Luc Vancraen: Can the EU still prevent an open war between Ukraine and Russia?

Interesting proposal from Luc Vancraen, an entrepreneur in Kyiv who holds a masters degree from Boston University:

If there is no Novorussia today it is because of the ferocious fighting of the Ukrainian armed forces. If the EU wants the Ukrainians to stop fighting after Donbas is liberated it will have to come up with a plan that convinces even the volunteer battalions that it is just a matter of time before Crimea returns to Ukraine.

The only way I can see this happen is through a Crimean Occupation Tax on all energy imported from Russia into the EU and all other countries that want to participate. President Putin will not like this tax at all but strangely enough it might be enough for him to belief that this could stop the Ukrainian army. It buys him time and he can speculate on convincing the EU to drop it later through good behaviour even though this won’t be easy with a name like this.

The tax will be paid on all Russian gas, oil and coal sold in the EU. Who pays this tax? Initially it will be EU citizens through their energy bills. This allows Putin through the Russian propaganda to trivialise these sanctions and to laugh with the stupidity of the EU that sanctions itself. But don’t underestimate the creativity of the energy companies. They will find other suppliers and this helps the EU to reduce dependency from a supplier they can no longer trust. Russia will be faced very fast with a serious dilemma. Lowering energy prices to include the tax so that it remains competitive with suppliers that don’t need to pay this or totally losing the biggest customer on earth. Simulations show that after just two years it is Russia that is paying this tax to avoid totally losing the EU as a customer.

Read more at Luc Vancraen: Can the EU still prevent an open war between Ukraine and Russia?.

Garry Kasparov: It’s a War, Stupid! | TIME

From Gary Kasparov:

As always when it comes to stopping dictators, with every delay the price goes up. Western leaders have protested over the potential costs of action Ukraine at every turn only to be faced with the well-established historical fact that the real costs of inaction are always higher. Now the only options left are risky and difficult, and yet they must be tried. The best reason for acting to stop Putin today is brutally simple: It will only get harder tomorrow.

Read more at Garry Kasparov: It’s a War, Stupid! | TIME.

The Great Myth: World War I Was No Accident | The Diplomat

From Zachary Keck:

…As the wise philosopher Rob Farley once cautioned in these pages, “accidental wars rarely happen,” and instead are usually the result of deliberate state policy. And in this regard, WWI is no exception, at least according to Dale C. Copeland.

In his instant classic, Origins of Major Wars, Copeland developed a theory he called “dynamic differentials theory” to explain the causes of great power conflicts. To slightly oversimplify, dynamic differentials theory argues that declining states initiate wars when they are still clearly militarily superior but they believe they are in deep and irreversible decline relative to the rising state.

In such a situation, the leaders of the declining state come to see war as the only way to prevent the rising state from overtaking it as the most powerful nation in the system, thereby becoming a major security threat. Dynamic differentials theory posits that these leaders are most likely to initiate war when they believe they have maximized their relative power– that is, when they believe their relative military power is peaking and delaying war will only allow the rising nation to grow relatively stronger….

Read more at The Great Myth: World War I Was No Accident | The Diplomat.

EU moves to ramp up Russia sanctions | Al Jazeera

From AlJazeera:

French President Francois Hollande stressed that a failure by Russia to reverse a flow of weapons and troops into eastern Ukraine would force the bloc to impose new economic measures.”Are we going to let the situation worsen, until it leads to war?” Hollande said at a news conference. “Because that’s the risk today. There is no time to waste.”

Read more at EU moves to ramp up Russia sanctions as Ukraine calls for NATO membership | Al Jazeera America.

Tusk new president of European Council |


Capping weeks of haggling among capitals and rival political groups, leaders on Saturday evening named Prime Minister Donald Tusk of Poland to replace Herman Van Rompuy as the president of the European Council, which sets the agenda for summits and helps represent the union at international gatherings. He is the first Eastern European selected for such a senior position, and his appointment, at a time of growing tensions with Russia, emphasized the growing clout of new members that, having shaken off decades of subservience to Moscow, generally favor a more robust approach to Russia than the union’s older members in the West.

Read more at Ukraine President Says Europe’s Security Depends on Stopping Russia –

War in Europe

Vladimir Putin has escalated the conflict in Eastern Ukraine with new incursions of tanks backed with artillery, anti-aircraft missile systems and up to 15,000 Russian troops. Intent on seizing as much territory as possible, he is banking on the US/European coalition responding with another slap on the wrist. Each weak response has only made Putin bolder. But where he may miscalculate is that the coalition is aware that its “stick-and-carrot” policy has failed and will be looking for a new approach.

Willingness of the Europeans to endure immediate economic pain in the belief that this will avert a long-term calamity is yet to be tested. Success will depend on France, Spain and Italy’s support for their Northern and Central European neighbours, who face a more immediate threat.

A significant step-up in sanctions is likely and the initial response from European markets will be negative. Sanctions are a two-edged sword and likely to hurt Europe almost as much as they do Russia. But NATO rearmament in the medium-term would somewhat offset the initial cost. Never underestimate the stimulus effect of war on local industry — provided the war is fought outside one’s borders

Germany’s DAX is running into stiff resistance as it approaches 9750. And 13-week Twiggs Money Flow below zero warns of selling pressure, threatening a reversal. Retreat below 9250 would strengthen the signal and failure of support at 8900/9000 would confirm a primary down-trend.


* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

Dow Jones Euro Stoxx 50 reversal below 3100 and 13-week Twiggs Money Flow below zero would add further weight to the (bear) signal.

Dow Jones Euro Stoxx 50

* Target calculation: 3000 – ( 3300 – 3000 ) = 2700

The S&P 500, unfazed by recent developments in Europe, broke resistance at 2000 to signal an advance to 2100*. A 21-Day Twiggs Money Flow trough above zero indicates rising (medium-term) buying pressure. Reversal below 1990 is unlikely, but would warn of another correction.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX), shown here on a ten-year chart, indicates low risk typical of a bull market.

S&P 500 VIX

Shanghai Composite Index, responding to PBOC stimulus, is testing resistance at 2250. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout would confirm a primary up-trend, signaling an advance to 2500*. Respect of resistance is less likely, but would suggest further consolidation.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

The ASX 200 is testing resistance at 5650. Continued strength in US and Chinese stocks would improve the chance of an ASX 200 breakout, suggesting an advance to 5850*. Bearish divergence on 13-week Twiggs Money Flow — shown here on a monthly chart — continues to warn of long-term selling pressure. But failure to cross below zero would negate this and completion of another trough above zero would indicate that buyers are back in control. Reversal below 5450 is unlikely, but would warn of a test of primary support.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

Banks hold more risk than before GFC | Chris Joye

Chris Joye explains why risk-weighted capital ratios used by Australia’s major banks are misleading and why true leverage is more than 20 times tier 1 capital.

It was only after 2008 when regulators allowed the majors to slash risk-weightings on home loans from 50 per cent to 15 per cent today that we have seen their reported and purely academic tier one capital measured against these newly “risk-weighted” loan assets which shrunk in value spike from 6.7 per cent in December 2007 to 10.5 per cent in June 2014.

By arbitrarily boosting the risk-free share of major bank home loans from 50 per cent to 85 per cent via the regulatory artifice that is a risk-weighting, one gets the fictional jump in their tier one capital that everyone believes is real.

Tier 1 Capital to Gross Assets

Read more at Banks hold more risk than before GFC.

Russians see war cost as their army invades

From Oleg Sukhov:

While previously Russia mostly sent fighters who had been formally discharged from the military or on official leave, earlier this week an invasion of eastern Ukraine by the regular Russian army began, making it much harder to hide the truth. …On Aug. 26 Ella Polyakova, head of the St. Petersburg Committee of Soldiers’ Mothers, said that hospitals in Rostov-on-Don and nearby regions were filled with injured soldiers.

Valentina Melnikova, head of the Union of the Committees of Soldiers’ Mothers, said on Aug. 27 that about 15,000 Russian soldiers, including both mercenaries and the regular army, were currently fighting in eastern Ukraine. She lambasted the authorities for hiding the truth and effectively denying assistance to the killed soldiers’ families, comparing it to similar situations during the Soviet invasion of Afghanistan and the first Chechen War.

On Aug. 27, the Stavropol Committee of Soldiers’ Mothers published a list of 400 killed and injured Russian troops.

These people are as much victims of an authoritarian Russian regime as the people of East Ukraine.

Read more at Russians see war cost as their army invades.

Let’s be clear about this: Russia is invading Ukraine right now | Vox

From Max Fisher:

…There’s more behind this confusion than just careful diplomacy. Russian President Vladimir Putin learned a crucial lesson from Syrian leader Bashar al-Assad last year, when the latter got away with using chemical weapons against his own people.

That lesson is this: the Western world can set all the red lines it wants — don’t use chemical weapons, don’t invade sovereign countries — but if you cross that red line just a little bit at a time, inching across over weeks and months, rather than crossing it all at once, then Western publics and politicians will get red-line fatigue and lose interest by the time you’re across.

Read more at Let's be clear about this: Russia is invading Ukraine right now – Vox.

Dollar surges, yields fall but gold hesitant

The Dollar Index continues its impressive advance. Expect resistance at the 2013 highs at 84.50. Reversal below 81.50 is most unlikely.

Dollar Index

* Target calculation: 81.50 – ( 81.50 – 79.00 ) = 84.00

The yield on ten-year Treasury Notes is retracing to test its new resistance level at 2.40/2.50 percent. The primary trend is down, with 13-week Twiggs Momentum holding below zero. Respect of resistance is highly likely and would confirm a decline to 2.00 percent*.

10-Year Treasury Yields

* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00


Gold continues in a narrow range, between $1280 and $1320/ounce, in the apex of the triangle. Both this and oscillation of 13-week Twiggs Momentum close to zero signal uncertainty. Expect further consolidation between $1250 and $1350 in the medium-term. Breakout from that band is likely to indicate future direction. Falling crude prices and low inflation favor a down-trend.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Crude and bulk commodities fall but nickel, aluminum rally

Crude oil prices are falling. Nymex Light Crude is testing primary support at $92/barrel and Brent Crude at $99/barrel. Breach of support would signal a down-trend.

Nymex WTI Crude

Commodity prices remain low, in line with sluggish world trade.

But that does not tell the full story.

Bulk commodity prices are falling as Chinese construction slows…

Bulk Commodities

…While copper prices recovered above 7000/tonne. Penetration of the declining trendline suggests that the down-trend is slowing. Breakout above 7400 would strengthen the signal.


And aluminum alloy…


…and nickel show surprising strength, signaling an up-trend.


The Unintended Consequences of Risk Avoidance | Pragmatic Capitalism

Cullen Roche on risk avoidance:

Many investors have learned the hard way that trying to beat the market over shorter time frames can be more trouble than it’s worth. A singular mission to outperform can actually lead to underperformance. The same logic applies when trying to minimize losses. A sole focus on downside protection usually leads to the opportunity cost of no upside participation.

An illusion of safety in the short-term can lead to problems in the long-term. Judging your portfolio or your financial advisor over a six month period is a recipe for failure. No strategy can be assessed over that short of a time frame.

Also, while fees are important over the long haul, investor behavior is much more important. Investors need to make sure they aren’t sacrificing other areas of portfolio management in a push to only reduce fees. Lower investment fees are only one of the many risk management techniques needed for a successful portfolio.

Read more at The Unintended Consequences of Risk Avoidance | Pragmatic Capitalism.

ASX finds support

The ASX 200 found short-term support at 5630 and continuation of the US rally would see a breakout above resistance at 5650. Follow-through above 5680 would confirm the advance, offering a target of 5850*. Completion of another 21-day Twiggs Money Flow trough above zero would strengthen the signal. Reversal below 5550 is unlikely, but would warn of a test of primary support at 5360/5380.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

Retreat of the ASX 200 VIX below 12 indicates low risk typical of a bull market.

ASX 200

Hang Seng leads Asian recovery

Hong Kong’s Hang Seng Index broke its 2010 high at 25000, confirming a primary advance and offering a target of 27000*. Rising 13-week Twiggs Money Flow signals continued buying pressure. Reversal below 24000 is unlikely, but would warn of a correction to the rising trendline.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 21000 ) = 27000

China’s Shanghai Composite Index continues to test resistance at 2250. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 2150 is unlikely, but would warn of another test of primary support at 1990/2000.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

India’s Sensex is retracing to test support at 26000. Respect would confirm the target of 27000*. Declining 13-week Twiggs Money Flow continues to warn of selling pressure. Respect of the zero line would indicate that buyers have taken control, while a fall below zero would warn of a correction. Penetration of the secondary trendline is unlikely, but would indicate a correction to the primary trendline.


* Target calculation: 21000 + ( 21000 – 15000 ) = 27000

Japan’s Nikkei 225 index recovered above 15500, suggesting continuation of the advance. Expect resistance between 16000 and 16300. Declining 13-week Twiggs Money Flow warns of medium-term selling pressure, but respect of the zero line would indicate that buyers have taken control. Reversal below 14800 is unlikely, but would warn of a test of primary support at 14000.

Nikkei 225

* Target calculation: 16000 + ( 16000 – 14000 ) = 18000

DAX surges

Germany’s DAX surged after a brief test of support at 9250/9300. Recovery of 21-Day Twiggs Money Flow above zero indicates short-term buying pressure. A trough above the zero line would reflect medium-term buying pressure. Expect resistance at 9700/9800.


* Target calculation: 9750 + ( 9750 – 9000 ) = 10500

Dow Jones Euro Stoxx 50 also surged, indicating a test of 3250 on the weekly chart. Completion of a 13-week Twiggs Money Flow trough above zero would indicate long-term buying pressure. Reversal below 3100 is unlikely, but would warn of another test of primary support.

Dow Jones Euro Stoxx 50

* Target calculation: 3150 + ( 3150 – 3000 ) = 3300

The Footsie faces strong resistance between 6750 and 7000, as illustrated on the quarterly chart. 13-Week Twiggs Money Flow oscillating above zero indicates a healthy up-trend, but this is a major psychological barrier to overcome. Breach of support at 6400/6500 is unlikely, but would warn of a reversal.

FTSE 100

* Target calculation: 700 + ( 7000 – 6000 ) = 8000