Hedge Fund Manager's Notebook: Blood on the Streets - Buy Russia
1) Crude (USO) spiked $10 to $122 when it realized that 1% of the world’s production passes through a pipeline in Georgia where the Russian invasion shows no sign of ending soon. Tropical storm Fay also brought fears of a Gulf hurricane back to the surface. Panic buying spread across a wide range of commodities contracts, from rice to gold to natural gas.
2) The tiny island nation of Singapore, which has never won a medal in the Olympics, has offered to pay $735,000 to anyone who brings home the gold. Malaysia is offering $300,000, Greece $220,000, and the Philippines $200,000. The US pays a relatively chintzy $25,000 to its medal winners. NBC thought it died and went to heaven when it rained during the women’s volleyball gold medal final. Suddenly it became an Olympic wet T-shirt contest.
3) Weekly jobless claims moderated to 432,000, down 13,000. Just noise.
4) Last week the Treasury called Credit Suisse and asked them not to cut off short term credit lines to Lehman (LEH) to head off a run on the bank. The stock tanked down to $12.50, and the stock will soon be trading at a hat size. The Treasury doesn’t do this for companies that are in the pink of health. What do they know? When did they know it? What are they not telling us?
5) You only want to buy when there is blood in the streets, and Russia’s invasion of Georgia is presenting us with an opportunity to do so by the bucket load. Russia’s recent seizure of assets owned by BP (BP) and Royal Dutch Shell (RDS-B) has also sent a shiver down investors’ backs. But the rising Russian middle class story is still alive. The Market Vectors Russia ETF (RSX) is down 36% from its June high of $59. Lukoil (LUKOY), the country’s most independent oil producer, is now selling for five times earnings compared to seven times for ExxonMobile (XOM) and Chevron (CVX) and ten ties for Petrobras (PBR). Companies enjoying government political protection include Gazprom (OGZPY) and savings bank Sberbank (SBRBF). The best non energy play is wireless operator Vimpelcom (VIP). Mechel Steel Group (MTL) is down a gut wrenching 70% on fears of a tax investigation. If you really want to go out on a limb there is JSC Bank of Georgia (BGEO).
6) Rim (RIMM) launched its next generation Blackberry Bold in Canada today. The 3G smart phone designed for high end business users is thinner, faster, carries a two megapixel camera, and can use a wide range of third party financial and market tracking software. Sign me up. The phone will only be available through AT&T in the US.
Full disclosure: no long or short positions in any stocks mentioned.
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This article has 19 comments:
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Lisa
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291 Comments
Aug 21 04:06 PMseekingalpha.com/artic...
Thoughts?
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ozzy43
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59 Comments
Aug 21 04:57 PM-
Alex Filonov
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331 Comments
My Website
Aug 21 06:22 PM-
anvor
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14 Comments
Aug 21 07:06 PMIt will be a VERY slow process, but you'd never know who among oligarchs will be next. If you invest in Russia, try to invest in services, construction, food, perhaps utilities, etc., the sectors that do not depend on WHO owns the natural resources. Besides, they will be the ones on the upswing more than the commodities, anyway.
The good thing - the government there is stable and VERY popular with the electorate (in part for its attempts to sideline the power of the oligarchs). Condi Rice may say Russian gov-t is not as "democratic" as, say, Georgian (Medvedev/Putin never got less than 65% of the vote, Saakashvili in January - 53%) but a smart investor isn't spooked by China's Communist gov-t, right?
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cristian
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29 Comments
Aug 21 07:10 PMPutin is the kind of dinosaur, that has not yet found out that it is dead. Him and McCain, both the rotten fruits of the cold war, they know nothing else, but confrontation. Not that I like O'Bama any more.
Forget at your peril, that Putin's Potemkin village of an economy is nothing, without the cooperation of Europe, which is being strained.
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doorapan
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6 Comments
Aug 21 07:20 PM-
Alex Filonov
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331 Comments
My Website
Aug 21 09:00 PMWrong. Europe only buys 25% of gas in Russia. And oil can be bought everywhere. But Russia is nothing without Europe buying its gas and oil. It has almost no other export products.
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John Angstrom
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50 Comments
Aug 21 09:32 PM-
buyitcheap
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435 Comments
Aug 21 10:31 PM-
bbzz24
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245 Comments
Aug 22 01:07 AM-
doorapan
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6 Comments
Aug 22 03:16 AMOf course this is a typical example of mutual benefit and dependence - all I am saying that in the short run Europe is more vulnerable.
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doorapan
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6 Comments
Aug 22 03:17 AM-
fxtrader07
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618 Comments
Aug 22 04:44 AMSecond, and more important: you will be suprised how much govt intervention you will see over the coming years and decades in the supposedly law-governed U.S.A. Civil liberties already don't mean a damn to Washington. And finances, oil resources etc. will not be safe when push comes to shove in the usa - what it will in due time. And, by the way: there is hardly any country in the world violating international laws and treaties like the USA and invading any country at will - only to cry foul when others reserve the same r'rights' for themselves. Go figure.
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investor88
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732 Comments
Aug 22 05:57 AM-
darlowsenigm
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1 Comment
Aug 22 08:02 AM-
notsosmart
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1231 Comments
Aug 22 10:30 AM-
Kinabalu
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148 Comments
Aug 23 08:28 PMI think that refers to corporate blood - not human blood.
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khwender
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18 Comments
Aug 24 09:51 AM100 million in 40 years. We, the good old USA will be at 500 million. As for investing in Russia, if you like investing in a criminal enterprise (Putin and his friends own 50 billion dollars of Russian stocks) you are free to do so. I am married to Russian and have been to Russia 15 times. Outside of Moscow and St, Petersburg this country is in terrible shape.
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User 256461
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1 Comment
Sep 05 03:24 PM-Very little. The major default was in 1998, with the help of seven years' worth of yankee "advice" on restructuring their economy. After Putin came to power, the country paid back all debts ahead of schedule in 2003 and is now a net creditor.
"Russian population will be only
100 million in 40 years."
-Population projections indicate that the population will stabilize around 135 million within 5-10 years before starting to grow again.
"Europe only buys 25% of gas in Russia."
-No, you're wrong. Europe buys around 25% of oil from Rus and 40% of gas from Rus. Replacing both would be difficult, especially gas, because infrastructure doesn't exist. From what I hear, European customers (e.g. Germany) have good relationships with Russian suppliers. The only problems that crop up are in places where pro-American governments have been installed (Ukraine, Georgia, Poland).
-If you want to understand the mindset, you first need to understand that it's not business as usual. There's a long term goal over there of modernising and rebuilding the economy. That means that cash cow industries like the energy industry will be used to fund the whole process, preferably without foreign involvement (why would they want foreign companies sending profits out of the country if Russian companies can do the same projects and keep the profits within the country?). I agree with some posters that the mindset is a little strange - perhaps paranoid and oversensitive, and working with Russians can be a bizarre experience. The right approach is patience. The country has huge natural resources, a stable government, a highly educated population, and has made strong advances in IP rights, taxation reform, corporate law, etc. over the last twenty years. Even the CIA Factbook says so. I think much of the negative image in the Anglo-American world has to do biased media reporting, rather than actual events in Russia. I watch news channels from a dozen countries around the world and the only ones that inevitably portray Russia as evil, corrupt, repressive, etc. are CNN, Fox, and Sky. Don't let yourselves be brainwashed.