Wall Street May Yet Take Ukraine Seriously

Although Russia’s brazen move to annex Crimea has the potential to dramatically alter the economic and political landscape of Europe, we’d initially assumed it would elicit only a fleeting yawn from Wall Street. After all, U.S. investors have proven time and again over the last five years that the only news they even remotely care about is whatever drivel happens to be emerging from the pie hole of the Federal Reserve chairman. Now we’re not so sure. Recently, investors seem to have grown schizophrenic. Recall that exactly two weeks ago, the Dow rallied 250 points to begin a new week even though there was no news to suggest Putin would back down. The blue chip index held onto most of that gain until last Thursday, when it dove 300 points. Little had changed in the intervening weeks. Europe and the U.S. were still at a verbal impasse with Putin, who showed no sign of budging, and Crimea itself seemed eager to accede.

Stocks Could Struggle

Now, with Crimea’s vote over the weekend to join Russia, will the U.S. stock market keep its cool?  We’d bet against it, even though our technical forecast implies that a 1500-point rally in the Dow Industrials will unfold within the year.  It’s too early to throw in the towel on that prediction, especially since last week’s slide barely dented the bullishness of the Dow’s long-term chart. But in the weeks and perhaps even months ahead, we wouldn’t be surprised if U.S. investors show uncharacteristic concern about events in Europe, especially if “Crimea fever” begins to spread to the Balkans and elsewhere . Meanwhile, although probably not one hedge fund manager in ten could locate Ukraine on a map, they’re going to be hearing quite a bit more about the region than they’d care to for the foreseeable future.

A Botched Response?

Nor will it be freedom, capitalism, human dignity, democracy and such that they’ll be worried about; rather, it will be the risk of a botched response by the U.S. and Europe that could provoke Putin to use economic weapons of his own. Not that he’s capable of undermining the dollar all by himself, as he has threatened to do in the past. But he has allies of his own, and they are undoubtedly eager to break the greenback’s monopoly status as a global reserve currency. This may be wishful thinking in a world where the dollar is the only currency deep enough and liquid enough to lubricate global commerce and a quadrillion-dollar financial shell game. But even mere threats by Putin against the financial status quo could rattle the world’s bourses, especially since their spectacular rise since 2009 has been achieved with flimsy financial tricks and fatally misplaced confidence. [Late note: It is midnight Sunday, and the S&P index futures were trading within a point of unchanged after having been down the equivalent of nearly 100 Dow points.]