Warning: This article took me to dark places. I’d rather not write about this stuff, but who else is?
Tomorrow morning you wake up and head downstairs.
The kids are already up, but instead of watching their usual cartoon their show was interrupted by breaking news of a nuclear explosion in Kiev.
What happens next?
I hate to say it, but we are approaching nuclear war
Am I a doomer or fear-monger? Or am I just saying what others won’t?
It feels like we’re not allowed to talk about this, despite the rising probability that Russia will use a tactical nuclear weapon in Ukraine.
I suppose we can’t openly talk about the threat because to do so would require us to question America’s geopolitical motives and methods. The pro-Ukraine propaganda is so ingrained into the collective psyche that nobody dares pause to re-assess.
Go to any public forum and question unending Western support for Ukraine. Question Zelenskyy’s past. Ask why America helped overthrow Ukraine’s Russia-friendly president. Suggest that teasing NATO membership for Ukraine – yet one more broken promise about limiting NATO expansion – was unnecessary provocation.
Better yet, suggest a resolution other than total Ukrainian victory – including re-taking Crimea – and you will be ostracized and labeled a Russian troll. The verbal pile-on received for asking reasonable questions is abrupt and heavy.
Doesn’t Russia deserve an ass-kicking?
Sometimes doing what’s right is different from doing what’s best.
I am no Putin apologist, but I understand his position. I know why he perceives certain Western actions as hostile and provocative. That doesn’t mean I don’t find his reaction – the invasion of Ukraine – repulsive.
A bully must be met with force. However, understanding is also required to help find a resolution that works best for the Ukrainian people.
The truth is some Western politicians are using this conflict as an opportunity to score political points. They are willing to gamble global security to poke a weakened Russian bear. The trouble is, this weakened bear still possesses strategic and tactical nuclear weapons.
Ukraine – supported by NATO – can kick Russia’s ass, but we must understand a defeated Russian leadership with nothing to lose is more likely to lash out with nuclear weapons.
On October 24th, 30 US Congress members wrote a letter to Biden requesting he double his efforts to find a diplomatic solution to this war.
The risk of nuclear weapons being used has been estimated to be higher now than at any time since the height of the Cold War. Given the catastrophic possibilities of nuclear escalation and miscalculation, which only increase the longer this war continues, we agree with your goal of avoiding direct military conflict as an overriding national-security priority.
Given the destruction created by this war for Ukraine and the world, as well as the risk of catastrophic escalation, we also believe it is in the interests of Ukraine, the United States, and the world to avoid a prolonged conflict. For this reason, we urge you to pair the military and economic support the United States has provided to Ukraine with a proactive diplomatic push, redoubling efforts to seek a realistic framework for a ceasefire”
Some are responding to this letter with contempt, others with praise. I would argue this is not some Chamberlain-like attempt at appeasement. Rather they are pleading for the world to walk away from the nuclear cliff.
Despite their second-rate army and haphazard invasion, Russians still believe they deserve to sit at the big table and continue to wave the nuclear threat in our faces. Putin and his comrades have implied on numerous occasions that they will use nukes if Russia’s territorial integrity is threatened.
With Russia’s annexation of parts of Ukraine, total Ukrainian victory can be perceived as a threat to Russian territorial integrity, especially if aided by NATO weapons and equipment, as is currently the case. If that doesn’t provoke Putin, Ukraine NATO membership certainly would. A pro-NATO Ukraine is considered an existential threat by Russia.
Bottom line: unless Russia voluntarily accepts terms of a stalemate, which is only achievable through diplomatic means, a victory for Ukraine could ultimately be a loss for the world.
Will Russia launch a tactical nuclear weapon?
With mounting losses of soldiers, equipment and captured territory, Russia is getting more aggressive by targeting the power grid, which they spared until recently. Worse, it seems they’re laying the groundwork and justification to use a tactical nuke in Ukraine.
On October 23rd, Russian Defense Minister Sergei Shoigu raised concerns that Ukraine is preparing to set off a dirty bomb on its own territory and will blame Russia for the escalation. Some military experts argue that Shoigu is delivering this message to shift blame as Russia prepares to use a battlefield nuke.
How real is the threat? According to an article written by former CIA Director and Defense Secretary Leon Panetta:
Vladimir Putin, increasingly cornered and isolated, continues to threaten the use of so-called battlefield nuclear weapons to try and gain a military advantage on the ground in Ukraine. Some intelligence analysts now believe that the probability of the use of tactical nuclear weapons in Ukraine has risen from 1-5 percent at the start of the war to 20-25 percent today.
Once used in the battlefield, the nuclear Pandora’s box is open.
If Russia uses a nuclear weapon in Ukraine, it would require an immediate and massive response. At a minimum, NATO would likely destroy Russian military assets around Ukraine.
Use of a nuclear weapon cannot go unpunished, otherwise it sends a message that it is acceptable raising the likelihood of repeated use in the future. However, the military response against Russia would worsen Russian leadership’s desperation, risking a second volley of nuclear missiles.
This is why diplomacy is the only resolution to this war.
How would a tactical nuke affect markets and daily life?
Let’s go back to where this article started…
As you walk downstairs you focus on the TV showing aerial pictures of a mushroom cloud and damage radius within Kiev. Details are sketchy but it appears a 10kt nuclear weapon exploded in Kiev and some are estimating up to 100,000 people killed and many more wounded.
Political leaders around the world swiftly condemn the action, demanding accountability. Presumably, “accountability” is code for direct NATO military intervention. Anger reigns and war hawks are calling for the destruction of Russia’s military and leadership. Some are even pushing for a nuclear strike on the Kremlin.
Meanwhile, Putin is warning against any further US meddling in its affairs and is becoming increasingly anxious about the threat of nuclear retaliation by NATO. The fate of the world rests on a hairpin trigger.
Nobody really knows what to expect.
As you watch, your spouse comes downstairs. It’s you and your loved ones – and billions more families around the world – staring into the box wondering if it’s all over for civilization.
If this might be the end, the thought of going to work is absurd.
What do you do next?
- Do you head to the ATM to withdraw cash?
- Do you head to the grocery store to stock up?
- Do you quickly pack and leave the city?
On that day – and for many days after, until it appeared a diplomatic solution was possible – work absenteeism would approach 100%.
With nobody to turn the cranks and add cover sheets to TPS Reports, commerce would grind to a halt and financial markets would seize. Governments would probably shut it all down, like they did after 9/11 and at the start of the pandemic, and pump massive liquidity into the financial system to maintain limited operations.
Market participants would wonder:
- How does the crisis affect supply and demand?
- Do debtors and counterparties meet their obligations?
- Do insurance companies enact force majeure?
- Do companies make payroll?
Without visibility, global markets would quickly break down into a crisis worse than after the Lehman Brothers collapse. It would be utter chaos.
With markets in tatters, you might not be able to get cash, make transactions or access your assets. If and when markets did re-open, risk assets would crash and investors would likely run to US Treasuries and the US dollar.
If this escalates into full-blown nuclear war, is there any point in planning?
Days – even weeks – pass.
One of two things happen:
- The conflict deescalates
- The conflict escalates
If the geopolitical climate recovers, the sudden market shock would leave lasting damage. Psychology would be scarred causing people and businesses to operate more conservatively, perhaps by hoarding cash and cutting expenses. This would lead to a significant economic recession.
If the conflict escalates into nuclear war many wrongly presume the end of civilization. In reality, there is a spectrum of nuclear war and many scenarios are survivable for a large proportion of the global population. One should prepare for this possibility.
From an investing perspective, US Treasuries and the US dollar have typically acted as safe havens during crises. In the case of nuclear war, while civilization may remain intact (or rebuildable) many governments might not. If the US lives to fight another day, it would likely retain dollar hegemony and the US Treasury Bond would remain a safe haven. However, as a primary target the American government may cease to exist in any functioning capacity.
In such a scenario, it is important to consider which assets would be readily accepted as a means of exchange to maintain or re-build a financial system. In such a world, resource-rich countries left standing might become a new financial safe haven. Countries with relative military and economic might would also likely come out on top. It’s hard to predict.
I can’t believe it’s come to this, but I think there is a meaningful use case for gold and bitcoin right now, strictly as a way to preserve wealth if the worst were to occur.
Despite historical volatility, both gold and bitcoin can be transported across time, monetary regimes and borders.
More importantly, the most fundamental commodities of value would be food and water. Wealth preservation is meaningless if you’re starving. And in a worst-case-but-survivable-scenario you might need to hide out in your basement for 2-3 weeks as radioactive dust settles.
Prepare accordingly, and before everyone else. Because when that first tactical nuke is used, Costco will run out of toilet paper within minutes.
Thanks for reading. I hated writing this and I hope I’m wrong. Please let me know in the comments.