Back to the 1930s?

As if back to the 70s wasn’t bad enough…

Last Friday, the Dow Jones hit a new record, as most equity markets continued a halting rally this year in the face of a continued weak U.S. economy and, perhaps more concerning at the moment, serious challenges abroad.

Some among us have enjoyed thinking and saying that what we used to call the Cold War (see below) was over. In Europe in particular, military capabilities have been substantially degraded and neglected over the last decade or two, to the point where most of Europe could probably not defend itself from a determined group of British soccer fans. Seriously.

Fast forward to 2014. Aside from the deemphasized “war on terror,” which proceeds regardless of our interest in it, we now face two overt and very serious challenges to the western notions of democracy, respect for borders, and international law. Challenges with implications for the world economy as well as for our western democracies and hopes for a peaceful future. And for the markets?

Putin Celebrates Victory in Crimea

In the headlines we find Mr. Putin presiding over a large, “Cold War style” military parade in Moscow, ostensibly celebrating the victory over the Nazis in WWII, but in reality proclaiming the return of a powerful and aggressive Russia and its conquest of Crimea. He then flew to Crimea for a victory lap, once again thumbing his nose at impotent western powers.

China and Vietnam in Territorial Dispute

Meanwhile, in the South China Sea, and not really noticed as much, China sent a massive flotilla to waters near Vietnamese islands (which were seized by China decades ago) to install an offshore oil rig the size of several football fields. They are claiming most of the South China Sea and demanding that Vietnam, the Philippines, Malaysia, Japan, Taiwan and anyone else in the area back off and let them have it all. “Don’t cause trouble, surrender your territory.”

Back to the 1930s?

The New Old Normal

Welcome to the new normal, remarkably like the old normal. Powerful aggressive nations seize territory and intimidate other countries when they can. International law does not seem to matter in the absence of force. So what else is new?

Are Russia and China “right” to claim and seize territory? Do national borders and international treaties as they exist today mean anything in practice? What is “right?” Is Crimea historically Russian, and were they right to take it by force? Is China supposed to dominate most of Asia, and are they really the Center of the World1 and due far more respect and deference than they have had for the last few centuries?

Really, these are serious questions.

We can’t answer these questions, and we won’t try. Nor can we tell you what this means for markets and the world economy; it is very complicated. But we suggest you be aware of these issues and not be rattled as we seem to careen from crisis to crisis. Things are seldom as good or as bad as they appear, and they are virtually never easy to predict.


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Back to the 1930s?

time to read: 2 min