March 06, 2014

On the Street in Ukraine, Cartels Falling, and Finding Your Edge on a Cleaner Wall Street

For the past four years two Ukrainian citizens, Eugene Smolanka and Alexey Karakulov, have been MarketPsych software engineers.  Both gentlemen are precise, driven, and have unparalleled expertise. 

On our company conference call on Wednesday February 26th, Eugene noted that big changes were underway in Kiev, where he lives.  Public transportation had been shut down and rivers of protesters were flowing into Maidan Square, a short walk from his apartment.   That same day Alexey checked in with us well after midnight.  He explained that he had been performing civic duties.  Clad in a helmet and wielding a club, he had been protecting protestors marching in his eastern Ukrainian city (Kharkiv).  Ukraine's President Viktor F. Yanukovych was voted out by parliament that night. 

Throughout the Ukrainian unrest we've been checking the world maps on our website to gauge the intensity of the strife.  According to our data, the Ukrainian government was clearly the most unstable in the world the week before the overthrow of President Yanukovych.



The global map above shows the intensity of Government Instability - one of the Thomson Reuters MarketPsych Indices - highlighted in red. 

Alexey noted that the emotional fuel for the protests wasn't anger at any one person or political party.  The protests were ultimately against unfairness - business cartels, political paralysis, and police corruption - and were stoked by a feeling that the people, all together, could make organic and lasting change.  Alexey summed up the mood of the uprising as, "No more unfairness."

After the ouster of Yanukovych, the police stepped back.   Per Eugene, "What amazed me a lot is how citizen themselves gathered to stop violence in Kyiv, because police was on side of the titushki [hired thugs]."   Eugene noted, "in every district of Kyiv people organized to patrol city and keep peace." 

Yanukovych's lavish house was entered by protestors, and Ukrainians were shocked to see video images of his personal zoo, greenhouses, golf course, and the wooden ship that served as his private restaurant.  They could see how lavishly the President had been living, presumably at the cost of the country's development.

Now Crimea is poised to secede and join Russia.  And given the installation of a new set of oligarchs (from the Ukrainian opposition), whether Ukraine's popular uprising will be sustained is an open question. 

On a global scale, the Ukrainian events are evidence of an accelerating paradigm shift.  Cartels, corrupt and rigid political systems, and ossified economic regulations are rapidly giving way to open, honest, and free association of people, ideas, and business -- but not without a fight.  As investors, we must understand where this trend is heading next so we will not be left behind.  Today's newsletter examines how investors can thrive as cartels fall, with an emphasis on finding your edge in increasingly open and efficient markets.