Christman: The Real Reason Russian Fighter Jets Flew Dangerously Close To USS Donald Cook

Takeaway: Expect more Russian "Top Gun" behavior in the months ahead.

Editor's Note: Below is a complimentary research note written by Hedgeye colleague and Potomac Research Group National Security analyst LTG Dan Christman USA Ret. In the note, Christman analyzes "what was largely overlooked" in the media's coverage of Russian fighter jets' "Tom Cruise-like antics" while recently flying "dangerously close" to a U.S. destroyer in the Baltic Sea.


Click below to watch the footage.


Russian fighter-jet antics over the last 10 days -- buzzing dangerously close to an Aegis-class US destroyer and barrel-rolling over an American high-tech reconnaissance aircraft -- begs the question, "Why?"


Ian Bremmer of the Eurasia Group wrote shortly after the events that, discounting the muscle flexing, the intent was principally intelligence gathering: the U.S. destroyer Donald Cook had recently received an upgrade to add the highly sophisticated "Aegis" phased-array radar suite, which has anti-ballistic missile as well as anti-air and anti-cruise missile capability. The Russians were hoping the destroyer would turn on at least part of its defensive radar package, to allow Russian electronic intercepts. That probably occurred, at least with some of the Cook's radars, given the flight profile of the Russian jets.


What was largely overlooked in the media's emphasis on the Tom Cruise-like antics of the Russia fighter jets, however, was the slow-flying Russian helicopter which loitered near the ship, undoubtedly taking high-resolution pictures of the Aegis weapon system for later intelligence evaluation


None of this is particularly new in terms of muscle flexing and intelligence gathering, "Soviet-style;" actions like these were very common through the '80's, despite the signing in 1972 of the U.S.-USSR "Incidents at Sea" agreement.   


In this case, Vladimir Putin's finger prints are obvious; the Russia leader has yet to meet a security cooperation agreement with the West that he likes. With his economy continuing to contract in 2016 as Russian banks close by the dozens, Putin has every incentive to provoke an incident with the U.S. It's to the credit of the Donald Cook's crew that they didn't take the bait. 


But there is more than intelligence gathering at play. The eastern reaches of the Baltic Sea and the Baltic states themselves, for Soviet-era apologists like Putin, are Russia's back yard. They have never accepted Baltic state independence, and the incorporation of the three Baltic countries into NATO's Article V guarantees grates especially. In this light, the "muscle flexing" that really matters is geo-strategic. 


For well over a year, robust Russian ground exercises, submarine activity, and aerial overflights in the Baltic region have alarmed NATO's military; SACEUR General Breedlove has been especially vocal in calling for a U.S. and NATO response. The Donald Cook's steaming by Kaliningrad is part of a long-delayed US reaction to the Russian year-long push in the north; the Russians last week told us what they thought of that.  


But there is an additional twist: NATO must decide shortly, in advance of its July summit in Warsaw, whether to follow a U.S. and Breedlove lead to plus-up its ground forces with heavy armor and then continuously rotate these into northern Poland and the Baltics. It's no surprise that opinion is sharply split within NATO on the wisdom of doing this; it's also no surprise that the Russian information campaign is working overtime to deepen these divisions. 


The Tom Cruise-like antics last week should hence also be viewed as part of this larger strategic game: a none-too-subtle reminder by Moscow to NATO, and to NATO members opposing a ground force plus-up especially, what could happen if force enhancements proceed; all this in a part of Europe where Russia insists on exercising strategic influence.


Bottom line: expect more Russian "Top Gun" behavior in the months ahead. And hope that the U.S. exercises leadership to maintain the NATO alliance unity that Putin is determined to undermine.

Cartoon of the Day: Earnings Jack-In-The-Box

Cartoon of the Day: Earnings Jack-In-The-Box - earnings cartoon 04.25.2016


"If the economic (GDP falling to 1%) and profit cycle (SP500 Earnings currently -8.1% year-over-year with 130/500 companies reporting) data wasn’t so bad, those begging for Dovish (Fed) Dollar Devaluation wouldn’t believe in buying commodities/stocks here either," Hedgeye CEO Keith McCullough wrote in today's Early Look.

CHART OF THE DAY: What Happens When The #BeliefSystem Breaks Down In US?

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.


"... Perversely, if the #BeliefSystem starts to break down here in the USA, Gold is going to be an intermediate-term loser in that. Those who are begging Yellen to devalue will have to cover US Dollar shorts and sell both their Oil and Gold futures contracts."


CHART OF THE DAY: What Happens When The #BeliefSystem Breaks Down In US? - 04.26.16 Chart


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An Uncomfortable Market Truth In Europe

Takeaway: Blind faith in the central planning edifice is beginning to crumble. Case in point ... the ECB.

An Uncomfortable Market Truth In Europe - Draghi Peter Pan cartoon 04.13.2016


Investors are slowly starting to acknowledge that the central planning #BeliefSystem has failed. Despite ECB head honcho Mario Draghi's best efforts, there's more evidence out of Europe's muddling economy this morning. 


Here's the latest data dump out of Europe:



No surprise ... it's been a rough year for European equities.


Here's a smattering of performance data across the Eurozone (1-year change):

  • EuroStoxx 50: -16.1%
  • UK, FTSE 100: -11.5%
  • France, CAC 40: -12.6%
  • Germany, DAX: -12.8%
  • Italy, FTSE MIB: -21.4%
  • Spain, IBEX: -20.6% 


An Uncomfortable Market Truth In Europe - europe stocks


Last week, Draghi did his best to instill confidence. European equities bounced. Today, it's back to what actually matters. The data.


Is the U.S. next?

McCullough: You’re ‘Crazy’ Buying Stocks Now

In this brief excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough explains why he’s not going to be the “crazy one” buying U.S. stocks at this point.

Reflation Reversal Risk Is Growing

Takeaway: Short interest in the S&P 500 is the lowest its been since mid-December.

Reflation Reversal Risk Is Growing - caution tape


Investor sentiment is one of the key indicators we track. 


Unsurprisingly, what happens over the course of the market cycle is that most investors are:


  1. Most bearish at the market lows
  2. Most bullish at the top


As Hedgeye Senior Macro analyst Darius Dale and CEO Keith McCullough discussed on The Macro Show this morning, that's exactly what we're witnessing right now in non-commercial S&P 500 futures and options positioning. As you can see in the chart below, short interest in the S&P 500 is the lowest its been since mid-December.


Remember what happened next?


Click to enlarge


 Keep your head up out there.

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.52%
  • SHORT SIGNALS 78.70%