“The Beatings Will Continue Until Morale Improves”

You’ve probably heard the expression noted above. It’s often seen on T-shirts under a skull-and-crossbones; (I know. I bought that exact T-shirt while bar-hopping by boat in the British Virgin Islands).

It’s a reference to a cruel pirate captain who says, in effect, he’ll keep beating and flogging his crew until they’re happy. It’s a shorthand reference for any management or political technique that is pointless and counterproductive, but continues anyway because the leader doesn’t know what else to do.

That’s a good metaphor for the financial war aimed at Russia now being conducted by the U.S., the EU, and some allies around the world. Interestingly, some powerful countries are remaining neutral and not joining the sanctions including China, India, Saudi Arabia, and others.

Still, a long list of rich and powerful countries are on board with the sanctions.

Are they working? Not at all. The Russian ruble is back where it was trading before the war, around 80-to-1 against the dollar and slightly stronger of late. Oil and natural gas prices are up; so Putin has taken in about $60 billion in new sales since the invasion, mostly from Europe. Assets including yachts and townhouses in Belgravia owned by Russian oligarchs are being seized.

Putin is fine with that because he despises the oligarchs. Putin’s support comes from the people, the Orthodox Church, the military, and the intelligence services, not the oligarchs. He has long wanted to curb oligarch power but didn’t dare. Now the U.S. is doing Putin’s dirty work for him by crushing them.

Putin should send Biden a polite thank-you card. With all of the failures of sanctions across the board, it’s difficult to single out one act that is the absolute dumbest.

But wait. We have a winner!

The German Foreign Minister, Annalena Baerbock, has declared that “sanctions against Russia will only be lifted after a complete withdrawal of its troops from Ukrainian territory,” according to this article.

There’s only one problem with that policy; The Russians aren’t leaving. It remains to be seen how much Ukrainian territory Russia will seize and what the final terms of a peace settlement might be. But there’s no way Russia is withdrawing entirely from Ukraine.

They have built a land bridge from Russia to Crimea at a high cost and are not giving it up. This means the sanctions will never be lifted (unless Baerbock changes her view). It also means there will be enormous destruction to global supply chains and possible mass starvation by late this year due to the ban on Russian exports of wheat and other grains and the impossibility of exports from Ukraine.

While you’re reallocating your portfolio to account for this new reality, you may want to buy an extra freezer and stock up on beef, chicken, and frozen vegetables. The food shortages are coming.

Corporate leaders and institutional fiduciaries looking to incorporate state of the art predictive analytics to their risk mitigation and strategic analysis should click the link to learn more about Raven Predictive Analytics®.