Media outlets are reporting that the Wagner Group rebellion led by Yevgeny Prigozhin against Vladimir Putin and the Russian military is somehow negative for global financial markets. Hogwash!
Nothing could be more bullish than seeing the Russian conventional and private paramilitary terrorist forces self-destruct from within their own sphere. The revolt could even morph into an ugly end to the Ukraine war.
Prigozhin was in Putin’s inner circle ever since the George W. Bush administration. As Prigozhin was primarily in the hospitality business, his code name was “Putin’s chef.” Go figure. What an oxymoron!
When Prigozhin became the leader of Wagner, it was a hush-hush shadow force that the Kremlin initially denied knowing anything about. Unlike most Western private military companies for hire, Wagner is made up of tens of thousands of prison convicts turned into mercenaries that massacre and rape civilians, exploit and loot natural resources and are permitted by the Kremlin to conduct unconventional warfare in order to create conditions of plausible deniability.
Wagner Group is anything but a private military company. Rather, it is a state-backed military cartel with global tentacles, with operations not just in Ukraine, but is highly present in four continents. It has highly active operations in Syria and Africa, where they relish in their reputation for brutality. They fully qualify as a foreign terrorist organization. It is Russia’s secret war company gone rogue in Ukraine, and now the rabid dogs have turned on their owner because the owner failed to keep the feeding bowl full. This means that the Wagner Group’s supply of ammunition to carry out the Kremlin’s deeds was depleted by 70%, according to live interviews by Prigozhin, costing his forces huge losses.
The Wall Street Journal investigated the Wagner Group and found no less than 64 companies and other fronts were linked back to the Kremlin. That money was used to finance Wagner’s salaries and weaponry — literally everything a military would need without officially being tied to the state. So, there was a high level of mutual trust that had developed between Putin and Prigozhin. And now this marriage is going through a nasty divorce that could result in the kind of chaos that will derail Putin’s plan to conquer Ukraine. Without the military support of Wagner, Russia’s war effort in Ukraine will be severely weakened.
As of Saturday, the Wagner forces halted their march on Moscow after the authoritarian Belarusian President Alexander Lukashenko brokered a deal between Putin and the rebels, averting an armed confrontation that threatened to plunge the country into civil war. At the core of the ceasefire is the statement that everyone will get amnesty. At his inner core, Putin is deferring to negotiate terms of a stand-down. The tentative truce was the latest twist in a tumultuous set of events that raised serious questions about Putin’s hold on power and underscored tensions with Kremlin insiders and armed forces. A preferred outcome would have been to see pure evil take on pure evil, mutually destroying each other and seeing the unleashing of a new democracy.
The world would be a much better place without Putin, the Kremlin and the Wagner Group. It would be kind of like the ending scene in Enemy Of The State, where all the bad guys die in a hail of gunfire. Too bad that this horror movie in Ukraine must go on. The only government more corrupt than Russia in that part of the world is Ukraine.
So, why are we spending tens of billions of taxpayer dollars on this war? Because Anthony Blinken and all the so-called “utopian academics” thought it best to try to force Ukraine’s entry into the European Union without fully understanding Russia’s intentions to prevent such an occurrence. Blinken & co. started this hot mess, and a Russian military coup could hopefully end it.
But alas, we won’t be so fortunate, at least in the short term, per the brokered deal over the weekend. However, these events clearly show the presence of major internal fissures in Putin’s power structure and the demoralization of Russian defenses, given 16 months of fighting in Ukraine and the ease with which the Wagner group seized the city of Rostov-on-Don. While the city is home to about one million people, there was almost no resistance by Russian forces to the city’s capture. This latest uprising by Putin’s shadow paramilitary company is a bullish event for markets.
Global economies have already adjusted for the initial negative impact of the Ukraine war. Commodity prices are trending lower, as are shipping rates. Global supply chains have been normalized for the most part, and comparable year-over-year inflation data is about to show some serious declines. Last year in the June-August timeframe, inflation peaked at 9%. The upcoming data will likely show inflation hovering around 4% or lower, which should heavily influence the Fed at the July 30 Federal Open Market Committee (FOMC) meeting.
War is never a topic of good discussion, as scores of innocent people are victims and pay the ultimate price. For the greater good, a destabilization and overthrow of the Russian government would be ten-fold greater than the collapse of East Germany. But it would provide the Biden administration with a get-of-out-jail free card for this costly war, where American interests and support are nominal at best.
As far as the global markets are concerned, there is the old saying that “desperate men do desperate things,” and Putin has probably entered the desperation zone. But I don’t think the members of his inner circle care to be hanging from the bridges of Moscow if and when the next revolution takes place by the “good people” of Russia. In this case, not knowing how it would all play out, it is my view that global equity markets would likely rally big-time, China’s market would tank and history would celebrate a wonderful moment. Is it possible? Absolutely.
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