Streetwise Professor

May 20, 2014

Don’t Be a Sucker: Sell, Don’t Buy, Russian/Gazprom Hype

Filed under: China,Economics,Energy,Russia — The Professor @ 7:16 pm

I told you to ignore the hype (all of which originated from the Russian side) about an impending Russia-China gas deal. Despite being 98 percent done! Down to one digit! Putin left China with no deal to sell gas to China.

Again: don’t believe it until you see it.

There was the same old-same old blah, blah, blah to rationalize the failure:

According to Xinhua, the Chinese state news agency, after meeting Mr. Xi in Shanghai, Mr. Putin said, “I’m glad to be informed that the two sides have made significant progress in the price negotiation of the east route of the natural gas project.”

A joint statement said that Russian natural gas supplies would start flowing “as soon as possible,” a phrase used after many previous negotiations between Gazprom and the China National Petroleum Corporation, and an indication that the two sides could not close the gap on price in time for the two leaders to announce the deal at their meeting.

The linked NYT article quotes several people who are surprised at the outcome. I really need their contact information. I have some bridges to sell. These people are apparently afflicted with this time it’s different syndrome. But it never is.Yes, there are some differences now, but it’s really not that different.

The most telling thing (which I alluded to in yesterday’s post) is that all of the hype emanated from the Russian side. The Chinese were noticeably silent. Since it takes two to make a contract, this asymmetry was a major tip-off.

One wonders what the Russians hoped to gain by exaggerating the imminence and certainty of a deal.

Did they think that they would embarrass the Chinese into giving in? Why would they think that? That the Chinese would lose face if their guests left empty handed? As if the Chinese care. This is a commercial transaction, and the Chinese realize the Russians need the deal more than they do.  If anything, by trading them like obsequious hosts cringingly sensitive to world opinion, such a strategy would be more likely to tick off the Chinese and make them less likely to deal. If anything, the Chinese want to cultivate a reputation for being hard bargainers and actually expect to benefit from walking away.

Didn’t the Russians think that another failure would make them less likely to believed next time? Apparently not. But as the whole Ukraine episode demonstrates, they say outlandish things that are sure to be disproved with no apparent shame.

Actually, the most plausible explanation is that the Russians were pumping and dumping Gazprom stock. The price moved up as the market became convinced that a deal was impending, and then fell about 3 percent when the sure thing turned out to be not so sure . If Gazprom management and regime figures sold into the rally, they could have covered quite profitably on the selloff.

I say that only half in jest. Because otherwise I am at a loss to explain why the Russians would repeatedly over-hype the prospect for a China deal.

But I am also at a loss to understand how the stock would have rallied on the Russian pumping of the likelihood of a deal. This requires a lot of suckers to believe it.  After 10 years of this farce, you’d think people would wise up and heavily discount Russian assurances.  I guess there are a lot of suckers who want to believe. Charlie Brown lives.

Next time around don’t be a sucker. Sell rumors that Russians are peddling, and maybe-maybe-buy facts of an actual deal.

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  1. >> with no apparent shame

    KGB thugs. Shame. That’s a good one, need to remember it.

    Whether it’s pumping and dumping, or whatever other momentary gain this special-op had, the gain is real, the cost is not. That’s the level of economics even Putin can understand.

    Comment by Ivan — May 20, 2014 @ 11:45 pm

  2. Ahem

    Comment by Tim Newman — May 21, 2014 @ 12:30 am


    Comment by Anon — May 21, 2014 @ 6:09 am

  4. Not so fast, professor.

    Comment by Bypass — May 21, 2014 @ 8:03 am

  5. Never seen a $400 billion headline deal before. Of course Gazprom should pop. SWP, and comments on Reuters report,

    Comment by scott — May 21, 2014 @ 9:07 am

  6. Never seen a $400 billion headline deal before. Of course Gazprom should pop. SWP, and comments on Reuters report,

    Comment by scott — May 21, 2014 @ 9:07 am

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