More on Financial Warfare... Plus Some Corporate Warfare Closer to Home

Aggressive financial and corporate sanctions on Russia in retaliation for its unprovoked invasion of Ukraine continue... While it's clear that Western nations and other Ukraine allies want to avoid sending troops to the region, it's nevertheless an all-out war when it comes to business, finance, and investment. Yesterday, credit-card operators Visa (V) and Mastercard (MA) […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] More on Financial Warfare... Plus Some Corporate Warfare Closer to Home By Berna Barshay Aggressive financial and corporate sanctions on Russia in retaliation for its unprovoked invasion of Ukraine continue... While it's clear that Western nations and other Ukraine allies want to avoid sending troops to the region, it's nevertheless an all-out war when it comes to business, finance, and investment. Yesterday, credit-card operators Visa (V) and Mastercard (MA) cut off Russian banks from their networks. Also in recent days, tech giant Microsoft (MSFT) pulled Russian news outlets from its app store and streamer Netflix (NFLX) announced it wouldn't comply with Russian governmental demands that it includes Russian news stations on its streaming service. Elsewhere in media and tech, Apple (AAPL) has stopped selling its products in Russia... and studios Disney (DIS), Paramount (PARA), and Warner Brothers have decided to halt all movie releases in Russia. We're also seeing the Russian billionaire oligarchs that are closely aligned with Russian President Vladimir Putin but have so far evaded the sanctions list rush to dump Western assets that could draw scrutiny and get them put onto those lists. Earlier today, Roman Abramovich announced that he's selling the Chelsea Football Club (which should draw $4 billion) and using the proceeds to set up a foundation "for the benefit of all victims of the war in Ukraine." While that may sound very charitable, rumors abound that the billionaire is trying to quickly sell his 15-bedroom, £150 million mansion in London's Kensington Gardens as well as other U.K. properties in an effort to avoid having his assets frozen. While depriving the Russian people of the opportunity to watch The Batman on its opening weekend in a few days will hardly alter the course of geopolitics, all these small acts add up... There are reports of long lines at Russian banks as everyday citizens try to pull their money out of them, despite the government doubling interest rates to try and get people to leave their money in place. Regular Russian citizens are rightfully worried about their purchasing power rapidly eroding. Not only is the menu of things they can buy shrinking (no iPhone or Batman for you!), but their buying power for what is still available to them is crashing. While my Bloomberg tells me today that it will cost you about 105 rubles to buy a single U.S. dollar – which is 40% more than at the beginning of the year – a source in Moscow says it is more like 160 rubles to buy $1 on the street. In street terms, Russians have lost more than half their wealth in just three months! It's also important to remember that Russia's economy wasn't exactly in great shape to begin with. Without oil and gas money, the country's economy would be toast, as illustrated in this tweet by West Point professor and Russia expert Dr. Robert Person... Source: Twitter/@RTPerson3 Like many Western nations, Russia suffers from an aging population – and in Russia's case, it's an exceptionally unhealthy one, which puts an ever-increasing burden on the government to fund the health care of its retirees. This aging population is also combined with a declining workforce. And unlike in the U.S., the effect of a declining workforce in Russia hasn't been offset by major productivity gains... Source: Twitter/@RTPerson3 So with Russia, you already had a structurally challenged economy that was massively trailing its rival superpowers in GDP growth... Source: Twitter/@RTPerson3 Unsurprisingly, even before Putin decided to try to taunt the West into World War III, no one really wanted to invest in Russia... Source: Twitter/@RTPerson3 Simply put, Russia has not been able to compete effectively in the global economy. This leads Professor Person to the following conclusion... Source: Twitter/@RTPerson3 So in many ways, Russia's aggression against Ukraine can be explained by its lack of success in the world of money, beyond its good fortune of being located where it gets to pull fossilized plants out of the ground and turn that lucky resource into cash. --------------------------------------------------------------- Recommended Links: [Ukraine War Zone... Daily Market Corrections... Supply Chain Blockages... COVID Variants... The Fed... Inflation Fears... Economic Sanctions...]( These all have 25-year market crash expert Enrique Abeyta saying, "This is the only way to make money right now." The last time we saw anything close to this, he turned $585k into $800 million. [And right now, he's going to show you how he did it](. --------------------------------------------------------------- [Elon Musk's secret fuel?]( In addition to leading the charge for batteries, electric vehicles, and solar-powered homes, the Tesla founder is quietly working on a new type of fuel to power his SpaceX rockets. McKinsey, a leading consultancy, claims this technology will change our lives forever and create a $4 trillion industry. And one little-known company at the forefront of this industry has the potential to become "America's Next Big Monopoly." If you missed out investing in Tesla, Apple, Amazon, Google, or Netflix early on... this could be your second chance. [Get the details here](. --------------------------------------------------------------- Turning from geopolitics to the corporate battlefield... Toymakers Mattel (MAT) and Hasbro (HAS) are fierce competitors, and together control a commanding and dominant share of the toy market. Back in 2016, Mattel lost the license from Disney to make dolls and other toys based on its Princess lineup. CNBC wrote that losing that license to Hasbro "sparked a period of financial troubles at Mattel and active turnover in the C-suite." I think CNBC's characterization of the Princess license being the catalyst for Mattel's financial woes dramatically oversimplifies things... There were many factors dragging down Mattel – and the toy industry – in that period, including the early 2018 bankruptcy of Toys "R" Us, the general collapse of the independent toy retail industry, the resultant concentration of the brick-and-mortar toy business with big boxes Walmart (WMT) and Target (TGT), and the general shift of the business online. Age compression (a shorter window to sell toys to kids before they age out) and the ever-rising popularity of video games were also a big factor. Specific to Mattel, there were other problems... such as the implosion of its American Girl line as lower-priced competitors proliferated and missing the trend in collectible and surprise toys, like LOL Dolls, Hatchimals, and Shopkins. So while the absence of revenue from the Princesses is just one element in Mattel's dramatic decline that began in 2016, that contract loss looms large as the omen that set off a disastrous period for the company, which saw earnings per share ("EPS") plummet from $1.26 in 2015 to a loss of $0.30 in 2019. Over the same time period, MAT shares were cut in half... Adding insult to injury, over the same period, shares of rival Hasbro rose almost 60%. But Hasbro's relative success was more attributable to its early move into entertainment than from stealing the Princesses. Hasbro not only locked up key licenses at a critical time – like Star Wars ahead of the release of the final trilogy and Marvel during the wildly popular Avengers cycle – but it also shrewdly used new productions to boost its toy properties, as it did with the Transformers film series and the My Little Pony TV series on Netflix. But losing the Princesses remained a thorn in Mattel's side... and in late January, the company announced that it had again secured the license to makes the line, beginning in 2023. Financial terms weren't disclosed... and I would imagine that the company paid up. After a long period of Hasbro outperforming Mattel, things have reversed since the pandemic started... The pandemic was a windfall for toys, since parents desperate to keep young children occupied at home opened their wallets as opportunities for out-of-the-home entertainment and learning shut down. Even among adults, toys like crossword puzzles and board games saw a surge in popularity. This big tailwind for the industry paid off much more for Mattel, whose shares were already at 20-year lows heading into the pandemic... Industry strength led to big operating margin gains and an improved balance sheet at Mattel, and a surge in popularity for Barbie provided another boost. Hasbro's relative underperformance of late has attracted an activist... Last month, news broke that activist hedge fund Alta Fox Capital Management took a $325 million position in Hasbro and is urging the company to spin off its Wizards of the Coast and Digital Gaming division, which houses digital/traditional hybrid brands like Dungeons & Dragons and Magic: The Gathering. Alta Fox is also nominating five directors to the Hasbro board. The toy industry was definitely a pandemic winner... But I believe the industry growth rate from the last two years isn't sustainable... a "COVID hangover" is likely, like we have seen at companies from Zoom (ZM) to Netflix. Hasbro has issued conservative guidance reflecting this likely reality. Meanwhile, Mattel leadership has guided to continued, above-trend growth in a very robust demand environment. I don't think the pandemic fixed everything wrong with Mattel – the 19% gain in Barbie over the holidays doesn't seem like a sustainable trend long-term, and key franchises continue to put up negative results, like Hot Wheels (down 5%) and Fisher-Price (down 2%). I think management may be overpromising here. Alta Fox is correct that Wizards of the Coast is undervalued within Hasbro, and I appreciate management's more sober outlook when giving guidance. I'm not sure if Alta Fox will be successful in spurring a spin-off... but in what could be a decelerating demand environment, I much prefer HAS shares over MAT shares. I give Hasbro the edge on digital proficiency, management credibility, and hidden assets. In the mailbag, reader reactions to Monday's essay on the financial warfare being waged against Russia... Do you think we have entered an age where we can fight wars with money instead of people? Or is this just delaying the inevitable? Turning to the toy industry, do you think it may be set for a post-COVID hangover? Share your thoughts in an e-mail by clicking [here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna). "Hi Berna, The level of Putin's audacity and his background in clandestine activity make me wonder if we're watching a movie with a surprise ending that few see coming and many are unwittingly enabling. After reading your essay about the risks to the USD and global financial system, I recalled a tweet Enrique sent out last week regarding Russia's gold holdings. "Perhaps, in Putin's mind, if he 'takes' Ukraine, he wins that battle. If he doesn't take Ukraine, he likely set off the chain of events we're now witnessing, which could mark the beginning of the end of the existing financial order, which is another battle won. And if he sets off #2 but ultimately still ends up with #1, then he'll have made fools of us all. Further, who's going to buy BP's stake at a huge discount? Putin and his allies? China? "The West could be playing right into Russia and China's hands, with the latter (i) learning there's seemingly zero will to use military force to counter an invasion (Ukraine: Russia:: Taiwan: China), and (ii) knowing there's no way they can be subjected to the same sanctions. Europe will have no energy and the U.S. will have no goods. "I hope this all ends swiftly and with minimal incremental damage. I imagine most hoped for the same before WWII became what it did." – Lauren C. Berna comment: Lauren, these are great insights. There is no doubt that China is watching what happens here closely and devising a Taiwan strategy accordingly. Europe's need for energy and America's need for Chinese consumer products – as well as Russia's nuclear arsenal – mean there are no quick fixes here. "Hi Berna, I follow your dialogue and find you have a great lock on the retail world. You are definitely able to sense the nuances. "In the case of the latest big news – Russia invading Ukraine, and the SWIFT lock-out – I think that this will lead to a worldwide depression. There are many countries that have debt to collect from Russia – large inflows of monies – and now will not be able to collect. This will have a large impact upon the government's ability to carry many programs that are currently offered. "In the case of cryptocurrency, in particular Bitcoin, I think what we saw in the market speaks volumes about the world being ready to consider cryptocurrency as a valid and strong alternative money base. Gold spiked while Bitcoin plunged. Keep up the good work." – R B. Berna comment: R.B., these are also interesting insights, but I do hope you are wrong about a global depression! "These actions against Russia are a huge mistake. If the Swiss, for example, no longer value neutrality and privacy in their banking, then why bother banking in Switzerland? What else do they have? Cheese and chocolate? Furthermore, I suspect, though I can't prove it, that the unprecedented level of histrionics levied on Russia is meant as a demonstration to China. "Russia is not going to be affected by any of these sanctions. They've built a high level of self-sufficiency and have been engaged in import-substitution for a while. Look at how calm they are in the face of all of this. No, this is all a warning to China, a last, desperate attempt to prevent them from opening a second, and far more dangerous front. I believe Russia will take Ukraine by the end of March, that the sanctions will be ineffective, and that China, seeing how weak the Western response was to Russia, will invade Taiwan in early April." – OP Berna comment: OP, I have to disagree on Russia's economic self-sufficiency. I tried to cover some of that in today's essay, but I would direct you to Professor Person's full Twitter feed, as well as those of other experts, to understand the tenuous financial position of Russia. It sounds like the country is already trying to hold off a run on the banks... and it has only been two weeks since Russian financial assets began to plunge. That said, Russia has plenty of sticks in its arsenal beyond the nukes – Europe's lack of energy independence among them. This is all highly complex, but I think it's wrong to characterize the Russian economy as totally self-sufficient. Regards, Berna Barshay March 2, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](