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Streetwise Professor

November 21, 2014

Swatting the Gold Bugs

Filed under: Economics,Military,Politics,Russia — The Professor @ 8:41 pm

There are idiots. There are morons. Then there are gold bugs. It would be a full time job fighting their insanity, and doing so is like kicking a manure pile: it raises a stink and a cloud of flies. But sometimes it just has to be done.

Recently it was reported that Russia has been buying gold at a furious rate. Gold now represents almost 11 percent of the country’s reserves.

The gold bugs buzzed in glee. To them, it represented another nail in the coffin of the doomed dollar, and Putin was an economic genius making a decisive move in his war against the US. And of course, Zero Hedge peddled this line (by posting an article by a bug site):

Russia’s central bank Governor Elvira Nabiullina told the lower house of parliament about the significant Russian gold purchases. She is an economist, head of the Central Bank of Russia and was Vladimir Putin’s economic adviser between May 2012 to June 2013.

This announcement is unusual and to our knowledge has not happened before. The announcement by the Russian central bank governor was likely coordinated with Putin and the Kremlin and designed to signal how Russia views their gold reserves as a potential geopolitical and indeed financial and currency war weapon.

(The comments are priceless.)

Here’s another, from July:

Reserve Currencies In History – Dollar’s Demise Cometh

Central banks continue to be buyers of gold at these attractive price levels. As sanctions, economic war and currency wars intensify we expect Russian and Russian ally buying of gold reserves and selling of dollars to intensify. Aggressive buying of gold and particularly silver by Russia will likely lead to defaults on the COMEX gold and silver futures exchanges and potentially an international monetary crisis.

See important guide to Currency Wars here Currency Wars: Bye, Bye Petrodollar – Buy, Buy Gold

The truth, of course, is much different. This is actually another symptom of Russian economic desperation, rather than a diabolically brilliant blow against the dollar:

Russia’s central bank has been forced to step up its gold buying this year to absorb domestic production that Western sanctions are making it hard for miners to sell abroad, and to boost liquidity in its foreign reserves, sources said.

Most Russian gold mine production is sold to domestic commercial banks, such as Sberbank or VTB, which can then sell the metal on to either the central bank or to foreign banks.

This year, sources say, foreign banks are holding off buying Russian gold after Western powers implemented sanctions against the country over the Ukraine crisis.

The central bank has therefore had no choice but take domestic mine production that cannot be sold to foreign banks, two sources said, and has bought most of the metal that commercial banks had available.

. . . .

While the sanctions do not expressly prohibit them from buying gold, Western banks are cautious over any business done with their Russian counterparts, sources said.

What’s more, the Russian CB can pay for the domestically-produced gold with rubles. It’s the only way it can really bolster reserves without selling rubles for dollars or euros.

Thus, rather than a blow against sanctions, it is yet another action forced on the Russians by them.

It’s also interesting to note that gold hasn’t been a great investment for the Russians. Gold purchase data is available on a quarterly basis. Assuming that Russia purchased gold in a quarter at the average price during those three months, based on IMF data and the current spot price of gold, I estimate that Russia has lost well over $1 billion on the gold purchased since 2009.

Speaking of Russia’s reserves, this piece by Anders Aslund is well worth reading. When he breaks down the numbers, Russia’s vaunted reserves look much less impressive. In particular, Anders points out that the National Wealth Fund and the Reserve Fund are not under control of the Central Bank, and committed to supporting pensions and the federal budget. Moreover, sharks like Sechin are already laying claim to big pieces of it. Further, Russia’s large external corporate debt cannot be refinanced due to sanctions, and payment commitments over the near to medium term will rapidly draw down the remaining reserves, and the current account surplus will fall substantially due to lower oil prices.  

One last gold item. ISIS are gold bugs. They have announced the creation of a currency, based on circulating gold, silver, and copper coins. They really believe the gold bug stuff. They are aficionados of ZH and currency warrior James Rickards (whose mug pops up everywhere, including on mainstream media websites like WaPo, in advertisements for his buy gold, buy a bunker, for the end is nigh book).

I was particularly amused by this:

 The gold and silver purchases are strange enough, he said. “But what is striking is how elements of the organization have seized power transmission cables and other copper components,” Obeidi said. The fighters are burning the insulation off the cables and harvesting the copper [to fashion into coins], he said.

So they’ll have metallic coins but no electricity. Which may be OK with them, given how much they want to live a 7th century lifestyle.

This is great news. If a shambolic Iraqi military can’t destroy the Islamic State, economic mismanagement based on wacko gold bug theories might achieve that result instead. I suggest that the CIA carry out a mission to translate Rickards’ Currency Wars into Arabic, and clandestinely distribute it in ISIS-controlled lands. A very cheap, but very effective, form of subversion.

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November 20, 2014

How Do You Know That Zero Hedge is a Russian Information Operation? Here’s How

Filed under: History,Military,Politics,Russia — The Professor @ 9:41 pm

I have frequently written that Zero Hedge has the MO of a Soviet agitprop operation, that it reliably peddles Russian propaganda: my first post on this, almost exactly three years ago, noted the parallels between Zero Hedge and Russia Today.

A few days ago ZH ran a post that illustrates perfectly how it spews Russian propaganda that slanders the United States and other enemies of Russia, such as Ukraine: “Ukraine Admits Its Gold Is Gone: “There Is Almost No Gold Left In The Central Bank Vault.”

The lurid post highlights a statement by the head of Ukraine’s Central Bank, to the effect that almost all the gold in Ukraine’s official reserve is gone. It states that this is news, a stunning revelation, which confirms a story that ZH reported a few weeks after the triumph of Maidan: that soon after Yanukovych fled, the gold had been spirited out of the country in the dead of night by airplane. It closes by stating the the disappearance of the gold occurred at the time that US State Department official Victoria Nuland was in Kiev. The implication is obvious. The US stole it:

In any event, now that the disappearance of Ukraine’s gold has been confirmed, perhaps it is time to refresh the “unconfirmed” story that a little after the current Ukraine regime took power the bulk of Ukraine’s gold was taken to the United States.

Wow. Quite a tale.

And one that overlooks crucial details. Most importantly, the Ukrainian CB’s “admission” of that the vaults are empty is not news. At all. A mere few days after Yanukovych fled, Ukrainian Prime Minister Yatsenuk disclosed that the country’s gold reserves had been looted:

Speaking in parliament, Yatsenyuk said that the former government had left the country with $75bn of debts. “Over $20bn of gold reserve were embezzled. They took $37bn of loans that disappeared,” Yatsenyuk said. “Around $70bn was moved to offshore accounts from Ukraine’s financial system in the last three years,” he claimed. [Emphasis added.]

The US dispatched  FBI and Treasury investigators to assist Ukraine in an investigation.

Funny how ZH left out that history, which appeared in virtually every mainstream publication at the time, and made it seem for all the world like the Ukrainian Central Bank’s revelation hit the world like a thunderbolt, nine months after Yanukovych’s flight. That distortion of history makes it plain that the ZH story is not information, but an information operation.

Shortly after Yatsenuk disclosed the theft of the gold, stories started appearing on the web, first on a Russian website, claiming that the gold had been spirited out the country: including on ZH, which quoted the Russian web story. This obviously serves a Russian purpose: it presents a counter-narrative that blames the theft of the gold not on Yanukovych, or the Russians, but on the new Ukrainian government and the United States.

This is the classic Soviet/Russian agitprop MO that I noted 3 years ago. A story appears in an obscure publication, typically outside the US or Europe, where it has been planted by Soviet/Russian intelligence. It is then picked up by another, more widely read publication, in Europe or the West. Maybe it works its way through several additional media sources. It then gets disseminated more widely in the west, sometimes making it to prestige publications like the NYT.

In the era of the web, the information weapon needn’t make it that far. Getting into a widely-read web publication like Zero Hedge which is then linked by numerous other sources and tweeted widely ensures that the lie goes viral.

ZH is an important transmission belt moving the story from Russian propagandists/information warriors to western news consumers. It happens a lot. This is a particularly egregious example, but the transmission belt runs almost daily. ZH is as much a part of Putin’s information warfare as RT. If you follow closely enough, it’s as plain as the nose on your face.

So why does anyone take Zero Hedge seriously? And believe me, many do. Many people who should know better.

And what is the US’s counterstrategy? Marie Harf’s Twitter account. I say again: we are so screwed.

 

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November 14, 2014

Russians May Want to Consider Starting to Panic

Filed under: Commodities,Economics,Politics,Russia — The Professor @ 1:00 pm

At the outset of the Financial Crisis in September, 2008, Putin touted that Russia would be an “island of stability.” We know how that worked out. Russia experienced the most severe decline of any G-20 economy in large part due to a steep fall in the price of oil.

Today Putin said that Russia was preparing for a “catastrophic” fall in the oil price, but no worries!, everything is under control:

President Vladimir Putin said Russia’s economy, battered by sanctions and a collapsing currency, faces a potential “catastrophic” slump in oil prices.

Such a scenario is “entirely possible, and we admit it,” Putin told the state-run Tass news service before attending this weekend’s Group of 20 summit in Brisbane, Australia, according to a transcript e-mailed by the Kremlin today. Russia’s reserves, at more than $400 billion, would allow the country to weather such a turn of events, he said.

. . . .

With $421 billion in international reserves, Russia has a “big enough” buffer to meet all social commitments and maintain budgetary and economy stability, Putin said. The value of the stockpile last week extended its slide to the longest since 2008 as the monetary authority attempted to smooth the ruble’s decline.

“A country like ours finds the situation easier to cope with,” Putin said. “Why? Because we are producers of oil and gas and we handle our gold and currency reserves and government reserves sparingly.”

Read that again: ”A country like ours finds the situation easier to cope with. Why? Because we are producers of oil and gas.” The prices of which are highly sensitive to global economic conditions. And how does being a producer of oil and gas make a catastrophic decline in the price of oil “easier to cope with”? Really. I’d like to know.

As for being a producer of oil and gas, this is true. And that’s the problem: Russia is not a producer of much else. A nicely illustrative factoid: Apple’s market cap exceeds that of the entire Russian stock market (which is dominated by natural resource firms, of course).

Putin mentions meeting social commitments. What about military spending? What about the cost of foreign adventures? Which do you think is going to get whacked first if oil prices decline further, or even stay at current levels?

Given Putin’s track record as a prognosticator of economic crisis, and Russia’s economic resilience, and his interesting theoretical perspectives, his calming words should make Russians think about panicking. Like now.

 

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November 12, 2014

Is the Next Invasion Coming in Ukraine? It Looks That Way

Filed under: Military,Politics,Russia — The Professor @ 2:54 pm

It is clear that things are heating up in Ukraine. Nato commander Breedlove stated that Russian troops and armor have moved into the Donbas. Even the blind OSCE has noticed their presence. There are nine battalion combat groups on the border. The intensity of combat between “rebels” and the Ukrainians is increasing. Ukraine has put its troops on alert, telling them to expect an assault.

I have predicted that the conscription cycle and the need to open a land route to Crimea would lead Putin to launch an attack soon. When the ground is reliably frozen, but before winter fully sets in, would be the optimal time. That would be very soon.

I think an attack is likely, especially since the west (Obama, Merkel, etc.) continue to avert their eyes and pretend like nothing is going on. “Leaders” who will not utter the word “invasion” even though that is clearly what has transpired obviously have no stomach for confrontation, and Putin is betting on that continuing.

I think it will proceed as follows. The “rebels” will be committed to attacks throughout Donbas to fix and attrit the Ukrainian forces. They will be cannon fodder. Once the Ukrainians are fixed in place, and their units become combat ineffective due to losses, or at least lose significant numbers of personnel and equipment, the Russian regulars will slice in to deliver the coup de grâce.

Then the castrati in western capitals will express concern, and have meetings, and end up doing nothing.

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November 5, 2014

Finally: Letting Slip the Accountants of War. Target: Timchenko-and Gunvor.

Filed under: Commodities,Energy,Politics,Russia — The Professor @ 8:13 pm

At the time of the Russian invasion of Georgia in 2008, I advocated that the US government “cry havoc! and let slip the accountants of war.” I specifically identified Gunvor as one of the targets.

Well, more than six years and another invasion later, that’s exactly what’s happening. Federal prosecutors from the Eastern District of New York-the go to guys and gals for big time financial cases-are going after ex(?)-Gunvor owner Gennady Timchenko for potentially corrupt transactions between Gunvor and Rosneft:

U.S. prosecutors have launched a money-laundering investigation of a member of Vladimir Putin ’s inner circle, several people familiar with the efforts said, in a politically sensitive escalation of pressure on the Russian president’s cadre of billionaire supporters.

The U.S. Attorney’s Office for the Eastern District of New York, aided by the Justice Department, is investigating whether Gennady Timchenko transferred funds linked to allegedly corrupt deals in Russia through the U.S. financial system, the people said.

The prosecutors are probing transactions in which the Geneva-based commodities firm Mr. Timchenko founded, Gunvor Group, purchased oil from Russia’s OAO Rosneft and later sold it to third parties, one of the people familiar with the matter said. Investigators have in recent months requested information about the prices Gunvor charged, the person said.

A State Department cable released by Wikileaks suggests at least part of which prosecutors are looking at:

Cables from the U.S. Department of State in 2008, later released by WikiLeaks, relayed allegations that Gunvor is the mandatory trader for certain oil exports, and that the firm adds $1 to each barrel. “In a competitive market, by contrast, an oil trader might add anywhere from five to 20 cents ‘maximum’ to the price,” they said. One cable relayed allegations that Gunvor “is just a front for ’massive corruption.’ ”

Buying Russian oil at prices discounted from world prices and then selling it at world prices has been a ticket to riches in Russia since before the collapse of the USSR, and a proven way of getting money out of the country.

And it gets better! The prosecutors are specifically investigating whether any illicit funds went into Putin’s personal pocket, after a few trips through the laundry.

If indicted, Timchenko would likely be put on an Interpol Red Notice list, which would result in his arrest in most jurisdictions in the world. Even though he has been Red Noticed yet, the US’s FUD campaign has already put a major crimp in Gennady’s get along:

Mr. Timchenko told Russian news agency Itar-Tass in August that he’s afraid to travel to much of Europe.

“Alas, there are reasons to be seriously afraid of provocations from the U.S. special services,” he said in the interview. “Believe me, this isn’t speculation, but concrete information, whose details I cannot share with you yet for obvious reasons. But we are working on this issue.”

So I guess it’s not too big a deal that sanctions have grounded Timchenko’s Gulfstream G650. Not like he’s going anywhere.

The most amusing part of the article was the response of Putin’s Jay Carney, Dmitry Peskov:

Mr. Putin’s spokesman, Dmitry Peskov, said: “We’re not aware of any investigation, and we’re not following such things.”

Not following. Riiiggghhht.

Although the article suggests that Timchenko personally is the target of the probe, Gunvor is inextricably entangled in such an investigation. So speaking of probe, Gunvor can expect months if not years of the financial and legal equivalent of a proctological exam. Thus, the company’s recent frantic efforts to de-Russify may come to naught. The existential crisis that the firm apparently escaped in March and April is likely to re-appear, with a vengeance. Since this investigation strikes at the company directly, and since it involves actions and events that have occurred (or not), there is no ready expedient like severing ties with Timchenko that can defuse this threat. Its fate now largely hinges on what investigators turn up. And believe me, they will leave no stone unturned.

It will be interesting to see what the company’s bond will do tomorrow. Its yield spiked when Timchenko was sanctioned. I’d expect the same tomorrow. It will also be quite interesting to see what the banks do. The company put on a full court press with the banks (and on Capitol Hill too) to keep the loans flowing last time, and succeeded. But this investigation represents a threat that is orders of magnitude greater. Thoughts of BNP are no doubt going through many banker brains right now. The company’s fate therefore truly hangs in the balance.

Ironically, I’m in Atlanta for an Atlanta Fed conference to present a paper about the systemic risks posed (or not) by commodity trading firms. Are they too big to fail? Would the financial distress of a big commodity trading firm pose threats to the broader financial system? I think not, but I believe there are pretty good odds that I will soon be able to add a new case study to the paper.

 

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Election 2014: Emotionally Satisfying, But Practically Fraught

Filed under: Politics,Russia — The Professor @ 11:40 am

I of course take some satisfaction from last night’s election results, though I think their practical consequences will be limited, and perhaps fraught. This was an immense repudiation of Obama. The loss was a humiliation of the president, even compared to the 1994, 2006, and 2010 routs of the president’s party. Democrats were crushed at every level of government, from the Senate, to governorships, to the House, to state legislatures. Hell, the Republicans even won governor’s races in Maryland and Massachusetts. Races that had been rated as close (Georgia, Kansas, Kentucky) turned into absolute routs. (Pollsters rank a close second to Obama in The Biggest Loser results from last night.)

It will be amusing to watch Obamabots attempt to ‘splain things in the next few days. After he claimed that his policies were on the ballot-all of his policies-the Dems will no doubt turn themselves into Dervishes in spinning the results to show that they had nothing to do with The One. I was particularly amused that Jay Carney said that Democratic senate candidates would have done better if they had not run away from Obama. Oh, Jay. You still have the ability to say the most outlandish things with a straight face! In truth, if Gardiner or Braley had run as proud supporters of the Obama agenda and leadership, their margins of loss would have doubled.

Practically, however, I think the results will be fairly barren, and may in fact set the stage for a Constitutional crisis, or crises. Obama is still president, and can block any substantive legislation emerging from the solidly Republican Congress. More ominously, given Obama’s personality, ideological rigidity, and hatred of Republicans (and I do think he viscerally hates them), confrontations are inevitable. Obama will not take his whipping and emerge more conciliatory and willing to compromise. To the contrary, to someone of his narcissistic temperament, yesterday’s repudiation is an existential affront that he must confront. He will channel his inner Alinsky, and attempt to use every executive power to achieve results that he cannot implement through legislation. He will double down on the divisive rhetoric and policies that he has employed in the past couple of years. A Constitutional confrontation over immigration, or some other issue (climate?), could well result when Obama attempts to exert executive power unilaterally.

Perhaps most importantly, his obsession with completing a deal with Iran, which has warped virtually every aspect of American foreign policy (Syria most notably) lays the groundwork for confrontation as he will likely attempt to implement it without Congressional approval. The substantive ramifications of such a deal are also very frightening, because they could lead to an even greater crisis in the Middle East and an intensification of the Shia-Sunni/Arab-Persian conflict that is already the source of chaos and misery. It is beyond bizarre that a man who claims to strive for nuclear disarmament is pursuing, Ahab-like, a deal that would likely lead to the nuclearization of the most unstable and conflict-ridden part of the world.

Moreover, the major challenges that the nation faces are still primarily an executive responsibility, as they relate mainly to foreign policy. ISIS is still in Iraq and Syria. Ebola is still in Western Africa. The Mullahs are still in Tehran. Putin is still in Ukraine. And Obama is still in the White House. Given that reality, as emotionally satisfying as yesterday’s verdict is, and as much as it represents a verdict on Obama’s foreign policy failures specifically, it will not fundamentally affect the crises that beset us, and given Obama’s personality, any effect may be for the worse.

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November 1, 2014

Laying the Groundwork for the Next Phase of Putin’s Novorossiya Campaign: The Price of Pusillanimity

Filed under: History,Military,Politics,Russia — The Professor @ 12:04 pm

Ukraine held successful, and remarkably pro-Western, elections last Sunday. The result was a rebuke to Putin, and provided further proof of the adage that you catch more flies with sugar than with gall. Tomorrow, the rump/puppet statelets of Donetsk and Luhansk will hold Soviet-style sham elections, which the Kremlin will duly recognize in violation of the Minsk Protocol signed in September.

Ominously, there are numerous reports of an escalation in the intensity of combat throughout eastern Ukraine (the cease-fire being something of a joke, of course). Further, there are reports of movements of large quantities of new Russian equipment, including SAMs (e.g., S-300s) and MLRS systems considerably more advanced than the scattershot Grads that have been used indiscriminately. There are also indications that the fractious and thuggish rebels are being replaced at key points by Russian regulars.

Something is building here. The timing likely reflects the conscription cycle that led to the faux withdrawal some weeks ago that gave faux hope to those in the west who saw what they desperately wanted to see. Moreover, the passivity of the West, and the distraction of Obama by ISIS (not that he was ever really engaged with Ukraine anyways) give Putin every confidence that another strike would be met with indignant blasts of hot wind from the west, and little else. His prize of Crimea (My precious! My precious! to Gollum-Putin: it’s basically all he has to show for his Herculean labors this year)  is also barely supportable now without access to supplies from the mainland, but will be all but isolated when the slender thread of waterborne transport is frozen shut in a few weeks. Putin needs to open the land routes through the Ukrainian mainland. This requires taking Mariupol, and then continuing to advance west to Kherson.

Russia has markedly increased the intensity of its aerial aggression against Nato countries (including Turkey, which is interesting) and Japan. (Over the summer it carried out mock nuclear strikes on Denmark (!!!) , like those simulated against Sweden and Poland in previous years.) It has bullied Finnish research vessels. (For someone who fulminates about the expansion of Nato, Putin is its best recruiting sergeant.)  It recently tested two nuclear missiles, a Bulava SLBM (which is apparently finally over its serious teething problems) and a Topol ICBM. Putin’s recent rantings in Valdai included sort-of veiled nuclear threats and warnings that “the bear isn’t asking anyone for permission.”

These are all warnings to the west to stand back and not even think about interfering when Putin mounts the next phase of his Novorossiya campaign, likely in the next 10 days-two weeks. These are the wages of the west’s feckless dithering for the past 9 months. This is the price of pusillanimity.

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October 29, 2014

Did Putin Have the Hackers Insert Malware Popups Saying “Who’s Your Daddy?”

Filed under: Military,Politics,Russia — The Professor @ 6:54 pm

Although this has been rumored for weeks (due to the dogged reporting of Powerline), yesterday the White House admitted that hackers, likely Russian (I’m shocked! Shocked!), had compromised the (allegedly non-classified) computers of the Executive Office of the President.

Did Putin have the hackers insert malware that triggered a popup saying: “Who’s Your Daddy?”

But here’s the best part (and per usual, “best” means “worst”). We didn’t discover this ourselves. An “ally” informed us.

It would be so hilarious if the “ally” is Israel. (Germany would be a close second in hilarity.) It would also be so karmic.

But I guess this isn’t possible, because a confidential administration source said the information came from an ally, and we know what Obama, Kerry, etc. think of Israel, and “ally” isn’t the first word that trips off the tongue.

The hits just keep on coming, don’t they folks? But yes, by all means let’s hear some more lectures about how since “you didn’t build that” we need bigger government, delivered by the least competent administration ever.

 

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October 28, 2014

Gunvor Cutting Back in Russia: Jumping or Pushed?

Filed under: Commodities,Economics,Energy,Politics,Russia — The Professor @ 9:14 am

Gunvor announced plans to sell assets in Russia:

Oil trading house Gunvor is seeking to cut exposure to Russia by selling assets in the country which had long been one the main generators of its growth and profit before the United States imposed sanctions on its co-founder.

. . . .

Now the company, led by the veteran Swedish oil trader, is looking to rebalance its asset portfolio and divest a significant part of business in Russia to acquire new assets in Europe, the United States, Asia and South America.

“Since a significant portion of our investments are in Russia, over time Gunvor will be looking to sell selectively part of those assets. We do not expect this will have any impact on our existing trading activities in Russia,” the company said on Sunday.

I am somewhat amused by the statement that the company “expect this will have any impact on our existing trading activities in Russia,” because it is well known that it has been cutting back on these activities for some time.

Some obvious explanations include a genuine desire to rebalance its asset portfolio, a need for cash due to persistent suspicions about the company leading to constraints on its ability to access the credit markets, and a desire to put paid to those suspicions by cutting back exposure to Russia.

Knowing the way Russia works, I would advance another hypothesis for Gunvor’s actions. It has been told to sell out, because someone covets those assets, and because after Timchenko’s departure (and Putin’s being cashed out?) the company has lost its krysha. Russia is the country of “nice little port you have here. It’d be a shame if something happened to it. Or to you.” When you have something that somebody important wants, you’d better say da! and accept the price offered without complaint. Just ask Vladimir Yevtushenkov.

One of the assets that Gunvor is selling is its stake in the port in Novorossiisk. Wouldn’t you know who expressed an interest in acquiring a stake in the the port there? Yeah. Igor. And Rosneft has oil trading ambitions, and the Ust-Luga port on the Baltic could fit quite nicely into that.

So keep an eye on who buys. Given that this is hardly a peachy time to sell assets in Russia, given the country’s growing economic isolation and the fear of further sanctions, Gunvor’s announcement is quite telling. The buyer is likely to be Russian, and the set of possible buyers is quite limited, which means that Gunvor is not likely to get top dollar for these assets. If Rosneft or another national champion with close connections to Putin ends up being the buyer, my suspicions that Gunvor was pushed out of Russia will be largely confirmed.

Someone at Gunvor told the FT that Russia was “Gunvor’s heritage, not its future.” That’s definitely true. The only question is why. I strongly suspect this is not totally voluntary, and to the extent that it is, it reflects Gunvor’s judgment that the legal and economic and political risks of operating in Russia are no longer worth the candle.

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October 24, 2014

The Madness of Tsar Vlad

Filed under: History,Politics,Russia — The Professor @ 7:22 pm

Today Putin appeared at the Valdai Discussion Forum, and gave a performance that raises serious doubts about his sanity.

He ranted against the west, and the US in particular:

“Statements that Russia is trying to reinstate some sort of empire, that it is encroaching on the sovereignty of its neighbours, are groundless,” the former KGB spy declared in a speech delivered standing at a podium, without a smile, in a ski resort in mountains above the Black Sea city of Sochi.

Listing a series of conflicts in which he faulted U.S. actions, including Libya, Syria and Iraq, Putin asked whether Washington’s policies had strengthened peace and democracy.

“No,” he declared. “The unilateral diktat and the imposing of schemes (on others) have exactly the opposite effect.”

He denied the US is a democracy, and expressed his befuddlement at the electoral college. (Note to Vlad: It’s worked for 225 years.) All that was missing was a rant about hanging chads. He accused the US of organizing a coup in Ukraine and supporting Islamic terrorists. He made not-so-veiled nuclear threats. And on and on and on.

My favorite was his statement that Occupy Wall Street was “choked in its cradle.” He’s just pissed that his influence op fizzled. (I remind you that The News Agency Formerly Known as Russia Today, AKA Putin’s Agitprop Network, was constantly hyping Occupy. As was his pilot fish-or is it more than that?-Zero Hedge.)

It was truly a bizarre performance, chock full with paranoia and resentment.

It follows soon after an interview by former FSB head Nikolai Petrushev that blamed the CIA for everything under the sun, most notably events in Ukraine, which he said was a coup by “self-described Nazis”(!). Fellow ex-KGB mouth breather (but hey, he did sport some bitchin’ flairs back in the 70s) Sergei Ivanov has made similar statements lately.

Thus the question (which I have posed before): is Putin genuinely mad, or is he, pace Machiavelli, “simulating madness at the right time.” Is he pissing purple, or chewing the scenery in an attempt to intimidate a feckless west, who could use his insanity as a justification for leaving hime a wide berth?

Although I don’t discount embellishment, I think he is unhinged at his core.

First, he is under tremendous pressure. Crimea was a bloodless triumph, but the follow on in the rest of Ukraine has turned into a bloody, expensive, and largely unsuccessful mess. Instead of sweeping to an easy victory that would net him all of Novorossiya and subject Ukraine to his control, he has had to fight a nasty campaign that has netted him only the blasted remnants of an already shambolic rump piece of Sovokistan, also known as the Donbas. He has earned the intense enmity of the vast bulk of the Ukrainian population. At best, by freezing the conflict he can prevent Ukraine from developing into a “normal” (i.e., westernized) country (something that horrifies Putin), but he cannot incorporate it into a New Russian Empire, except at ruinous cost.

What’s more, Russia’s already creaking economy is under tremendous stress. Part of that stress is due to the inexorable working of sanctions, which have deprived his cherished national champions of access to western capital, and his energy companies access to needed technology. A bigger part of that stress is attributable to a global growth slowdown that has caused oil prices to fall by about 20 percent. These economic stresses deprive him of the resources needed to underwrite his ambitions. Moreover, they create tremendous divisions and anger within the elite, thereby complicating his task as the chief balancer. If they go on long enough, they will create another front: popular anger, or at least resentment and a piercing of the perception of universal popularity.

Second, Putin comes by his paranoia and anti-US resentment honestly. It has been on display for years, too long and too often to be an act. It comes naturally to a KGB man, and was reinforced by relentless indoctrination in the service: read the Patrushev interview to see a rather comprehensive statement of this world view.

Third, dictators and autocrats almost inevitably succumb to madness and paranoia. They are surrounded by sycophants whose obsequiousness feeds a sense of omnipotence and omniscience. Cults of personality feed this sense even more. They rule by intimidation and fear, and hence hear no dissenting voices. There is no institutional check on their power. All of this means that there is no pushback on crazy, so craziness metastasizes.

Such a man is unlikely to be appeased, and difficult to deter. Reducing the dangers he poses requires chipping away at his capabilities, and confronting him with power that he cannot overcome.

Recently an (incredibly campy) art exhibition in Moscow compared Putin to Hercules. (Given Hercules’ goatish omnisexuality and Putin’s homophobia, this is rather amusing.) But I think another ancient parallel is likely to be more apt: Sampson. Putin is unlikely to go quietly into that dark night, and if he is doomed he is likely to try to bring down everything around his ears. The problem is that backing off will just create a vacuum that he will fill, and just defer the inevitable reckoning. It is unlikely that conflict with him can be avoided, because he will seek it out. How do you appease the paranoid?

As bad as the Middle East is, the real existential threat in the world right now is Putin. (Heaven forfend, but I actually agree with George Soros.) He has 4,500 nukes, and he knows how to use them.

That he’s mad, or at the very least wants to be viewed as being mad, makes that the most daunting challenge the United States and the West face. Given the Lilliputian leaderships in the US and Europe, that is not a comforting thought.

 

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