It’s a MAD world – Lessons from history part two

  • As the Ukraine war enters its third week, to say that’s markets are in a serious state of disarray is a serious understatement.
  • Commodity prices continue their upward march at an alarming pace. Currencies are all over the show, our bond yields have skyrocketed, with the benchmark R186 rising close to 100bp over the last week, and equity markets remain depressed.
  • Gold is now well above 2000 Dollar per ounce, and oil remains elevated at around 130 dollars a barrel.
  • There are much longer term implications for cost of living as a result of this conflict – many of which we will discuss in weeks and months to come. But best we all start shopping for bicycles soon.
  • One of the only bright lights on the scene is the strength of the ZAR ….it remains a lone soldier in a sea of red. I cannot recall ever seeing this kind of performance for the currency whilst our bond market is experiencing a proper blow out.  
  • Perhaps the most perplexing of all is the duration of the conflict. Putin would have been thinking that this invasion would be easier than its proving to be. However, with almost 100% of his initial invasion force committed, he is making little headway, with Zelensky and his forces mounting a remarkable defence. Russian losses are mounting all the time. So far reports suggest that Russian troop losses are anywhere between 6000 and 12 000 soldiers. Of course these are all just estimations, but given that the US losses totalled 58 000 during the almost 15 years of conflict with Vietnam ….these Russian numbers are enormous by any standard.
  • Which of course raises the question – how does Putin respond. Russia is isolated, its economy is collapsing due to sanctions and every day the situation deteriorates for Putin.
  • That raises the question of whether he is crazy enough to deploy nuclear weapons. Not to sound flippant, but smaller tactical bombs targeted at strategic sites may become his last remaining option.
  • The spectre of global destruction due to a superpower nuclear conflict has been with us since the Soviet union joined the USA as producers of nuclear Weapons in the 1950’s.
  • Since then the world has operated under the protocol of MAD…..”mutually assured destruction”. If you drop yours, we drop ours and everyone loses. This has acted as a restraint on all superpowers as more and more countries joined the nuclear arms race. Thus the cold war was born and smaller conflicts proliferated  across the globe (including Vietnam) sponsored by the superpowers. And everyone has kept their Nuclear bombs neatly under lock and key for fear of mutual destruction.
  • Enter Colonel Stanislav Petrov. The man who averted a global nuclear holocaust.
  • In September 1983 Stan was on duty as commander at the Soviet early warning detection centre outside Moscow. Early in the morning the system lit up with warnings about 5 incoming US ballistic  missiles.  Bear in mind, this was at the height of the cold war. Soviet protocols at the time determined that he should inform his superiors, which would then lead to a counter strike. Petrov froze for a few minutes, and then began to use common sense to determine whether this was a real attack or not.
  • As it turns out, new newly installed defence system was malfunctioning and the “incoming missiles” were in fact the suns reflection of the top of clouds (double gulp)
  • Petrov ultimately reported the warnings as a system malfunction  - for which he was reprimanded- and the world was blissfully unaware of just how close it had come to total destruction.
  •  There was another close call during the Cuban missile crisis where another Russian, Vasili Alexandrovich, refused to follow an order to fire a nuclear missile at a US aircraft carrier.
  •  Not all Russians are crazy (only it Presidents), and some have literally saved the world from disaster through common sense and processed logic.
  • The rest of us can only hold thumbs and pray that common sense prevails.
  • You can read both stories here.

How a Russian Soldier prevented World War III 59 years ago

Stanislav Petrov Nuclear War Dead