Trade Temptations Versus Security Guarantees

We pull apart the hype around Russia–US talks, question the assumption that business deals can buy peace, and map what a credible ceasefire and security guarantee would require. We also test oil-price myths and outline where investors might actually find durable opportunity in Europe.

• why freezing current lines needs real deterrence behind it
• how expropriation risk turns investments into leverage
• lessons from Nord Stream on dependence and policy
• sanctions relief tied to verified reconstruction milestones
• hybrid warfare across NATO’s edge and responses
• oil supply myths, Saudi swing capacity, and prices
• investment angles in EU integration and rebuild
• why Russia’s economic scale is overstated by maps

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Straight Talk for All - Nonsense for None

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Chapters

• 1:14 Setting The Stakes In Ukraine
• 2:38 The Lure Of Postwar Russian Business
• 5:24 Expropriation Risk And Leverage
• 6:55 Nord Stream And German Dependence
• 11:13 Sanctions, Frozen Assets, And Rebuild
• 14:10 Hybrid Warfare Beyond Ukraine
• 17:47 Freeze The Lines And Deter
• 21:09 Who Deploys And Under What Banner
• 23:59 Oil Prices And Market Realities
• 25:53 Portfolio Impacts And EU Tilt

Transcript

Steve Davenport: 0:50

Hello everyone. Welcome to Skeptic's Guide to Investing. Today, Clem Miller and I are going to try to cover some of the news around Ukraine and what's going on with negotiations. I, being a skeptic, am a little bit concerned that this is just delay tactics on Putin. And I see that there's still attacks going on. So when discussions are during a period where you're not willing to stop fighting, I think your seriousness needs to be questioned a little bit. Clem, should I question or should I vocally support the negotiations going on between the US and Russia now to try to come to an end of this Ukraine situation?

Clem Miller: 1:39

I think you should be highly skeptical. And, you know, there's been a lot, there's been a lot, as I am, , there's been a lot in the press about this, but I want to focus on one aspect of this that really hasn't shown up in the press all that much. Um, it's clear that the US, especially Tr p and Whitcuff, think that Russia is going to be a gold mine for U.S. business if this war ends. And they are thinking that it'll be, you know, that they're going to be opening up a lot of doors. It's because the the fellow that in Russia, whom they're most closely working with, , is a guy named Kiril Dmitriev, and he is the head of their Russian sovereign wealth fund. And so he understands business and finance and can you know present things in a kind of a you know finance and investment kind of perspective. So obviously they're pointing to things like the energy sector, , the mining sector as areas where you know Russia can offer you know possibilities for U.S. business. In fact, US business, European business, you know, were heavily involved in Russia prior to the invasion of Ukraine. Uh, for example, Exxon and Chevron Shell, Total, all were involved very heavily in Russia prior to the prior to the invasion, and then with sanctions and reputational issues and so on, they pulled out. And certainly Russia could you know stand to use some technological and financial infusion to try to get that going, , which is obviously what Putin and Dmitriev are trying to do. They'd love to have US companies back in, , which would imply getting rid of sanctions, , but without doing much in the way of of you know avoiding what they want to do in terms of their geostrategic aims, not just not just with respect to Ukraine, but with respect to the rest of Eastern Europe as well, because they don't they don't really intend to stop with Ukraine, , is is my opinion. But but on the the economic front and the this business front that I was just talking about, one of the things that you know that Tr p and Whitkoff well, two things that they're ignoring when it comes to this is first of all, the US could put a lot of money into Russia to try to develop their energy resources or redevelop the energy resources, but that doesn't necessarily mean that the U.S. is going to get a lot of, at the end of the day, going to get a lot of money out of that because the Russia could simply do what you know a n ber of other comp countries have done over history, and that is expropriate the assets. Right. They could nationalize the assets, expropriate the assets. So there's no guarantee that that that money will at the end of the day accrue to US companies, US businesses, , because it could be nationalized, expropriated. And in a sense, those investments, you know, if Exxon makes new investments, Chevron, Shell, Total, those investments might actually give Russia leverage over foreign policy of the West because they could threaten to expropriate those assets if if other countries don't go along with its its you know its demands with respect to Ukraine and Eastern Europe. Uh that's pretty much the way things were with regard to the Nord Stream pipeline. Yeah. Uh because Russia saw that as saw German dependency on the Nord Stream pipeline as basically neutralizing Germany in any kind of a conflict over Ukraine. Uh and it was the Ukrainians who frustrated that by sending a sabotage team into the Baltic to blow up the Nord Stream pipeline. Otherwise, who knows where Germany would have come out in this whole conflict over the last few years. Uh they've ended up being pretty strong on it. But you know, if that pipeline had still be had still been delivering natural gas to Germany, , I suspect that that you know Germany wouldn't have been so so strong in opposing Russia and Ukraine, and probably Russia might have had a lot more success in Ukraine than it has now. The other thing I would mention related to that, related to all of that, about about how business can actually work against you, is that you know, this isn't the first time that a regime like Putin's has said, oh, you know, if you just do what I want to do, there's gonna be all this all this business coming your way. Well, I I can recall back in the in the late 80s and in the 90s when Saddam Hussein was doing the same thing. You know, we've got a lot of money, we've got a lot of resources, we want you to come in and help us. If you help us, we will become this is what they would say. You would we if you help us, we'll become your ally, we'll become a democracy, , you know, we will be your ally and do, you know, they made all these promises in exchange for trying to get resources out of the US and the West at a time, you know, obviously when they needed them to fight Iran and to engage in their in their invasion of you of Kuwait. But you know, that was all a ruse, basically. And this could be the same thing.

Steve Davenport: 8:02

You seem to be assuming that we're gonna make the exact same mistakes we made before and giving Russia a complete pass. I'm not sure. I'm not sure everybody is gonna jump on that. Even if we have a president who likes to say he's a deal maker and he's gonna make a deal, I think the sanctions, I mean, we're not even we're not even talking, we haven't ceased military operations yet. But isn't the big item that's everybody's gonna run from the rebuilding cost? Isn't there gonna be a rebuilding cost that somebody, and I think the Ukraine thinks they're gonna take the confiscated assets, and that's their rebuild fund. But I think that the national international courts might decide that some of that money is, but I'm not sure that the big issue that needs to be resolved, rebuilding, has even been brought up yet. So the fact that you're already dropping sanctions when nobody's done anything about rebuilding, I I I think it's it's very nice of you to talk about things like that, but that's not happening, Cohen. I'm just not saying it.

Clem Miller: 9:16

You don't think they're gonna drop sanctions? You don't think that Tr p Witkoff? Look, the Russians want want the US to drop sanctions, they want Europe to drop sanctions. And and yeah, and But are they gonna give the money to rebuild Ukraine? Russian reserve assets essentially that are in Western banks, this money that has been frozen, let's call it frozen, whether that gets frozen, but yeah, whether that gets applied to to reconstruction in Ukraine, I think remains to be seen. I mean, the Russians are gonna say, the Russians are gonna say, well, what about us? You know, we've had assets that are destroyed, and since they're claiming the Donbass region, , you know, and and they're in Crimea, you know, they might say, well, we want some of this money to go for rebuilding Donbass and Crimea, given the damage that Ukraine has done to us.

Steve Davenport: 10:24

Yeah, I mean, I think I think we're we're in in the baseball terminology, we're still warming up. I don't think we're even in the early innings. I think in order to be in the early innings, we'd have to have a ceasefire. So yeah, exactly. I think we're you know all of this is really just posture.

Clem Miller: 10:45

Yeah, and not and Steve, you know, this isn't just about Ukraine. You have you know Russia playing games in Poland and in Romania and in the Baltics. Uh there are drones that are flying around. Um there is yeah, what isn't Finland also a big hot spot? Yeah, Finland. I mean, along that whole eastern border, , there have been, you know, not land incursions, , but there have been , you know, what what what folks call hybrid warfare, right? Which is sort of a combination of of all sorts of things, but includes cyber attacks and drone attacks and and and other things that you know, like snipping cables and you know, under some cables.

Steve Davenport: 11:37

I mean, I I agree that there is a a growth scenario here where we say, hey, lower oil prices worldwide, good for the worldwide economy, good for GDP. Let's let's try to get everybody back to the table and get something done. But I I still believe we've got a lot of mountains to climb. I mean, I mean we go over one mountain and talk about first degree on whether Donboss is or isn't in play. I kind of believe it's in play, and I think it will be lost because I think the arg ent that it's been a part of the Ukraine when they've been fighting since 2016 there, I don't think it's really been part of the Ukraine. I think it's been a contested area for a long time.

Clem Miller: 12:23

Right, but you don't, I mean, the answer, Steve, is to freeze freeze the current lines. That's the answer. Um like where where they are right now between Russia and Ukraine on the battlefront, freeze those battlefront lines right now. That's the answer to the question.

Steve Davenport: 12:42

What what Russia wants they're gonna get to Donboss?

Clem Miller: 12:45

What Russia wants well, Donbass 85% of Donbass is is all already occupied by Russia right now. I agree.

Steve Davenport: 12:54

That's what I'm putting Putin wants that even give up Donboss.

Clem Miller: 12:58

Putin wants that no, they're not. Putin and and I think I don't think Ukraine really wants it back either. I mean, ideally, but I think they've acknowledged that that that 85% is is is lost. The question is the remaining 15%. You might think, well, gee, it's only 15%, right? Of Donbass. The Russians want it back, but one of the reasons they want it back is because Ukraine has defensive positions, weaponry, and all sorts of stuff, defensive lines that are in that 15%. So if Ukraine gives up that 15%, there's going to be a big hole in their defenses. And so that's not that's why they're not willing to give up that 15%. So I think the the the obvious solution to this is freeze the front line, , have a ceasefire, freeze the the battlefield where it is now, and on this very important question of which folks kind of refer to as security guarantees, right? The answer there is to put European forces on bases in Ukraine back from the front lines, maybe 50 kilometers or so, 100 kilometers back from the front lines, but nevertheless have them in there as a deterrent force against against further invasion.

Steve Davenport: 14:27

And doesn't that violate NATO?

Clem Miller: 14:30

If they're not a NATO member, how could the NATO No it doesn't violate NATO? Um, you know, NATO country NATO countries had forces in Afghanistan, and Afghanistan's not a NATO country, right? So it doesn't matter where you deploy them, and even if Ukraine is not part of NATO, and and NATO says, well, we're not gonna get all of NATO involved, there could be a quote, coalition of the willing, quote unquote, like there was in the Iraq War, , who who sets up these bases. So, for example, Britain might go in there, France might go in there, , and you know, Denmark might send forces there. They've been pretty strong on this. So they might send forces in to create bases. You think the US would send troops? I don't not under Tr p, I don't think, right? But they might offer some U.S. might offer some form of air support or you know, providing weaponry or or whatnot. But I think I think there has to be something more than just saying, oh yeah, we'll come to Ukraine's defense. There has to be actual troops on the ground. This whole idea of just saying, , okay, the the you know, Western countries guarantee Ukraine's defense without putting troops on the ground is ridiculous because that's actually happened twice before, and Russia violated violated Ukraine both times that there were these guarantees.

Steve Davenport: 16:03

No, I agree. It's a you know, I I agree it needs to go to some point where there is some international force that maintains. Um, but then the next question is okay, how do we rebuild? What do we do with sanctions? Do we, you know, do we rebuild 25% and then reduce 25% of the sanctions? I don't I don't know how we we do this in a way that's gonna motivate Russia to get it done, but not motivate them to basically position themselves as a as a you know on the doorstep waiting to do more actions. Because I don't think anybody wants to set this up and see this done again, you know, in two years or three years, right? I mean, Europe has a has a habit of saying they're never gonna allow you know the violation of one of their you know even associate members' borders, but they allowed Crimea to exist for how many years before they did it.

Clem Miller: 17:22

Yeah.

Steve Davenport: 17:23

You know, I I I don't see how the honesty in this group and the integrity, I mean, I I don't know about Germany's new, you know. Is the leadership in Europe changing such that now the Ukraine is viewed differently than it was when it started three years ago? And I guess I'd say, you know, was Merkel still around when this started?

Clem Miller: 17:50

Oh, good question. I don't know. I mean it's been a while since Merkel was there. Yeah. Um I think she was.

Steve Davenport: 17:57

I think she's so I I'm just saying that historically we've got to see a lot of a lot more than just two people meeting to for this to really lead to a result that's gonna be good for everyone, right? As an investor, I I guess I'm really asking, do you think that this could get resolved quickly and the price of oil could come down quite a bit? No, in which case the price of oil being lower.

Clem Miller: 18:22

Well, you're you're you're asking a couple you're imply you're ass ing that the end of the war is going to lower pri oil prices.

Steve Davenport: 18:34

I wouldn't I wouldn't ass e if if we lift sanctions, I think there's gonna be more Russian oil on the world market, isn't there?

Clem Miller: 18:44

Uh there will be some more Russian oil, but remember that a lot of Russian oil is already getting out.

Steve Davenport: 18:54

I know it's getting out, but don't they have to take a a haircut on the on the price to get people to buy it?

Clem Miller: 19:01

Well, yeah, but there's still the same vol e that's coming out. The price is what accrues to the Russians or not, in terms of right. I'm just saying that if if that's okay, yeah, there's there might be more there might be more Russian oil to some degree coming out. On the other hand, Saudi Arabia is always there to act as a swing producer. So if more Russian oil is coming out, Saudi Arabia will simply reduce their vol es in order to keep the price high. Well, so I just I don't see I don't think you don't see any investment, but it's not an arithmetic question, as as simple as okay, the war ends and oil prices will come down. It's not there's there are too many variables that are interlocked in terms of behavior of governments and and so on that that could lead that could mean that that's not the case.

Steve Davenport: 20:08

Okay. Um well, I mean, from an investment perspective, I guess then is Ukraine being peaceful or not peaceful a non-event for our portfolios.

Clem Miller: 20:21

Uh I wouldn't say that, , because I think what happens is when the war, if the war ends, and and you have Ukraine becoming closer to Europe through, say, the EU by joining the EU, , I think what we'll have is we'll have a stronger investment picture in Europe. And I think that would favor European assets.

Steve Davenport: 20:52

Okay. So there is something to look forward to from this that you think is going to be correct. Are US companies gonna do really well in the rebuild? Is that what Tr p is setting up for here?

Clem Miller: 21:04

Is it we'll we'll have all this wheat that we're well, yeah, but you the thing is is that he's he he and Whitkoff are focused more on the Russian angle than on the Ukraine-EU angle. And they're focused more on things like I'm not saying they shouldn't be interested in this, but they seem to be overly focused on resource materials, right? They're they're overly focused on oil and natural gas and and rare earths and you know, credit. I mean, that's what they're interested in, even though you know the US itself isn't really the processor of a lot of this stuff, or the cons er, it's really China that's the cons er or processor. So they they might at the end of the day win, , even though we're the ones sort of carrying the water for China on on those issues. I think you know the key thing here is , you know, the key thing for us, for the US, is I think helping out helping out Europe. Um, you know, the democracies of Europe, , if you look at Asia, the democracies of Asia with respect to you know potential Chinese incursions. I think one one stat I just wanted to throw out there for you, you know, for those who think Russia is this, you know, who think of that that who look at a map and say, well, Russia has got to be important because it's so huge on a Mercatur projection map, right? Uh Russia has an economy that's the size of Italy's. So just keep that in mind. Russia's economy is the size of Italy's. And , you know, GDP. Does vodka replace wine as a right? Or or or as as some other people have said, Russia is a gas station with nuclear weapons.

Steve Davenport: 23:11

Okay.

Clem Miller: 23:12

So, you know, those are ways to look at Russia, and I think that you know, to think of a partnership with Russia as being some kind of huge economic partnership is crazy, is really crazy. We should be we should be a part of the Trans-Pacific Partnership, you know, which Tr p pulled out of. We should be a part of the of a European partnership, you know, building on what Canada and the EU are doing. We should be a part of that, but instead to play footsie with Putin in in Russia is just is just just ignores modern economic reality, in my opinion.

Steve Davenport: 23:57

Okay. Um I think we want to probably stop there. I I I think the the process of going through this with Witkoff and and Putin and and the the various people in this, I still think is only a partial, you know, we're we're in the early stages. I don't think we we're really serious because we're not we're not bringing Germany and NATO and other people to the table because I don't think this is a US and Russia thing. I think this is really a European thing, which we are on the on the fringes of. And so the fact that we've injected ourselves in there, whether it's to get a Nobel Peace Prize or whether it's to sincerely try to end violence in that area, I tend to think it's for the the peace prize.

Clem Miller: 24:47

But I mean, if if if it were really about trying to settle peace, why are we on the verge of war with Venezuela?

Steve Davenport: 24:58

I think that just like everything else, we wanna, you know, we want to try to to me it looks like we're going back to the Teddy Roosevelt kind of walk quietly but carry a big stick. We want to have that big stick and take it out and and lash at people occasionally, but I don't know if that's really foreign policy as much as it is foreign intimidation. So I I I believe that you know these things all come back, and there's a there is a global karma. And when you violate the karma, which Russia did with the Ukraine, I think they've you know, they've created animosity and hatred that is gonna last in those citizens of the Ukraine who will remember what Russia did and not forget. And I think overall the situation really needs you know a good quiet quiet period to really get to a place where we can make decisions about what's going forward. So thank you everybody for listening to Skeptics Guide. We appreciate you. We want to wish you the best this holiday season, and we hope you enjoy what you do. If you like what you're doing, what we're doing, then please let others know and and let's let's try to do more things that you enjoy. So be good everyone. Thanks. Thank you.