March 17, 2014

Doug Kass on Russia controversy

Similar to many of the previous international crises, the Ukraine situation will likely pass, should not dent worldwide economic growth and will not be a material risk to the capital markets.

While Russia has clearly violated international law (raising the ire of the world community) and the Ukraine/Russia issue is a near-term challenge to risk assets (and our relationship with Russia), below is a list of reasons why the impact will be transitory:

Crimea has already been annexed by Russia. Sunday's referendum will give formal approval to something already done. (Note: Russia has always thought of Crimea as part of Russia. Thus annexation is not seen by Russians as an expansionary move but rather to defend access to the port on the Black Sea).
Any sanctions (asset freezing, visa restrictions, etc.) by Europe or the U.S. against Russia is toothless.

Russia is not likely to annex other parts of the Ukraine, as the country is financially unstable and Russia can't afford to prop up the rest of Ukraine. Moreover, a further incursion into other parts of the Ukraine would bring more substantive sanctions.

The referendum could be ratified on Sunday, but Russia might effect a "soft annexation" that permits Crimea integration with Kiev.

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