The Sky's no Limit

Somehow the market heard us coming

Just as we were getting around to drafting a more bullish trading call on the Russian equities, the thundering herd came charging ‘round the corner, and T&B narrowly missed being trampled as they headed for the feeding trough. Happy times – apparently – are here again!

Thus, we have been compelled to cut short our philosophical ruminations in the interest of timeliness (that plus the fact that there are a couple of good parties this weekend, and we have to put this baby to bed before we can go anywhere with good conscience).

In brief, we are increasing our exposure to high-beta assets, in particular the Russian equity market, while beginning to take some profits in the fixed income space, and are increasing our shorts of Euros, Dollars (and possibly Yen) in favour of Asian and emerging market currencies.

We reiterate our China-buys-the-world theme, as well as our concerns with an impending sovereign debt crisis which will soon enough create much havoc in the West.

Meanwhile, Moscow shows signs of preparing to embark on another boom.
Judging from the traffic to the parties, that brief period of calm which followed upon the crisis appears to be ending. The construction cranes are again working, while the Maybachs and Rolls are again in evidence. Moscow is hoping with new galleries, and at its best is taking on a distinctly post-modern flavour – quite a change from the previous post-Soviet model.

Although many of the oligarchs had been pronounced dead, they have apparently found the secret of resurrection. The Hyatt is once again filled with foreign investors looking to put their idle funds to work.
Russian capitalism remains red in tooth and claw however the rate of post-crisis recovery of the financial sector is quite extraordinary.
Abandoned for dead a year ago, the banking sector is recovering smartly, with a major transfer of property underway as they seize all the distressed assets within their grasp.

Signs of the crisis are still in evidence – notably the salaries demanded by new employees have come back into some relationship with reality – however we see it as only a matter of time before it gets foamy again.

Enjoy the run!

Once again, T&B would remind our readers that they are welcome – indeed – are encouraged TO FORWARD T&B TO ANY INTERESTED PARTY. We write in order to be read.

Comments and criticism can be addressed to the author, Eric Kraus, krausmoscow@yahoo.com

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London Bridges

T&B is safely back in Moscow, dodging falling icicles and sociopathic drivers, after a brief foray into the City of London.
Our most recent publication summarizes our pontifications to our UK audience of hedge funds and macro-players – a view of the coming disruptions in the West, and the positioning of Russia – a veritable haven of stability and predictability in a world gone slightly mad.

Indeed, while we much fear a second wave of financial havoc crashing down on the West, as the rescue measures which prevented the world from collapsing into a depression have left unsustainable debt burdens almost everywhere. From our standpoint, the great main question is whether, if it comes, this second dip of the Great Recession would trigger a repeat of the recent Russian crisis. We suspect not – the main cause for the Russia crisis was the sudden withdrawal of Western credit from heavily overleveraged Russian firms. Sustainability is far better now – most of the debt has been repatriated, foreign hot money is mostly out, and companies have not yet had the opportunity to relever. The banking system is on a far firmer footing (as elsewhere, Russian banks are no longer in the business of lending money…) though the equities market remains heavily dependent upon global capital flows.

Fundamentally, with the macroeconomic data in the West becoming more “interesting” by the day, with Greece the first Euro-state to throw itself into the arms of the IMF and the CDS on an ever increasing number of American States are price in a substantial default risk, the Russian data remain boringly stable. The budget deficit estimates are predicated on $58 crude oil (currently at $82 and heading higher) and any new Russian borrowing will be more about establishing a yield curve than raising funds,  the politics have all the finger-biting intensity of a church picnic, and the last major wave of strikes was in 1917…

Indeed, Russia is having a good run of it this year.

To our great amusement, The Economist is angrily demanding how the Western countries can be talking so kindly to Russia? Essentially, they are outraged because they rightfully feel that Russia is not like us…Russia is not behaving like a good European – Russia is being….RUSSIAN! How dare they!

And for once, the Economist is right. The Western powers have indeed changed their tunes – their previous Russia policy was an unmitigated disaster, and after a severe deterioration in relations following the Anglo-American lead, the major EU states have belatedly come to the realization that they have problems enough without creating a serious rift across Europe.
French and German delegations now succeed each other almost daily in Moscow, and commercial relations are flourishing. The US also appears to have notions of its own about ‘resets’ – certainly the days when the Neocons were threatening Russia with “regime change” and Cheney wanted to bomb advancing Russian troop in Ossetia seem so quaintly antediluvian.

Does the reader remember how the Orange Revolution was to sweep through Moscow, bringing it back into the subservience the West so much enjoyed in the 1990s?

How the Russian people were about to rise up against a hated regime, bringing back the pro-Western liberals who worked such wonders in the 1990s?

How Khodorkovsky would lead his people into the promised land?

Or more latterly, the angry demands that Russia allow Georgia to reoccupy So. Ossetia and Abkhazia?

In fact, after devastating a fair swath of the Ukrainian economy, the Orange Revolution and the egregiously corrupt Timoshenko have been voted out – in favour of an openly pro-Russian president who is quickly doing his utmost to repair the damage done to Russo-Ukrainian relations by Yushchenko.

Meanwhile, the antics of Georgia’s psychopathic president are becoming increasingly bizarre – the country was recently panicked by a fake newscast claiming a wide-scale Russian invasion and occupation, Saakasvilli killed by the occupying army. Needless to say it was a hoax, apparently originating in the President’s office.

Meanwhile, on the Western front, the vital importance of Russia for numerous diplomatic questions has belatedly been recognized; today, Moscow’s notorious traffic ground to a halt as Mrs. Clinton graces us with a visit. We suspect that she will go home empty-handed save for some nested dolls. We continue to believe that Russia will do nothing to destabilize the current Iranian government as this would open the way for a US-backed energy corridor around Russia via Iran. To expect the Russian government to assist them in their projects seems a bit over-optimistic.

But all of this is for a subsequent issue – for now, we review our recent trading calls, issue a few more, discuss the coming debt crisis, and worry a bit more about the rise of China and the sorry fate of the West.

Happy studying Cantonese!

T&B

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