When investors are the first casualties of war

The Ukraine crisis may yet produce the biggest war in Europe since 1945. Or it may produce some strange new hybrid of cyberattacks, “little green men” and maskirovka (military deception) that won’t quite match our preconceived notion of war. Or — though this now seems the lowest-probability scenario — President Vladimir Putin may turn out to be Russia’s answer to “The Grand Old Duke of York,” who (as well-educated children know) “had ten thousand men / He marched them up to the top of the hill / And he marched them down again.”
For regular investors, these are nail-biting times because wars,
unless they are very small and asymmetrical, tend to have big financial consequences. For speculators, by contrast, war scares are golden opportunities.
In normal times, markets ebb and flow on the latest economic statistics. During a war scare, by contrast, it’s political news that moves the markets. During the past week, for example, all kinds of prices have moved, sometimes by large amounts, in response to the mere utterances of the key actors in the geopolitical drama. The price of gold, the price of oil, the exchange rate of the ruble, the European and American stock markets, as well as a host of exchange-traded instruments linked to measures of volatility — all have gyrated as the world’s managers of money have adjusted their probabilities of war upward or downward.
This interplay between political events and financial markets was the central preoccupation of my early work as an historian. Despite my best efforts, I continue to feel that most people who write history — especially of the modern era, since the advent of bond and stock markets — underestimate the importance of the “cash nexus”: the crucial interface between power and money.
This is probably because professional historians rarely have the funds (or the inclination) to engage in speculation themselves. They also tend to study the emperors, the kings and queens, the presidents and prime ministers, rather than the bankers and brokers. Writing the histories of some of the great German-Jewish banking dynasties, the Rothschilds and the Warburgs, I learned to see history from a different vantage point.
The story of how the Rothschild brothers profited from early news of the outcome of the Battle of Waterloo is the stuff of legend, including the toxic legend of Nazi propaganda. The reality is that Napoleon’s defeat, just 100 days after his return from exile on the island of Elba, was not at all what Nathan Rothschild had anticipated. He and his four brothers had built their father’s business from a modest coin dealership in the Frankfurt ghetto to an international trading house by seizing the opportunities presented by two revolutions: the British Industrial Revolution and the French political one. Nathan began exporting Lancashire cloth to the continent, but soon found there was more money to be made supplying Britain’s war effort with gold.
By the time of Napoleon’s initial defeat in 1814, the Rothschild brothers had learned two crucial lessons.

—Bloomberg