For those of you who would prefer to listen:
This week, I joined a strategy session with Admiral William McRaven. 4-Star General, career Navy SEAL and best known for leading the team that got Bin Laden. The topic of discussion was Ukraine and America’s foreign policy. The last time I met with McRaven was March of 2022, just a month after the Russian invasion. This engagement 3 years later was both timely and insightful. This is one of the greatest living Americans. I know that’s my opinion; But I consider it a fact. What I do know is when Bill McRaven speaks, people listen.
These are extremely challenging times. I take great pride in attacking complex issues head-on, understanding how emotional they can be. It’s risky work I choose. I’ve always been a calculated risk-taker. My goal is to focus on facts and insight from bright minds. Trying to make sense of things can be difficult. Knowing who to trust is a real issue these days. Admiral William McRaven is as credible as credible gets. He’s not political. He’s a soldier who loves this country.
The conversation started out with a reminder to everyone that President Trump campaigned on ending the Ukraine war in 24 hours. Later, it changed to the end of the year. Of course, the recent Oval Office debacle was brought up. Nobody had ever seen anything like it. The group consensus is that Trump has a strong hand but always runs the risk of overplaying it. McRaven insisted that the White House needs to balance out the need for our allies to do more and carry their weight while not isolating and alienating them by grinding them down and destroying relationships and trust. It’s important to have friends.
Disagreements within alliances is nothing new. There are always shared interests and self-interests. That concept is never going to change. It’s as old as humanity. To help with perspective and cool some concerns, as a reminder, McRaven quoted Winston Churchill: “Only thing worse than fighting with allies is fighting without them.”
Ukraine keeps fighting but international support has been evaporating. Ironically, McRaven said that he was speaking at the Munich Council, in a different room, simultaneously as JD Vance was. McRaven was praising NATO and our allies in standing firm against our adversaries. The Vice President sent a much different message. It’s clear that Trump wants to end the war, and soon. How to achieve it is quite complicated.
McRaven asserted that American Foreign Policy has long been rules-based, and values-based. He fears that is changing. Everything looks transactional. Can the US get the best deal? That seems to be the goal. Of course, there is serious war fatigue. The 21st century has seen American troops in foreign lands for the better part of 2 decades. It’s been extremely costly in terms of Dollars and lives. But the world is indeed a dangerous place. The Admiral said something really important: “We’ve always gone into battle believing we are the good guys”.
All of this puts significantly more pressure on Ukraine and Europe. The President repeatedly claims that America has spent $350 Billion on Ukraine. The group asserted it’s flat out not true. In fact, Europe has spent more than the US: $150 Billion compared to $130 Billion. And when you compared to percentage of GDP, countries like Germany, Poland and Latvia have spent proportionally much more. The United States has provided more military aid. That has strategically come in the form of long-range missiles and air defense, among others. It’s been absolutely critical to Ukraine’s defense.
William McRaven said it was clear from the outset that the Russians were not mentally prepared for the invasion and they certainly underestimated Ukrainian resolve. An estimated 750K Russian soldiers have either been killed or seriously injured. Morale was believed to be low in the Russian ranks. Perhaps it has improved a bit with recent developments. Russia is fighting a 20th-century style war but doesn’t have the plans or capability of winning the peace or occupation.
So, what’s the strategy? Is there an end game? McRaven pointed out that Russia has stopped making progress. He was in Ukraine a year ago. The Admiral calls it a stalemate; Positional warfare. There’s constant activity, but little actual movement. He thinks the most realistic solution is political: A ceasefire and Russia holds Donbas region. That eastern territory connects with Crimea, which Russia took in 2014. For Ukraine, there’s $350 Billion in frozen Russian money that could be directed to help rebuild the country. There’s a big question as to whether Zelensky remains in power.
President Trump is clearly not going to continue to lend to Ukraine on the US taxpayer dime like President Biden did. So, what’s a possible solution? Europe pays the bill for continued US military supplies. That would increase revenues for American companies and support American jobs. That sounds like a deal that Trump would seal. How would Europe pay for it? European leaders have discussed seizing Russian assets that are sitting in Europe. $200 Billion of the $350 Billion are frozen in Europe. Germany is already removing internal constraints. Europe needs its defense spending to get to 3-3.5% of GDP. It won’t happen fast. But this strategy would certainly expedite the process.
Tensions between Russia and Ukraine are generational. It goes back far beyond the Soviet Union. Russia has had forces in the Donbas region, in Eastern Ukraine along the Russian border, since it annexed Crimea. That was 2014. Economically, Russia and Ukraine are not global powers. However, both nations are large producers of commodities. Prices have been extremely volatile ever since the invasion. Higher prices initially certainly played a role in global inflation. Ukraine and Russia, account for a third of the World’s wheat exports, a fifth of its corn trade and nearly 80% of sunflower oil production. This region has long been referred to as the “Bread Basket”. The war is seriously disrupted global food supplies. Energy supplies have been disrupted too. Importantly, two-thirds of Russia’s exports and over half of its revenues have traditionally come from Oil & Gas.
The question on everyone’s minds was why is Trump so soft on Russia? It’s seemingly unheard-of, pre-emptively allowing concessions in advance of negotiations. The panel sees Trump having a sense of comradery with Putin. He views each other as strong but also victims. Trump has clearly not gotten over the Russian collusion allegations from his first term. It’s also clear that Trump admires power. Chief to Vladimir Putin’s strategy is to weaken American power and its alliances. The latter is certainly happening. The Trump administration claims it’s a negotiating tactic. The rest of the world doesn’t know what to think.
What’s also evident is President Trump has taken a much harder line on President Zelensky. It’s said Trump doesn’t like Zelensky. He is very resentful from what he referred to as the “beautiful call” with the Ukrainian President which led to his impeachment. There’s also the fact that Zelensky is considered a Courageous Wartime leader. Our sources suggest Trump wants to put him in his place. He doesn’t see Zelensky as a leader on the world stage. And Vladimir Putin doesn’t even recognize Zelensky as the leader of Ukraine. It’s being reported that Trump is increasingly frustrated by Russia’s escalating military efforts while a ceasefire is being discussed. The American President even threatened more sanctions on Russia if a ceasefire isn’t met. You can see how this is very complicated.
President Zelensky has been rushing back to diplomacy to keep America involved. This, after that Oval Office episode. A minerals deal, which would include access to Rare Earth materials that are fueling the Digital Age, would be very strategic in keeping American interests in Ukraine for years. Ukraine is mineral rich. Digging into Ukraine is a strategic solution.
The challenge is, these Rare Earth deposits are mostly in battleground territory. Accessing them would be a multi-year process; Like 15-20 years. Any agreement is realistically a commitment to long-term stability in Ukraine. A deal would be largely political and symbolic at first. But the long-term payback would likely be worth it for both sides. What’s made clear: Trump needs to win in any deal. Our sources say he’s likely to take it. A summit has been scheduled for next week in Saudi Arabia. We’ll learn much more then.
The Market seems to be getting tired of the inconsistent rhetoric and actions coming out of the White House. This is confusing and chaotic for Corporate America. Management is struggling to understand the rules of the road ahead because they keep changing. Instability and uncertainty are like a freezing agents on investment. This, on top of an already slowing economic environment and turmoil around the globe. The combination has sent stock prices lower because investors are increasingly unwilling to pay higher multiples with so much uncertainty. That’s what corrections do. After an extended period of rallies, the Market was due for a breather. Fear has returned, as measured by the Volatility Index (VIX). The VIX over 20 brings always brings wide swings. This week was proof-positive with 1%+ moves every day in both directions.
We took off our hedges this week, anticipating some reprieve from the constant red. We do expect this choppy price action to continue though until there’s more clarity ahead. The Market is trying to recalibrate and anticipate what lies ahead. Aren’t we all? Hang in there.
I’ll close with some inspiration as to why Admiral William McRaven is still positive about America. As a lifelong SEAL (Sea Air & Land), he became the longest active member. McRaven served 37 years. He was called the “Bull Frog”. Experience brings wisdom. Wise people understand that adversity is inevitable. What matters most is how you respond. That’s everything.
The United States Navy SEALs are the most elite warriors and service team in the world. They’re the Best of the Best. According to McRaven, what makes them elite is their dedication to each other and the cause. It’s an exclusive group with characteristics that everyone can understand and embrace, if they choose.
He went on to say, it’s not how smart you are or how strong you are. To be clear, that helps. But it’s the guys and gals that have the commitment with physical and mental discipline and toughness that become SEALs. They are willing to do what most won’t. SEALs are really, really good at looking out for others. They are trained to help the person to the left of them and the right of them. Honor is not just a word. It’s a lifestyle.
Working together: That’s how people advance in the world. It’s perhaps the most valuable skill in life. Think of others first. Practice helping others. Learn to ask for help when you need it. The World is too difficult and dangerous to think you can go it alone. The Navy SEALs go through a 24-week training that breaks most. Roughly 1 in 5 make it through. Trust within the group is meticulously cultivated. There’s no goal achievement without complete collaboration. You’ll often hear them say, the only easy day was yesterday. But they’re committed to a better tomorrow. That’s the message today for America. It’s a really good one.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
