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Richard Berger
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Mr. Berger is the creator and developer of the YDP screening tool. A chart system and its analysis for screening and monitoring dividend income equity investments. Seeking Alpha's #3 ranked Author for Income Investing Strategy & #4 for Utilities. A former Chief Operating Officer, Director,... More
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  • Crimea: One Man's Idea To Calm The Waters & Calm The Markets 0 comments
    Mar 15, 2014 2:05 PM | about stocks: SPY, TLT, GLD, UUP

    Russian moves to create a crisis in Crimea and seize control of the important peninsula have roiled Global markets. It has created a black swan moment with the potential to influence events globally for a generation or more, casting a long shadow over equities, commodities, international trade and finance, and geopolitical relationships far into the future. This has triggered uncertainty and volatility in Treasury bonds ($TLT), stocks ($SPY), gold ($GLD) and the US Dollar ($UUP).

    (source: bbc.co.uk)

    Let me start by saying that my thoughts are to a practical solution which benefits all sides and gives all sides face saving concessions while recognizing the limited options available on the ground. Russia has taken a bold and very un-Russian step in this reckless international move that gains them territorial assets but at an unknown future cost in status, trade relationships, geopolitical standing, and integration with the global economic community. It may be the dawn of the new Russian empire or a new cold war, or both. The implications are far beyond the ability of Russia or anyone else to anticipate or control, even with military options off the table.

    I will not dwell on each individual aspect of the markets, the individual equities, and the economic relations which the Crimean Black Swan hovers over. Currently, 666 articles on the Crimea situtation can be found in Seeking Alpha's own archives, including hundreds written in recent days, which focus on these.

    Military solutions to the Russian orchestrated ballet of intrigue are non starters for everyone but Russia. Geography and flexibility in addressing a local dynamic on the ground give all the high value playing cards to Russia. All is not hopeless however. The success of Russian plans are not without costs. Large costs. Unknown costs.

    The well know historical and cultural predilection for Russian leaders to avoid reckless action and unpredictable results leaves open a very large window through which to begin a diplomatic solution. The foundations of such a solution is the structure of what follows in this article.

    Any diplomatic solution must include the following elements:

    • Clear incentives for Russia to favor a diplomatic negotiated approach to their strategic goals over the unilateral imposition of its desires it is currently pursuing.
    • Recognition of the principals of international Sovereignty and of Ukrainian sovereignty over the Crimea.
    • Protection of the personal safety and security of all peoples in the Ukraine and their property and legal rights, including rights of travel and dissent.
    • A commitment by all sides to resolving disputes through bilateral negotiations or existing International Institutions.
    • A 99 year lease from Ukraine to Russia providing creation of the Crimean peninsula as an autonomous zone managed by Russia for economic and military development (similar in form, structure, and outcome to the Hong Kong lease between China and Britain that successfully managed that zone and the bilateral relationship).

    The benefits of such a solution are obvious for all; Russia, Ukraine, the Crimea, and the International Community. The results would be stabilization of the markets and preservation of the current geopolitical and economic paradigms. The Black Swan will have been successfully caged. Russia obtains a means to legitimize the result of events it has set in motion over the past weeks. Ukraine obtains a legal basis to protect its people and sovereign claims to a region it has no physical ability to protect at present. The rest of the world gets to go back to business as usual with a renewed commitment to international norms and laws on behalf of Russia which should help prevent further follow-on "acquisitions" by Russia.

    An agreement which does not fully satisfy anyone but provides for the basic needs of all parties is the most sustainable and practical kind. I submit that this framework fulfills those criteria.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: Macro Economics, World view Stocks: SPY, TLT, GLD, UUP
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