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Putin’s Threats Highlight the Dangers of a New, Riskier Nuclear Era

WASHINGTON — The old nuclear order, rooted in the Cold War’s unthinkable outcomes, was fraying before Russia invaded Ukraine. Now, it is giving way to a looming era of disorder unlike any since the beginning of the atomic age.

Russia’s regular reminders over the past three months of its nuclear might, even if largely bluster, were the latest evidence of how the potential threat has resurfaced in more overt and dangerous ways. They were enough to draw a pointed warning to Moscow on Tuesday from President Biden in what amounted to a tacit acknowledgment that the world had entered a period of heightened nuclear risks.

“We currently see no indication that Russia has intent to use nuclear weapons in Ukraine, though Russia’s occasional rhetoric to rattle the nuclear saber is itself dangerous and extremely irresponsible,” Mr. Biden wrote in a guest opinion essay in The New York Times. “Let me be clear: Any use of nuclear weapons in this conflict on any scale would be completely unacceptable to us as well as the rest of the world and would entail severe consequences.”

Those consequences, though, would almost certainly be nonnuclear, officials said — a sharp contrast to the kind of threats of nuclear escalation that Washington and Moscow pursued during the Cold War.

Such shifts extend well beyond Russia and include China’s moves to expand its arsenal, the collapse of any hope that North Korea will limit — much less abandon — its cache of nuclear warheads and the emergence of so-called threshold states, like Iran, which are tantalizingly close to being able to build a bomb.

During the Trump administration, the United States and Russia pulled out of arms treaties that had constrained their arsenals. Only one — New START, which limits both sides to 1,550 deployed strategic weapons — was left in place. Then, as the Ukraine war started in February, talks between Washington and Moscow on what might replace the agreement ended abruptly.

With the Biden administration stepping up the flow of conventional weapons to Ukraine and tensions with Russia high, a senior administration official conceded that “right now it’s almost impossible to imagine” how the talks might resume before the last treaty expires in early 2026.

Last summer, hundreds of new missile silos began appearing in the Chinese desert. The Pentagon declared that Beijing, which had long said it needed only a “minimum deterrent,” was moving to build an arsenal of “at least” 1,000 nuclear arms by 2030.

The commander of United States Strategic Command, the military unit that keeps the nuclear arsenal ready to launch, said last month that he was worried Beijing was learning lessons from Moscow’s threats over Ukraine and would apply them to Taiwan, which it similarly views as a breakaway state.

The Chinese are “watching the war in Ukraine closely and will likely use nuclear coercion to their advantage” in future conflicts, the commander, Adm. Charles A. Richard, told Congress. Beijing’s aim, he said, “is to achieve the military capability to reunify Taiwan by 2027, if not sooner.”

Other administration officials are more skeptical, noting that Russia’s saber rattling failed to deter the West from arming Ukraine — and that the lesson China may take away is that nuclear threats can backfire.

Others are learning their own lessons. North Korea, which President Donald J. Trump boasted he would disarm with one-on-one diplomacy, is building new weapons.

South Korea, which Mr. Biden visited last month, is once again openly debating whether to build a nuclear force to counter the North, a discussion reminiscent of the 1970s, when Washington forced the South to give up a covert bomb program.

In South Korea and beyond, Ukraine’s renunciation of its nuclear arsenal three decades ago is seen by some as a mistake that left it open to invasion.

Iran has rebuilt much of its nuclear infrastructure since President Donald J. Trump abandoned the 2015 nuclear agreements. Reports from the International Atomic Energy Agency suggest that Tehran can now produce the fuel for a nuclear weapon in weeks, though the warhead would take a year or more.

What is fast approaching, experts say, is a second nuclear age full of new dangers and uncertainties, less predictable than during the Cold War, with established restraints giving way to more naked threats to reach for such weapons — and a need for new strategies to keep the atomic peace.

Andrew F. Krepinevich Jr., a senior fellow at the Hudson Institute, argued recently in Foreign Affairs that the dawning era would feature “both a greater risk of a nuclear arms race and heightened incentives for states to resort to nuclear weapons in a crisis.”

President Vladimir V. Putin of Russia opened the Ukraine war with a declaration that he was putting his nuclear abilities on some kind of heightened alert — a clear message to Washington to back off. (There is no evidence that he moved any nuclear weapons or loosened the controls on their use, William J. Burns, the C.I.A. director, said recently.)

It was the latest expression of a Putin strategy to remind the world that even if Russia’s economy is about the size of Italy’s and its influence is eclipsed by China’s rise, its nuclear arsenal remains the largest.

In the years leading up to the Ukraine invasion, Mr. Putin regularly punctuated his speeches with nuclear propaganda videos, including one that showed a swarm of warheads descending on Florida. In March 2018, when he announced the development of a 78-foot-long, nuclear-armed torpedo meant to cross an ocean and blanket an area larger than California with radioactivity, he called it “amazing” and “really fantastic” — as an accompanying video showed it exploding in a gargantuan fireball.

A popular Sunday news show in Russia recently featured an animation that again showcased the giant torpedo, claiming the weapon could explode with a force of up to 100 megatons — more than 6,000 times as powerful as the American atomic bomb that destroyed Hiroshima — and turn Britain “into a radioactive desert.”

It was all a little heavy-handed, even for a bruised Mr. Putin. But inside the Pentagon and the National Security Council, his bluster has focused attention on another part of the Russian arsenal: tactical or “battlefield” weapons, relatively small arms that are not covered by any treaty and are easy to transport. Russia possesses a stockpile of 2,000 or so, 20 times more than NATO’s arsenals.

They are designed by the Russians to blur the distinction between conventional and nuclear weapons, which strategists fear makes their use more thinkable.

In war games and field exercises, Russian troops have simulated the transition from conventional to tactical nuclear weapons as an experiment in scaring off adversaries. In Russian military doctrine, this is called “escalate to de-escalate.”

A sign of the risks of this new age has been a series of urgent meetings in the administration to map out how Mr. Biden should respond if Russia conducts a nuclear detonation in Ukraine or around the Black Sea. Officials will not discuss the classified results of those tabletop exercises.

But in public testimony to Congress last month, Avril D. Haines, the director of national intelligence, said that officials believed Mr. Putin would reach for his arsenal only if “he perceives that he is losing the war in Ukraine, and that NATO in effect is either intervening or about to intervene.”

Intelligence officials say they think the chances are low, but that is higher than what anyone was projecting before the invasion.

“There are a lot of things that he would do in the context of escalation before he would get to nuclear weapons,” Ms. Haines said.

The White House, the Pentagon and the intelligence agencies are examining the implications of any potential Russian claim that it is conducting a nuclear test or the use by its forces of a relatively small, battlefield nuclear weapon to demonstrate its ability.

As Mr. Biden’s opinion article hinted, his advisers are quietly looking almost entirely at nonnuclear responses — most likely a combination of sanctions, diplomatic efforts and, if a military response is needed, conventional strikes — to any such demonstration of nuclear detonation.

The idea would be to “signal immediate de-escalation” followed by international condemnation, said one administration official who spoke on the condition of anonymity to provide insight into classified topics.

“If you respond in kind, you lose the moral high ground and the ability to harness a global coalition,” said Jon B. Wolfsthal, a nuclear expert who was on the National Security Council during the Obama administration.

Mr. Wolfsthal noted that in 2016, the Obama administration ran a war game in which participants agreed that a nonnuclear response to a Russian strike was the best option. Ms. Haines, then President Barack Obama’s deputy national security adviser, ran the simulation.

Scott D. Sagan, a specialist in nuclear strategy at Stanford University’s Center for International Security and Cooperation, called the development of a nonnuclear response an “extremely important” development.

“The response need not be a response in kind,” he said.

But details matter. A test by Russia over the ocean, where no one dies, might be one thing; one in a Ukrainian city that kills people might result in a different response.

Henry Kissinger noted in a recent interview with The Financial Times that “there’s almost no discussion internationally about what would happen if the weapons actually became used.” He added: “We are now living in a totally new era.”

For decades, Beijing was satisfied with having a few hundred nuclear weapons to assure that it could not be attacked — and that it would retain a “second strike” ability in case nuclear weapons were used against it.

When satellite images began showing new intercontinental ballistic missile silos being dug on the edge of the Gobi Desert last year, it set off a debate in the Pentagon and U.S. intelligence agencies about what China’s leader, Xi Jinping, intended, especially at a time when he appeared to be steering toward a confrontation over Taiwan.

The simplest theory is that if China is going to be a superpower, it needs a superpower-sized arsenal. But another is that Beijing recognizes that all the familiar theories of nuclear balance of power are eroding.

“China is heralding a paradigm shift to something much less stable,” Mr. Krepinevich wrote, “a tripolar nuclear system.”

Administration officials say that every time the subject is raised, their Chinese counterparts make clear they will not discuss entering arms control agreements. As a result, they are unclear about Mr. Xi’s intentions. For example, might China extend the protection of its nuclear arsenal over other states it is trying to lure into its orbit?

All this is the subject of a classified study that the Pentagon recently sent to Congress. But so far, none of it has been openly debated.

“Everybody’s scurrying for a nuclear umbrella and, if they can’t get that, thinking about getting their own weapons,” said David Albright, the president of the Institute for Science and International Security, a private group in Washington that tracks the spread of nuclear arms.

He called the Middle East prime territory for further atomic ambitions. As Iran has inched toward a bomb, Saudi Arabia and Turkey have talked publicly about the possibility of matching whatever Tehran does.

“They’re up to something,” Mr. Albright said of Saudi Arabia, “and they’re rich.”

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Hawkish Fed minutes weigh on riskier assets

A trader works on the floor of the New York Stock Exchange (NYSE) at the start of trading on Monday following Friday’s steep decline in global stocks over fears of the new omicron Covid variant on December 20, 2021 in New York City.

Spencer Platt | Getty Images

LONDON — Global markets turned lower on Thursday as persistent inflationary pressure and fears of a faster-than-expected rise in U.S. interest rates weighed on riskier assets.

Shares in Asia-Pacific fell sharply on Thursday, following in the footsteps of the U.S. overnight. The tech-heavy Nasdaq dropped more than 3% to notch its biggest one-day loss since February, while the Dow Jones Industrial Average registered its first decline of 2022.

European stocks, meanwhile, opened lower on Thursday, extending the global slump. The pan-European Stoxx 600 dropped around 1.4% during early morning deals, with major bourses and all sectors in negative territory.

Tech stocks led the losses, down around 3%, with German software company Nemetschek falling over 6%.

It comes at a time when market participants are already deeply concerned about the rapid global spread of the highly infectious omicron Covid variant, with several countries reporting record daily infections in the last 24 hours.

In Japan, the Nikkei 225 dipped roughly 2.9% as the dash to get out of tech stocks continued to hit high-profile companies. Japan’s Sony Group was last seen trading down 6.8%.

Australian stocks also saw heavy losses as the S&P/ASX 200 fell 2.7%. In mainland China, the Shanghai composite declined 0.25% while the Shenzhen component slipped 0.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan traded 1.3% lower.

‘Lingering concerns’ about the Fed

The losses come after minutes from the Federal Reserve’s key December meeting were released on Wednesday. The summary showed the central bank discussed reducing its balance sheet in another move to aggressively dial back its pandemic-era easy monetary policy.

The Fed’s plan to reduce the number of Treasurys and mortgage-backed securities it holds comes as it is already tapering its bond purchases and is set to hike interest rates after the taper concludes.

“We don’t have any more information about what the Fed is thinking than we did several weeks ago,” Brian Nick, chief investment strategist at Nuveen, told CNBC’s “Squawk Box Europe” on Thursday.

“I think at that time what we understood was the Fed on average expected to raise rates three times in 2022, I don’t think anything about that outlook has changed or they have gotten incrementally more hawkish since then. But I do think that maybe investors are, now that we are in the new year, focusing more on that,” Nick said.

“We didn’t see that much of a reaction after the meeting itself, we are seeing one now in terms of the steeper yield curve, a little bit of a stronger dollar but I think just lingering concerns about the Fed may be starting to move a little bit too quickly in shrinking its balance sheet and overtightening this year,” he added.

“If those concerns creep in, and right now I think they are concerns, not alarm, you could see valuations pressured across the board in the equity market which would tend to favor lower valued, more cheaply valued companies.”

The 10-year U.S. Treasury yield topped 1.7% following the release of the minutes. On Thursday, it was trading at 1.7317% around 3:35 a.m. ET. Yields move inversely to prices.

Elsewhere, oil prices lost ground on Thursday morning. International benchmark Brent crude futures traded at $80.32 a barrel, around 0.6% lower, while U.S. West Texas Intermediate futures stood at $77.38, down almost 0.65%.

Bitcoin and other cryptocurrencies also dropped on Thursday. Bitcoin was trading at just below $43,200 at 2:59 a.m. ET, down nearly 7% from the 24 hours previous, according to CoinDesk data. It fell as low as $42,503.88 in the last 24 hours, the lowest level in more than a month.

Other cryptocurrencies fell too. Ether dropped nearly 10% to $3,452.58

— CNBC’s Eustance Huang, Jeff Cox & Arjun Kharpal contributed to this report.

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Amid the GameStop-led frenzy, Jefferies says ‘plenty of air’ to come out of riskier assets. Another strategist says wait to buy the dip

Markets are buckled into the fighting chair as another day of the retail-led feeding frenzy on shorted stocks is about to come online.

In case you thought the trading mania was a limited battle between internet day traders and Wall Street hedge funds: videogame retailer GameStop was one of the most traded stocks by value in the U.S. on Wednesday. 

Amateur investors, many based on the Reddit group WallStreetBets, are jumping into heavily-shorted stocks, driving prices to astronomical levels and forcing hedge funds to sell bigger, safer bets to cover losses.

Selloff is creeping to other investments and spooking sentiment. Major indexes took a 2% to 3% ride down on Wednesday and are set to continue surfing.

A must-read: Tendies? Diamond hands? Your guide to the lingo on WallStreetBets, the Reddit forum fueling Gamestop’s wild rise

Our call of the day comes from the U.S. equity researchers at Jefferies, led by global equity strategist Sean Darby, with a bonus call from Sébastien Galy, a strategist at Nordea Asset Management.

The team at Jefferies is clear that the correction in share prices has little to do with fundamentals. Rather, what’s happening is a reflection of a “sentiment shift within some of the more overbought and speculative parts of the market.”

The group’s retail speculative index, measuring the deviation from trend of assets where value is hard to determine, is high at 4 standard deviations. “Hence, there is plenty of air to come out of the riskier financial assets,” the team said.

Darby’s team noted that the short-term worry is whether the “popping” of riskier parts of the market will create a domino effect, as mainstream equities are liquidated to stem losses.

Galy, of the Nordic asset manager Nordea, echoes Jefferies’ caution about a wider selloff. He also says it’s too early to buy the dip, because there’s more to come.

The big moves to cover shorts at a time of high leverage typically forces more deleveraging, Galy said. This is because the constraint on capital from the risk of losses on investments is ratcheting up.

“As a consequence, the cost of hedging downside risk has sharply increased,” Galy said. “This risk reduction could last a few days followed by a sharp liquidity driven rebound in U.S. and to a lesser extent European stocks.”

Galy said that even a dovish Federal Reserve meeting on Wednesday couldn’t turn around this market, which is another signal that it may last.

The buzz

Shares in GameStop
GME,
+134.84%
touched the $500 level in the premarket before pulling back. The stock was just $19 heading into 2021. Fashion brand Nakd
NAKD,
+252.31%
is another stock making a big leap in the premarket, up 130%.

In a Securities and Exchange Commission filing this morning, cinema-theater chain AMC
AMC,
+301.21%
revealed that holders of the company’s convertible bonds have chosen to convert the notes into stock, as shares in the company have rallied around 330% since Tuesday. 

Apple
AAPL,
-0.77%,
Facebook
FB,
-3.51%,
and Tesla
TSLA,
-2.14%
posted earnings after the close yesterday. Technology giant Apple topped $100 billion in quarterly revenue for the first time, crushing expectations, as social-media company Facebook also beat estimates, with sales soaring 156% from “other revenue” — like virtual-reality headsets and video-chat devices. Electric-car maker Tesla reported its sixth straight quarter of profit, but it was a miss on expectations.

But if you can peel your eyes away from the stock market, it is a big day on the economic front. Initial and continuing jobless claims are due at 8:30 a.m. EST, with around 875,000 people expected to have filed for unemployment last week. Gross domestic product figures for the fourth quarter of 2020 will come at the same time, before new home-sales figures for December are reported at 10 a.m.

After the Federal Open Market Committee decided to hold monetary policy steady yesterday, Fed Chair Jerome Powell gave dovish signals that the central bank wasn’t done restoring the COVID-19 pandemic-ravaged economy to health. “We have not won this yet,” he said.

The markets

It looks like another wild day on Wall Street. Yesterday’s tumult saw the Dow Jones Industrial Average
DJIA,
-2.05%
tumble more than 630 points, and stock market futures
YM00,
-0.07%

ES00,
-0.31%

NQ00,
-0.90%
are pointing down, set to continue the selloff. Asian markets
NIK,
-1.53%

HSI,
-2.55%

HSI,
-2.55%
fell across the board and European indexes
SXXP,
-0.76%

UKX,
-1.13%

DAX,
-0.86%

PX1,
-0.17%
are firmly in the red.

The chart

Our chart of the day, from Marshall Gittler at BDSwiss, shows how the S&P 500
SPX,
-2.57%
dropped by the most since October 2020, and the VIX index of expected volatility saw its biggest one-day rise since the COVID-19 pandemic hit in March 2020. 

The tweet

When the sharks root for the fish. Billionaire entrepreneur and investor Mark Cuban — of “Shark Tank” fame — is rooting for Reddit’s WallStreetBets traders.

Random reads

An Oklahoma lawmaker has proposed a ‘Bigfoot’ hunting season with a new bill.

Key West wants to ban people from feeding fat, feral, free-roaming chickens.

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