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Russia-Ukraine war ‘going to be costly’ for Russia, NYU professor says

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NYU Professor of Politics Joshua Tucker and New Constructs CEO David Trainer join Yahoo Finance Live to discuss Russia invading Ukraine and the outlook for stocks and energy markets.

Video Transcript

AKIKO FUJITA: Let's bring in our first guest for the hour. We've got David Trainer, New Constructs CEO. We've also got Joshua Tucker, who's tracking the policy side of things for us, NYU professor of politics. Joshua, let's start with you on the developments that we have seen overnight. Russia moving in, in a pretty significant way here. We're talking about more than 10 regions getting hit by attacks. Do you get the sense that the US and NATO potentially miscalculated how quickly Vladimir Putin would move in?

JOSHUA TUCKER: No, I don't think so. I mean, I think what's actually been kind of stunning about these developments over the past week or two is how much the US government has been telegraphing what is going to happen and sharing intelligence widely. And I think that's done in order to try to blunt the impact of disinformation and blunt the impact of propaganda campaigns that are part and parcel of President Putin's strategy around warfare in the modern era.

BRIAN CHEUNG: I want to direct this question over to David. I mean, when it comes to just looking at the market right now, obviously, a big slide. We've seen the continued slide throughout the news headlines over the past few trading sessions. What do you think is the best strategy here?

DAVID TRAINER: I think the best strategy has been the best strategy for the last six months, and that's to make sure you understand what you own. If you're investing in profitless, high flying tech stocks, and you've seen the bottom fall out in the last six months, it's going to continue to fall out. We're in a regime where you need to understand the fundamentals. You need to make sure you're buying real businesses because now that we no longer have sort of an infinite supply of money coming from the Fed, we have to be discerning.

So make sure you own companies like some of the ones that are strong today, like an Intel or DR Horton, generating huge cash flows, excellent competitive position. But you need to be getting the heck out of things like Airbnb, DoorDash, and Robinhood because they never had real business models to begin with. That same theme around focusing on what's real, what's honest, what makes common sense, has been working the last six months and is going to really continue to work over the next six months.

AKIKO FUJITA: Joshua, we are expecting to hear from President Biden later this afternoon. Additional sanctions expected on the back of this latest invasion. The White House has said all options are on the table, including cutting Russia off from SWIFT, but also implementing export controls. How effective do you think that can be when an invasion is already underway?

JOSHUA TUCKER: It depends what you think Putin's goal here is in invading in the first place, right? If this was really about Russian security and about trying to push back NATO and deal with this longer term concern about is NATO encroaching on Russia, it seems like what's happening here is having the exact opposite effect. We'll learn a lot more about this in the coming days and especially the rest of the day today.

But it seems like Putin's actions in the last 24 hours, in the last week or so, have done nothing more than unifying NATO, right? We're seeing formerly pro-Russian leaning president of the Czech Republic, for example, coming out against this. We're seeing Germany and the United States finally on the same page on what's going to happen with sanctions. And I think that the idea here of showing that the world is completely unified is going to be a powerful force. And I think that's what we're going to see around these sanctions.

The problem is, though, that if Putin's goal here is not about weakening NATO, but it's all along been about trying to change the regime in Ukraine, then you raise the issue of without actual military troops on the ground, how much is going to prevent tanks that are already in motion, planes that are already-- well, I don't know-- missiles that are already flying from continuing on with what the goal is? But we don't know. At the moment, you know, this is said to be something about Eastern Ukraine. Whether that includes Kyiv and trying to change the regime is the open question right now.

AKIKO FUJITA: I mean, let's pick up on that point because we have seen Russian tanks moving in. And to your point, NATO may be unified, and yet Ukraine is not a member of NATO. Article V necessarily can't be invoked. I mean, what can NATO and the US really do, as Russia accelerates these attacks on Ukraine when Ukraine is not a member of NATO?

JOSHUA TUCKER: Right. Well, I mean, look, we can defend it-- you know, we could do whatever we wanted to do. It's what are we obligated to do by a treaty around NATO. I think-- you know, I think, again, the Biden administration and the West has been pretty clear in telegraphing that they are not going to get into a shooting war with Russian troops in Ukraine. I think that's never been on the table. And I think everyone's known that hasn't been on the table.

So the question becomes, how much pain can you inflict on Russia without introducing troops into Ukraine? And there are a lot of different ways this can be done. As you guys have been discussing previously before I came on, you know, inflicting financial pain is a huge question here. And you can think about inflicting financial pain in the short-term, and you can think about inflicting financial pain in the long-term.

In the long-term, denying access to things like semiconductors that are needed for high end computer systems is going to be problematic for Russia. And that's going to inflict pain. As a political scientist, though, we often think about the constituency that Putin has that's supporting him, right? This has been called by my colleague Bruce Bueno de Mesquite the "selectorate." And one of the things you're going to see with these sanctions is targeted sanctions at trying to inflict pain on those closest to Putin, right? And those who are surrounding him. Will that lead to him changing his mind? And this is always going to be the question when we're going in this regard.

But I do think that this is going to be costly. It's also going to be costly on the ground in terms of Russian general public opinion if there are Russian soldiers coming home in body bags. And that's why this propaganda war and this issue around propaganda becomes such an important aspect of the current situation. And in that regard, you know, by providing military support short of troops entering the country, but providing weapons, that's another way that the West can make this or the world can make this more painful for the Russians.

BRIAN CHEUNG: David, I want to direct this question back to you. I mean, you were hearing what Joshua was just saying. I mean, all signs point to further escalation from here. Now, on the market kind of viewpoint here, you mentioned that things were overvalued before what we got now, which is a correction, essentially. Do you feel like, though, there is still more bottom to go before you want to start to buy back in? Are you just kind of waiting on the sidelines here, or are you starting to dip in now?

DAVID TRAINER: You know, look, I think Joshua was making some good points. I think we're in a long-term sort of semi-war state, a new type of war. It's not going to be conventional ground war like we've seen in the past. And I think the same is true with investors in this market. We're no longer in a euphoric party, where there's an infinite supply of money. We're at war. And there's a limited amount of resources. And people need to compete for the best resources.

And that means when it comes to investing, you've got to make sure you're buying good stocks at right-- good companies at the right prices. And there's just no substitute for that. You know, is the market timers' Hall of Fame, you know, full of anyone? No, it's got nobody in it. So I'm not really big into market timing. I say you've got to stick to your knitting and make sure you focus on good companies.

And I think big picture here, right, Josh was right. How much pain could we inflict on Putin, but we also got to keep in mind, how much pain is he and Russia willing to take? And I think it's pretty clear with this latest move that Putin clearly favors, right, military power over financial stability. He's going in, and he's doing this in an almost barbaric kind of throwback to medieval times. I'd rather be a conqueror than just take care of my economy.

And I think he's doing that because he knows he's got-- China's got his back because China wants to do the same thing. And I think what we're going to see soon is, it's not going to just stop here with Russia. We're going to see China move on Taiwan. And it's going to further destabilize our markets because this sort of global economic system that we've been so proud of for so long is not as strong as we think. It's much more fragile.

There are going to be parts of the world with which we cannot do as much business, for example, and not selling semiconductors to Russia. And we might not be able to buy semiconductors from Asia. And so that's going to really change the landscape of business and worldwide economic activity. And I think it's going to be-- that's going to all happen in the face of rising inflation as we see supply crimps occur throughout the world based on these geopolitical changes.

And all that means at the end of the day that if you're investing based on what you read on Reddit, what you see on TV, or what you hear from your friends, you're probably going to continue to lose a lot of money. And it's time to get back to doing things the old-fashioned way, which is to do your homework, understand cash flows, and understand valuation. And there's no substitute-- more than ever, there's no substitute for diligence and research you can trust.

BRIAN CHEUNG: Yeah, I'm watching the Dow Jones again down over 500 points. But David Trainer, New Constructs CEO, and Joshua Tucker, NYU professor of politics, thanks so much for spending time this morning.