W.G. Hill Books, Underground Knowledge, Offshore Banking and Investing
Page: Russian Economic Model

Russian Economic Model

Does the Russian Economic Model Have Something to Teach Us?

For global investors searching for long-term profit plays, the message is clear: Don’t spend a lot of time looking at Russia.

Russia’s Pravda, formerly the official organ of the Soviet Communist party, published a blistering attack on the United States last week. That would not seem so strange, except that the attack accused America of “descending into Marxism.”

Meanwhile, the Russian stock market has doubled since January and the price of oil – Russia’s principal export – has nearly reached $70 per barrel. Though it seems an extraordinary question to ask, we still have to ask it: Does the Russian economic model have something to teach us?

The writer of the Pravda article clearly enjoyed penning it. There were a lot of barbs about the United States, such as “the population was dumbed-down through a politicized and substandard education system based on pop culture.”

There also were some attacks on the United States’ policy toward Russia in the 1990s: “The initial testing grounds was conducted upon our Holy Russia and a bloody test it was.”

But then there is the claim that “Prime Minister [Vladimir] Putin warned [President] Obama and [former U.K. Prime Minister Tony] Blair not to follow Marxism, it only leads to disaster.”

Russia's Oil is Extension of Russian Power

Enjoyable though it is to imagine the Russians lecturing the Obama administration about sound economic management, in reality they have no grounds to do so. A few months ago it appeared that the Russian economic model would not make it through 2009, as the state spent the last of its oil revenue to prop up both the banking system and the dodgier politically-connected oligarchs.

A country that was wealthy when oil was $140 per barrel became deeply impoverished when oil prices dropped all the way down to the $30 range. Those of us who had been alarmed by Russia’s increasing geopolitical and economic assertiveness indulged in a little schadenfreude, feeling that it couldn’t happen to a nicer bunch of guys.

Now, the table has turned again. At $68.87 a barrel, the price of oil is far higher than the price assumptions on which the majority of Russia’s oilfield-investment calculations were based.

Russia has effectively seized the assets of the British oil company BP PLC (NYSE ADR: BP). Last week BP accepted the very unpleasant Mikhail Fridman as chairman of its joint venture TNK-BP, a sign that its attempt to control the investment into which it had put the majority of the capital was ended. In the long run, the forced expropriation of foreign investors will prevent the Russian oil sector from remaining truly competitive. But in the short run, the expropriated foreigners have found so much oil there that huge revenues are assured for at least a decade, provided the oil price remains reasonably high.

In other sectors, too, the free cash for those with political connections allows deals to be done. Opel, for example, General Motors Corp.’s (OTC: GMGMQ) European subsidiary, was sold not to the Italian company which had a strategic plan for it, nor to the Chinese company that could use it to enter the European market, but to Magma Group, a Canadian parts company controlled by Russian interests, with financing from the Russian state-controlled bank Sberbank Rossii OAO.

The result may not make much sense operationally, but it is another example of Russian interests controlling major strategic assets in Europe. Needless to say, the various gas and oil joint ventures undertaken by Gazprom OAO (OTC ADR: OGZPY) in Eastern Europe, the Mediterranean and North Africa are also extensions of Russian power.

Russia's System is Rigged Against the Outsider

The fact that Russia’s MICEX stock index is up 100% since early January (albeit still 40% below its December 2007 high) is not very relevant to the people who run Russia.

They appear to have two objectives: Using the capitalist system to make themselves and their colleagues very rich and projecting Russia’s power on the world stage – just as the former Soviet Union used to do.

To Prime Minister Putin, capitalism is an attractive discovery, because it works economically much better than Communism did, and thus allows Russia to regain more of its former power than would have been possible under the Soviet system.

In this sense, Putin and current Russian President Dmitri Medvedev have finally achieved the original goals of Mikhail Gorbachev’s reforms in the 1980s; the objective of those was certainly not to bring down the Soviet government or upset the system, but simply to get the economy working more efficiently towards the leadership’s objective of greater Soviet power. Minus the other ex-Soviet Republics, Russia has now achieved this objective – and it may not stay minus the other Republics for very long, if Russia’s rulers have their way.

Given the way the system is rigged against the outsider, Russia is not a particularly attractive place to invest. Clearly, there may from time to time be a good short-term bet that Russia’s rulers will overcome current difficulties. However, the world contains other good managers besides Putin, and some of those others have a genuine interest in shareholder value and determination to create more of it.

By all means, look for Russian companies in consumer sectors that are outside the grip of the oligarchs – but do not expect to do too well, because you may find your company has a new and very expensive sleeping partner. Probably the best vehicle is the Market Vectors Russia ETF (NYSE: RSX), which benefits from Russia’s still-low Price/Earnings Ratio of 7.2.

But remember this: Russia isn’t a great global growth market like China, India or Brazil. And without major changes, it never will be.


Home
BBBB
   Bye Bye Big Brother Black Book
   Bye Bye Big Brother CD ROM
   Bye Bye Big Brother Package
   Citizenship Residency Requirements
   Confidential Communication for PTs
   Paper PT An Important Concept
   What Is PT All About
PT
   The American Expatriation Guide
   Become an Honorary Diplomat
   Brazil and Paraguay Confidential
   Campione Confidential
   ESCAPE by Grandpa
   Instant Legal Residence Abroad
   The Invisible Investor
   Latvia Confidential
   The Monaco Report
   Panama Confidential
   Perpetual Traveler
   PT4 Grandpas Special Collection
   Portable Trades and Occupations
   The Second Passport Report
   Think Like a Tycoon
   WG Hill PT Collection
Bye Bye Big Brother
BBBB Free Chapter
Investing
   Basics of Investing Your Money
   Collectibles Worth Investing In
   Cryptocurrency Business Ideas
   Guide to Investing in Debt Funds
   Investing in Penny Stocks
   Investment in UK After Brexit
   Investment Options for Beginners
   Investment Trends to Watch
   Investor Protection for Expats
   Low Risk High Return Investments
   Non-Dom Reforms for British Expats
   Overseas Family Led Investments
   Price of Crude Oil and Stock Market
   Protecting Investments in Bankruptcy
Finances
   All About Commercial Lending
   Bankruptcy As A Solution
   Banks Don't Need Your Money
   Basics of Business Branding
   Blockchain Impact on Business
   Business Cloud Software
   Business Financing Sources
   Divorce and Finances Abroad
   Fund Your Small Business
   Hire Business Plan Consultant
   Learn About Finance Online
   Manage Business While Travelling
   Solve Cash Flow Problems
Forex
   Forex Trading Courses
   Automated Trading System
   Use Basic Tools for Trading
   Best Forex Books for Beginners
   Binary Options Straddle Trades
   Binary Options Strategies
   Blade Runner Trading Strategy
   The Camarilla Equation Formula
   Day Trading vs Swing Trading
   Elders Force Index Strategy
   Top Forex Trading Platforms
   The Gartley Pattern Chart
   Finding Good Forex Broker
   Forex Fundamental News
   Forex Market in Currencies
   Forex Markets Trading
   Forex Trading Account
   Forex Trading Beginner Tips
   Forex Trading Explained
   Forex Trading Worldwide
   International Currency Trading
   Most Profitable Forex Indicator
   Picking Right Forex Software
   Retracement Levels in Flats
   The 38.2 Retracement Level
   Stochastic Oscillator in Forex
   STP ECN Trading Model
   Support and Resistance Forex
   Safe Haven Currencies
   Successful Trader Traits
Offshore
   5 Benefits of Antigua Passport
   Costa Rica Offshore Corporation
   Dubai Offshore Banking
   Offshore Outsourcing Tips
   Stress Factors of Expatriates
Property
   The 10 New Bali Project
   Hottest Real Estate Markets
   Real Estate Investment Online
   Return on Property Investment
   Smart Real Estate Investments
   Technology and Real Estate
   Ways to Invest in Real Estate
Wine
   Business of Investing in Wines
   Fine Wine as Loan Collateral
   Investing in Wine in Australia
   Start Wine Trading Business
Expat
   BBBB Abridged Book
   The Gold Report
   Offshore Banking Guide
   Offshore Road to Riches
   PT2 The Practice
   VIP Divorce Kit
IWL
   The Invisible World
   Invisible Banking
   High Yield Investments
   High Yield Investments 2
   Future Wealth
   Financial Crisis
   The Offshore Investment Guide
Underground
   Underground Knowledge 1
   Underground Knowledge 2
   Underground Knowledge 3
   Underground Knowledge 4
   Scams and Fraud
Money
   Alan Greenspan's Housing Bubble
   America's Oversized Deficits
   April Job Losses the Lowest
   Bank of America Bonus Payments
   Bank Stress Test Results
   Banks Stress Tests Flawed
   Bank Stress Tests Questions
   Banks Financial Trickery
   Canadian Oil Companies
   Card Issuers Meet Obama
   China Detroit's Lifeline
   China Taiwan Investment Accords
   China's Yuan Carry Trade
   Ciena Corp Recommendation
   Credit Default Swaps
   Elliott Wave Disciple
   General Motors Savior
   How to Buy Banks
   India's Slow Growth
   Japan's Lost Decade
   Long-Short Investing Strategies
   Money Morning Bank Stress Test
   Oil Prices Could Jump
   Russia and China Energy Deals
   Russian Economic Model
   Small Caps Proven Profitability
   Solar Energy Comeback
   Sustained Economic Recovery
   World's Reserve Currency
Articles
   Online Transactions Survey Findings
   Millionaire Mindset Charateristics
   Real Estate Investing in Panama
   Strategies for Achieving Success
Seminars
   New Orleans 2015
   Casey Summit 2015
   Antigua Conference
   Recipes for Success
   Cancun Seminar
   Panama Seminar
Newsletter
Quotes
Updates
About
Contact
Links