Even as Hitler sent his army through Austria and Czechoslovakia in 1938 and 1939, the Dow was on the upswing.
The similarities are obvious: both Putin and Hitler annexed neighboring territories on the basis of the ethnicity of their inhabitants, and both leaders used highly charged racial rhetoric to boost support for and benefit politically from those incursions. But how similar are Putin’s plans to Hitler’s in the 1930s, and how will the market and global economy react if Putin steps up the aggression in Eastern Europe?
Todd D. Mariano, director and senior policy analyst at Renaissance Macro Research, dove into the issue in a report to clients last week, and he argues that while there are strong similarities between Putin’s behavior now and Hitler’s actions back then, investors have less to worry about than they might first suspect.
Mariano argues that while Hitler’s annexation of neighboring regions was part of a drive for territorial expansion—one that he explicitly outlined in print a decade before he set out to realize it—Putin’s moves in recent months have been reactive in nature. Hitler’s imperial moves: the militarization of the Rhineland, the implementation of a plan to allow Germany to survive a wartime blockade, and the successive invasions of Czechoslovakia, Poland, and France, were taken with little regard to events going on in those countries. The events this year in the Ukraine, however, “were not of Putin’s design,” Mariano writes. Unlike Hitler, Putin merely reacted to unrest in Ukraine that, while certainly encouraged by Russia, was by no means solely a result of Russian machinations.
In other words, Putin and Hitler are similar in how they justify their actions, but Putin is much less ideologically driven and more opportunistic than Hitler was. “We don’t believe Putin shares or is capable of Hitler’s massive territorial ambitions,” writes Mariano. “Drawing parallels between the two minimizes the scale of what Nazi Germany inflicted on the world. Putin does not respect Ukraine’s sovereignty, but that is not the same as Hitler’s megalomania and it beggars the analogy.”
For investors, the question over whether to be spooked by Putin’s actions goes beyond any similarities between his plans and those of Hitler during the 1930s. After all, Putin needn’t launch World War III to rattle markets. But Mariano points out that even as Hitler sent his army through Austria and Czechoslovakia in 1938 and 1939, the Dow was in “upswing mode” as it recovered from the crash associated with the so-called “recession within a depression” of 1937:
Stocks fell upon Hitler’s invasion of France in 1940, but not to the same degree that they did during the 1937 recession. Indeed, a 2011 study by economists Massimo Guidolin and Eliana La Ferrara of 101 internal and international conflicts from 1971 through 2004 found that markets are most negatively affected by conflicts in the days and weeks leading up to the formal outbreak of war, because of the uncertainty associated with those periods. After conflict breaks out, however, markets on average perform better.
This comes as cold comfort for the citizens of Ukraine caught in the conflict. But there’s little reason to think of Putin as the next Hitler, and even less reason to think that markets, in the long run, will suffer from the Russian president’s opportunism.