months in one respect: I think it will take a lot more pain before we can again find our greatness. Perhaps it will come when those who have benefited so much in the past half century, including the all-powerful fintech sector, begin to feel the pain.
Meanwhile, the best way to get through the coming pain and turmoil is with gold and other commodities, especially during the inevitable pull backs. Whatever conviction you had in gold, silver, and other commodities before the war in Ukraine should be dramatically strengthened. Ahead will be tumult, perhaps a lot. To be in a position to enjoy a renaissance of the old America, the one whose values were defined by our founding fathers, having the right investments will be critical.
Editors Note: This story originally appeared in King World News and within the pages of Stephen Leeb’s own website. Dr. Stephen Leeb’s material is republished in The Published Reporter® with his explicit permission.
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