ISQ - January 2022
Key Takeaways
A mutual dependency exists between Russia and the European Union. The EU is very dependent on Russian gas, while Russia is reliant on the revenue to run its government and finance foreign currency debts.
China has a substantial economic interest in the Ukraine, the consequence of heavy investment in its “Belt and Road” initiative.
Any escalation of the current situation would be significantly adverse for financial markets, but economic interests may trump military adventurism.
Late one night, around twenty-five years ago, a train pulled out of London’s Waterloo Station. To the casual bystander, if any were around at that time, they would have seen empty coaches save for two people, sat opposite from each other but heads bowed conspiratorially together. One, the elder, was Jim Slater, financial tycoon and City grandee, the other, younger, was this writer. We both had been attending a City conference, Slater as the keynote speaker, I a mere delegate. Slater was in an ebullient mood, the conference had gone well and he was keen to expand. This writer had another subject for discussion.
It is high summer, 1972. Barely out of short trousers, the writer and his fellow school friends were transfixed by events unfolding in Reykjavik, Iceland, the location of the battle for the World Chess Championship. Pitted against each other were the brilliant, likeable and gentlemanly Boris Spassky and on the other side of the board and representing the United States, the maverick, misanthropic genius that was Bobby Fischer. The Cold War’s nuclear threat had, for the time being, subsided and the United States had, not long before, put a man on the moon.
The Soviet Union was keen to explore other routes by which to attempt to assert its intellectual superiority and chess, much favoured, was just such an avenue. Getting the 24-match series on had proved complex from the outset. The then US President, Richard Nixon’s National Security Adviser, Dr Henry Kissinger, had personally interceded to remind Fischer of his patriotic duty, but what finally brought the latter to Iceland was a doubling in the prize money, put up by Slater himself.
What followed had the world in its spell. It is said that 18 of every 21 bars in Manhattan switched TV channels from the New York Mets’ baseball and the Democratic National Convention, to events unfolding in Iceland.
“In the UK, chess was the first item on the national news and, temporarily, the dartboard was swapped for the chessboard as matches…”
In the UK, chess was the first item on the national news and, temporarily, the dartboard was swapped for the chessboard as matches were followed and played out move by move. Game six is still said to this day to be a thing of beauty, as close to perfection as a Mozart symphony. At the end, a game won by Fischer, even his opponent stood up to applaud him. Game ten proved that Spassky was not there simply to make up the numbers. His victory had the audience chanting his name to the rafters.
So, to what proved the pivotal game thirteen. At move 69 Fischer delivered an extraordinary gamble, an action worthy of three question marks and three exclamation marks in chess notation. How might Spassky respond? For hours the Soviet consulted with his seconds and paced the corridors of the convention centre alone. To riposte and fight fire with fire, or defend? Ultimately, he chose to wait and see. Fischer needed no second invitation. In for the jugular, the game was over soon after. Spassky’s face visibly crumpled, his opponent’s domination assured. The game had lasted nine-and-a-half hours! To this writer, a life-long interest in geopolitics had begun.
The Soviet Union is long gone, but to this day the chess pieces are still being moved around the board. Contemporary focus is, of course, on the Ukraine, a country of prime geopolitical “real estate” located at the intersection of two very different economic systems. The European Union derives around 25% of its natural gas imports from Russia, 80% of it via a pipeline running through the embattled country. Germany is almost wholly dependent on Russian gas and European industry, including c.40% of its energy-generating capacity is profoundly reliant. A bilateral dependence exists between Russia and the bloc to its west. Europe needs the natural gas to drive its economy (a necessity only temporarily alleviated by the arrival of an armada of container ships from North America), and Russia needs the revenues from gas sales to run its government and service its foreign currency debt.
Upping the geopolitical ante, Russian troops are said to have built up on the Ukraine’s Eastern border, close to the economically significant Donbass coalfield. Might Russia invade? The West certainly suspects such a move and has threatened Moscow with draconian sanctions, especially to its banking system, were it to undertake such high stakes adventurism. Whilst considerable diplomatic efforts are underway to defuse the situation there is another player, of equal importance, with skin in this game; China.
China today sends around 10% of its exports to the EU, by train along its much-vaunted belt-and-road initiative, the so-called modern “silk road”.
China today sends around 10% of its exports to the EU, by train along its much-vaunted belt-and-road initiative, the so-called modern “silk road”. Beginning in 2016, China has been investing heavily in Ukrainian infrastructure with the intention of building an alternative route to options passing through Russia and Belarus. Given the latter’s political isolation by the EU and the closure of its border with Poland, the route crossing the Ukraine has become the only way to move goods easily to Western Europe from China without crossing into Russia.
“…an extremely cordial video Summit between President’s Putin and Xi in mid-December appears to confirm the onset of an idyllic phase in the relationship between the two countries.”
Once seen as a potential vulnerability, an extremely cordial video Summit between President Putin and Xi in mid-December appears to confirm the onset of an idyllic phase in the relationship between the two countries.
The Chinese state is said to have invested the equivalent of around one billion dollars in building compatible railway infrastructure, as well as a ferry system crossing the Black Sea commensurate with the transportation of cargos to the port city of Odessa, or through the Bosphorus to Europe. Beyond this, Chinese companies have, in turn, invested a further billion dollars equivalent in plant and other facilities in the Ukraine closely resembling, in so doing, China’s economic colonisation of many other countries around the world.
It seems certain that Russian tanks are not going to sweep into Kiev, the Ukrainian capital, and onward to the Black Sea coast without disrupting Chinese interests. For its part, having constructed what is surely an extraordinary piece of engineering architecture, China can deploy its own troops and equipment to the Ukraine at least as fast as any other interested global military power. Thus, it represents a critical step, if Russia were to make a move on the Ukraine to assume control of the latter’s gas and coal fields, that it does so with the overt support of Beijing.
“Western powers have expressed concern regarding the overly friendly nature of Mr Putin and Mr Xi’s mid-December video conference…”
Western powers have expressed concern regarding the overly friendly nature of Mr Putin and Mr Xi’s mid-December video conference; it smacks of a plan possibly to divvy up the Ukraine to further both Russian interests and China’s economic reach to mutual advantage. A Russian invasion, precipitating a shooting war with Ukrainians, might trigger a shooting war with the United States and Europe, over and above the imposition of far-reaching financial and economic sanctions. How would the Chinese respond? Any escalation involving that great super-power would surely turn the geopolitical screw to maximum and have significantly adverse consequences for global financial markets.
“…at the time of writing, an uneasy quiet has descended on Europe’s Eastern front.”
Financial markets have never been great at properly discounting geopolitical crises; a major event (whilst without doubt at the back of all investors’ minds) lying at the outer reaches of the spectrum of discountable risks. It is very much to be hoped that military conflict can be avoided as 2022 begins and, as at the time of writing, an uneasy quiet has descended on Europe’s Eastern front.
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Black MondayOn 19 October 1987, the stock markets experienced a dramatic plunge that prompted many firms to shut down their trading desks and turn off their phones to minimize internal losses. Raymond James refused to do the same. Our desks stayed open to help meet clients’ needs, resulting in our first and only unprofitable quarter since the firm went public in 1983. |
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Who was Raymond James?The Raymond in our name is actually from Edward Raymond, owner of a 15-employee mutual fund sales group, Raymond and Associates, along Florida’s west coast. He sold his company to Bob James on 15 July 1964, on condition that the surviving firm be called Raymond, James & Associates. Three days after the sale, Ed Raymond was involved in a near-fatal automobile accident and never joined the firm. Nonetheless, even after Raymond had passed away, Bob James insisted that his name remain on the door – ahead of James’ own. That was a promise he made to Ed Raymond three days before the accident, and Bob James was a man who kept his promises. |
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Bear Market of 1974The severe bear market of 1974 threatened the existence of Raymond James, which was bleeding capital by the day. Tom James, his father and other leaders took extreme measures to keep the firm afloat, slashing costs, foregoing paychecks and even attempting to sell the firm for just enough capital to protect client assets and retain as many associates as possible. The story could have ended very differently if not for a sharp upturn and continued rebound in the stock markets late in the year. |
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Taking Raymond James PublicWhen consideration was being given to taking Raymond James public, Tom James penned a letter to shareholders (largely employees at the time). ” … the public offering should be considered as a statement of our independence. While this is a psychological rather than an economic rationale, it is nonetheless very important. We have asserted for some time that we are not interested in becoming a small part of a very large corporation. That assertion results mainly from the inclinations of management rather than the economic benefits associated with either alternative. The public stock offering affords us the opportunity to enjoy a little bit of the best of both worlds. While shareholders will be given liquidity at fair market value, we will still have the ability to control our own destiny.” After 40+ years of Tom’s leadership, upon becoming CEO, Paul Reilly was often questioned about whether the company might ultimately surrender its cherished independence and be acquired by some larger entity. His response: “Not while I’m around.” It’s a theme that continues today. |
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