TheBRRR’s Thoughts 

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Geopolitical tensions have defined the week. Incoming President Donald Trump has promised to negotiate an end to the Ukraine-Russia war, upsetting the military industrial complex.

In response, the US has authorized Ukrainian’s usage of long-range missiles that the US has supplied for immediate use against Russia, upsetting the Kremlin, who then escalated further by expanding their nuclear doctrine.

This is irresponsible behavior from both sides, but feels particularly egregious for the outgoing US president, a barely sentient one at that - to escalate a war with a nuclear power two months before the end of his term.

Markets typically overreact to geopolitical escalations, but the move today has been fairly muted but significant risk of further escalation does remain.

We just ordered Scott Horton’s new book Provoked, where the author makes the case that the west did indeed provoke Russia into starting the war with Ukraine. You can buy it on Amazon.

Even if you believe the US has an obligation to fund the Ukranian defense in perpetuity, this book may strengthen your case because it becomes eminently clear that the US is responsible for the conflict in the first place.

US Authorizes Long-Range Missiles For Ukraine, Russia Expands Nuclear Doctrine In Response

Synopsis:

Russia's geopolitical landscape has dramatically intensified following Ukraine's deployment of U.S.-supplied ATACMS missiles into Russian territory and Putin's formal expansion of Russia's nuclear doctrine. The updated doctrine lowers the threshold for nuclear responses, even to conventional attacks deemed threats to Russia's sovereignty. These escalations, coupled with U.S. authorization of long-range missile strikes, have rattled markets amid fears of broader conflict.

The Details:

1. Ukraine's First ATACMS Strike:

   • Target: Russian military facility in Bryansk region (115 km from Ukraine's border).

   • Ukraine used MGM-140 Army Tactical Missile Systems for precision targeting, reportedly damaging significant ammunition stockpiles, including North Korean supplies​​.

   • Russia intercepted five of six missiles but reported damages​.

2. Russia’s Nuclear Doctrine Update:

   • Key Change: Expanded conditions under which nuclear weapons could be used, now including responses to conventional threats to Russia or Belarus' sovereignty​​.

   • Implications: Nuclear retaliation could target Western allies supporting Ukraine if deemed a joint aggression​.

3. Market Reaction:

   • Stock Decline: Global equities dropped—Stoxx 600 down 1.4%, S&P 500 futures off 0.72%.

   • Safe Havens: Gold (+0.85%), Japanese yen (+0.5%) surged as investors sought stability amid escalating risks​.

   • Oil Prices: Stable but jittery as energy markets monitored potential disruptions​.

4. Political Statements:

   • Kremlin warns of escalation risks due to Western missile support.

   • U.S. criticized for "adding fuel to the fire" by approving long-range strikes​​.

   • Russian Foreign Minister Lavrov stressed the inevitability of retaliation to significant threats while maintaining nuclear war remains undesirable​.

Why It Matters:

• For Markets: Heightened tensions amplify uncertainty, driving volatility in equities and pushing investors to defensive positions like gold and currency hedges.

• For Traders: Expect further declines in risk assets if rhetoric escalates; watch for opportunities in defense and energy sectors, which could benefit from prolonged conflict.

• Geopolitical Risks: Lowering the nuclear threshold increases the likelihood of miscalculation or accidental escalation, risking broader NATO-Russia confrontation.

Senator Lummis Argues US Should Sell Gold For Bitcoin

Synopsis:

Senator Cynthia Lummis of Wyoming is advocating for the U.S. Treasury to convert a portion of its 8,000+ tons of gold reserves into Bitcoin to establish a strategic Bitcoin reserve. She argues this move would protect against inflation and position the U.S. as a leader in a global shift toward digital assets. The proposal includes acquiring 5% of Bitcoin's total supply—1 million BTC—over 20 years, with the aim of insulating the U.S. economy from rising debt and economic uncertainty.

The Details:

• Proposal Highlights:

  • Lummis suggests selling gold certificates, not physical gold, to fund the Bitcoin purchase, maintaining a neutral effect on the government’s balance sheet.

  • The plan aims to secure 1 million BTC (5% of Bitcoin’s total supply) for long-term strategic reserves​.

• Rationale:

  • The U.S. government is grappling with record national debt and soaring inflation.

  • Bitcoin, seen as a hedge against inflation, offers potential for long-term appreciation, unlike stagnant gold reserves.

  • Lummis believes this would safeguard the economy while signaling U.S. leadership in digital finance​.

• Challenges and Criticism:

  • Critics argue that Bitcoin's volatility and regulatory uncertainty pose significant risks.

  • Skeptics question the feasibility of accumulating 5% of Bitcoin's supply without triggering massive price increases.

  • Current Bitcoin market cap and liquidity constraints could make such a large-scale purchase disruptive​.

• Market Implications:

  • Bitcoin’s price currently sits near $92,000. Analysts predict prices could soar beyond $500,000 if sovereign nations, led by the U.S., aggressively accumulate​.

Why It Matters:

• Geopolitical Edge: Establishing a Bitcoin reserve could provide the U.S. with a strategic advantage in the emerging global race for digital asset adoption.

• Inflation Hedge: As national debt balloons, Bitcoin offers a deflationary alternative to fiat-backed reserves.

• Market Impact: Lummis' proposal could validate Bitcoin as a reserve asset, spurring global adoption and investment.

Key Takeaways:

• Strategic Move: Selling gold for Bitcoin aligns with Lummis' libertarian vision of financial independence and sound money.

• Potential Windfall: A government-backed Bitcoin reserve could significantly boost Bitcoin’s valuation and market legitimacy.

• Risks Remain: Price volatility and liquidity concerns present significant obstacles to implementation.

Got feedback? Follow the writer on Twitter @frank_locascio and send a message.

The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll