Spin Class

Risk was on the front foot Tuesday, as speculation about the timing of Russian military action in Ukraine morphed into speculation that Vladimir Putin ultimately “blinked,” perhaps deterred by the very “hysteria” Kremlin officials accused Western intelligence agencies of fostering.

The US and allies inundated the public with information about the purportedly imminent invasion, including details of an alleged Kremlin plot to stage a false flag in order to give Putin a pretense to pull the trigger — figuratively and literally. It’s possible the strategy worked. Russia has insisted, from the outset, that it had no plans to invade, but notwithstanding the protestations of countless unfortunate souls in Western democracies who’ve been duped by propaganda over the past five years, Russia is most assuredly a malign global actor.

“Whataboutism” is a very powerful propaganda technique, and the Kremlin is uniquely adept at harnessing it. At its core, Whataboutism appeals to our instinctual aversion to hypocrisy, but it always falls apart under scrutiny. It is, after all, predicated on a logical fallacy.

There are different levels of hypocrisy, and more often than not, comparisons are false equivalences or outright non sequiturs. Kremlin propaganda pretends as though no such distinctions exist. In Kremlin propaganda, someone who loudly espouses the virtues of walking around barefoot but who secretly sleeps in warm socks is every bit as hypocritical as a preacher who buys a Rolls Royce with money from the collection plate. “What about the socks?!”, says the priest in the Wraith.

Moscow is a little more clever about it than that, but not much. Most of the Kremlin’s Whataboutism is laughably ridiculous. But Western audiences are increasingly susceptible to it for a variety of reasons, not least of which is the simple observation that Westerners seem to be getting more gullible over time. That, in turn, is a function of undereducation, institutional decay, economic precarity and the decline of civic mindedness. Putin’s regime exploits the situation, and it does so very effectively.

I say all of that in the (sincere) hope that readers will cast a wary eye where a wary eye is warranted. While no one will ever know precisely what the Kremlin was or wasn’t planning over the past several weeks, you’d be a fool to believe a military incursion wasn’t on the table at any point. You’d be positively derelict in your implicit obligation to your own sanity if you trust the word of Kremlin officials like Maria Zakharova over the word of White House officials. Forget whether you trust the US government. It’s not about that. If you live in a Western democracy, you’re an adversary of Putin’s. Not personally, of course, but by default. You’re guilty by association. He’s not your president or your prime minister, and he damn sure isn’t your friend. He’s nobody’s friend, in fact. He’s a KGB agent. You laugh (and I laugh too, because it is funny on some level), but between despairing chuckles, spare a thought for the untold millions of Americans who lost this plot years ago.

As ever, I speak with an academic leg to stand on, but more importantly, I speak dispassionately. As longtime readers are aware, I have no editorial “agenda.” If I had to think about how to “spin” articles or otherwise bend reality in the service of some ulterior motive, I’d need to hire multiple writers and figure out a way to squeeze more than 24 hours out of a day. The only reason I can produce as much quality content as I do singlehandedly is because nothing is forced. It’s just me, on an island (literally), with a computer and a lot of gratitude for the fact that so many people seem to care what I have to say about markets, economics and politics. If I was beholden to some editorial slant that compelled me to carefully craft every article in an unceasing, around-the-clock attempt to perpetuate someone else’s spin, I would’ve died from exhaustion years ago.

In any case, as long as no lives are lost, it is somewhat gratifying to see geopolitics make a cameo in the market reel. The Fed obsession was getting rather tedious, and the intersection of geopolitics and finance was originally my raison d’être. I’d also note, as a kind of addendum to the preceding paragraph, that I deliberately scaled back opinionated coverage some years ago in a concerted effort at quality control. It’s not great for web traffic, but it’s great for reader trust. Besides, Trump killed satire and buried it in the South Lawn.

Barring an escalation, it seems markets are destined to forget about the Ukraine episode, even if Ukrainians certainly won’t. Although geopolitical risk made a comeback in BofA’s closely-watched Global Fund Manager survey, it barely cracked the top five on the tail risk list (figure on the left, below).

That said, perceptions of the risk to financial stability posed by geopolitics rose to the highest in quite a while (figure on the right, above).

This particular flareup had an obvious connection to the most important issues facing traders and investors. The world is staring down an energy crisis, and Russia relies on its status as an energy powerhouse to retain something that’s supposed to count as relevance on the world stage. Higher energy costs would feed inflation, force the Fed’s hand and undermine Joe Biden’s domestic approval rating. That, in turn, has implications for the midterms and thereby fiscal policy in the US.

Another takeaway from the February vintage of BofA’s survey: The percentage of respondents expecting an unfavorable outcome for Democrats in the midterms jumped sharply.

On Tuesday afternoon, Biden said he and Putin agreed to ongoing engagement. Hopefully not the military kind. He also said the US hasn’t verified Russian claims that troops are returning to bases, and he reiterated that any Americans in Ukraine should leave now, “before it’s too late.” As for any hypothetical attack on NATO territory or US forces, Biden said simply that America would “act.”