Streetwise Professor

December 14, 2011

The Putin Market. Now That’s a Judo Move!

Filed under: Economics,Politics,Russia — The Professor @ 2:44 pm

Since the Russian Duma election, Russian markets have been swooning.  The Ruble is off about 3.6 percent.  The two major stock indices, RTS and MICEX, are down about 11 percent.

But they are stellar performers compared to companies tied directly to Putin. Including particularly his judo buddy Gennady Timchenko’s Novatek, and utilities that Putin is likely to slap around as part of a populist political campaign.  I wonder if Timchencko’s (and if reports are to be credited–Putin’s) truly malign oil trading company Gunvor is seeing counterparties get a little nervous and wanting to price political risk into some of their deals.  That would be perfectly understandable as there would be a lot of rocks turned over if Timchenko’s political krysha and possible partner were to fall from power.  Those dealing with Gunvor would no doubt have a lot of ‘splainin’ to do Lucy.  That would be uncomfortable at the very least, and perhaps quite costly, and these costs will affect their willingness to deal with Gunvor and the prices at which they are willing to trade.

The whole point of judo is to turn one’s opponent strength and energy against him.  Even a slight loss of balance puts Putin–and his judo buddies and other various elements benefitting from the nouveau kormlenie system–at risk of a very big fall.

Behold the natural state at work.  In which political connection is a company’s most important asset, and where even a modest tremor in the political landscape can trigger big sell-offs.

And yes, the US is becoming more of a natural state–witness GE.  Which is precisely why I write about Russia: it serves as a cautionary tale of the dystopian results of a natural state order that is personalized and politicized.  Extreme and pure cases are often the most revealing, and Putin’s Russia is about as pure an example of the personalized, de-institutionalized natural state as you can find in the modern world.

Which brings to mind other subjects.  One is the weird conjunction between Russia, as epitomized by RT, and the Paulian fringes who are very convinced that the US is already a corrupt natural state.  The other is the utter silence of Zero Hedge on what is going on in Russia.  ZH gives extensive play to the corruptocracy theme–if the US is involved.  It lionizes OWS.  It typically motivates this advocacy with some connection to market events.

The course of Russian markets over the last 10 days provides a perfect opportunity for Tyler Durden or WTF writes for ZH to fulminate about the perverse effects of the politicization of companies and markets, and to laud those protesting a corrupt system.  But nothing but crickets chirping.  Hell, ZH is so quiet on this you can hear one-legged crickets chirp.  That’s not surprising: just another data point.

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  1. Not taking the bait this time, BUT seriously your grudge against ZH plus your Nemtsov meeting plus your contemptable silence on Levin saying Obama requested that NDAA apply to U.S. citizens makes me wonder if you are a State Dept. plant. Take your own advice and Google ZeroHedge + Putin. You’ll find plenty of criticism of Russian corporatism there.

    Comment by Mr. X — December 14, 2011 @ 3:08 pm

  2. Here’s two links in the last two weeks found in five seconds of Googling:

    Don’t descend into self-parody SWP with one error after another. Even your zombie swarms would have trouble defending this shaky of a grasp of the facts.

    Maybe Sen. Levin just needs to come knock on your door and tell you he’s dragging all Tea Partyers off to Gitmo before you’ll actually believe the freakin’ intent of the law rather than quibble about the definition of is is in Section 1031.

    Commence Senor Equis bashing, drones. I care not.

    Comment by Mr. X — December 14, 2011 @ 3:11 pm

  3. India is a natural state as well. Justice system is probably even slower than Russia even for petty cases.

    Comment by Surya — December 14, 2011 @ 9:46 pm

  4. Absolutely, Surya. The License Raj and all that. China too.

    The ProfessorComment by The Professor — December 14, 2011 @ 9:52 pm

  5. Is *any* part of the world good apart from Texas and Gruzia?

    Comment by Sublime Oblivion — December 14, 2011 @ 10:23 pm

  6. Foster loyalty, shower them with concessions, and in gratitude they won’t let you go. He backed himself into a corner. Too bad.

    Comment by So? — December 14, 2011 @ 11:55 pm


    A paper presented ~ this time last year re Gunvor, Gazprom, etc., by Jonas Grätz, a doctoral student finishing up a Phd in poli sci at the University Frankfurt/M, and researcher at the German Institute for International and Security Affairs.

    V interesting stuff: “The research question examined sounds as follows: What impact does the specific mode of protection of ownership advantages in Russia have on the internationalization strategies of companies that are heavily relying on Russian resources? It will be argued that the specifics of the Russian system alter the protection of ownership advantages in a way that binds companies to the goals of the Russian political regime in their external operations. This system is vertically segmented. Actors with high status are supported in their internationalization with ownership advantages that can give them superiority over possible competitors. Actors possessing low status, in contrast, cannot flexibly adjust their advantages. Meanwhile, all actors relying heavily on Russian resources for their internationalization have to reinvest into specific projects in order to keep their advantages. Overall, this results in a high ability to penetrate foreign markets, while at the same time qualitatively limiting the internationalization of the Russian economy to forms that are not harmful to the current regime. The two companies that have been selected as cases are Gunvor Group, a Geneva-based, privately-owned international oil trader and Gazprom, the Russian majority state-owned oil and gas company, as well as gas transportation and export monopoly.”

    Comment by markets.aurelius — December 15, 2011 @ 4:40 am

  8. Oh, I forgot to mention why this is important: Gunvor is one of the largest traders of dated (physical) Brent; Gazprom indexes its gas price off Brent, as the SWP has noted in past posts. Here’s Platts write-up of the Brent market (which, btw, is a plug for its index):

    Here’s the punch line: “Dated Brent is increasingly being used to determine the value of sweet crude in the North Sea, West Africa, the Mediterranean, South and Latin America, Canada and North America, Central Asia and in Russia. More than 60% of the world’s internationally traded crude oil is priced against Dated Brent.

    “In the last two years, many producers and consumers in Australasia and Asia have in turn adopted Platts Dated Brent for a greater share of physical cargo pricing, as regional benchmarks fall into disrepair. The Dated Brent benchmark has thus taken on an increasingly significant role in the determination of oil prices in the entire Asia-Pacific region. This position paper examines and explains the reasons for this ongoing and accelerating trend.”

    Brent’s always been important … now, all the more so.

    Comment by markets.aurelius — December 15, 2011 @ 6:17 am

  9. The Dated Brent benchmark has thus taken on an increasingly significant role in the determination of oil prices in the entire Asia-Pacific region.

    Ha! Put that in your WTI pipe and smoke it, SWP. 😉

    Comment by Tim Newman — December 15, 2011 @ 6:46 am

  10. @Tim–Not a WTI booster. I just believe that WTI’s issues are short-to-medium term and fixable, and indeed in the process of being fixed. The disconnect between WTI and seaborne crudes will disappear as Seaway is reversed and other southbound pipeline capacity is built. Indeed, the cause of WTI’s immediate issues–booming supply to the Midcon–are a long term boon to the contract’s prospects.

    Brent is benefiting in the short run from WTI’s bottlenecks, but it faces more serious long term problems, notably a declining production base. FOE bought some time, but that time is running out. Platts is even mooting the possibility of adding Urals to the “Brent” marker.

    Taking a somewhat longer horizon than most traders do, I would prefer to have WTI’s problems than Brent’s.

    The ProfessorComment by The Professor — December 15, 2011 @ 9:52 am

  11. @ SWP: I agree re WTI short- to medium-term probs are fixable on the production sides and transport. Cushing’ll be the nexus of flows from Canada and the Dakotas and it’ll feed a resurgence in U.S. refining and refinded-product exports out of Harris County — home to UofH :).

    The far larger problem confronting WTI and Brent physical markets is the futures market regulatory failure exposed by MF Global’s sudden collapse. WTI physical markets (and physical markets indexing to WTI futures) are taking collateral damage from the CME’s and CFTC’s joint and several failures as SRO and federal regulator, respectively.

    The parade of MF c-level execs before the U.S. House and Senate highlights an even deeper and more far-reaching concern for commodity markets generally: Congress has shown itself to be populated with 1) those trying to further weaken the regulatory edifice; or 2) those incapable of understanding the gravity of the moment in which we find ourselves. Our markets are structurally impaired — the front line of defense in market functioning (the SRO) is completely inept (suffering from complete and total capture by the entities it is supposed to regulate), and the regulatory superstructure (the CFTC) has demonstrated repeatedly it does not comprehend what is going on in the markets it is supposed to be regulating. All we get is laugh-tracks from Bart Chilton, and way ex-post reporting on meetings between the chairman (G. Gensler) and his former boss (J. Corzine) concerning the latter’s lobbying of the former on 1.25.

    Comment by markets.aurelius — December 15, 2011 @ 11:03 am

  12. @markets.aurelius. Yes. We do have a steaming pile of problems, don’t we? Looking for Congress to fix them would be like what Johnson said about 2d marriages: a triumph of hope over experience.

    And yes, the Bart Chilton laugh track. It’s on a continuous loop. I think Gensler will soon learn a very painful lesson about karma.

    On another matter. That PhD thesis that you provided (re Gazprom, etc.) looks fascinating. Thanks.

    The ProfessorComment by The Professor — December 15, 2011 @ 12:37 pm

  13. Not a WTI booster.

    I know, I’m just being an arse. 🙂 I find your writings on the WTI issue very interesting, actually. In fact, I knew almost nothing about it before coming on here. So feel free to ignore my jibes.

    Comment by Tim Newman — December 15, 2011 @ 11:34 pm

  14. Once again, SUBLIME PSYCHOPATH is proved to be a lying jackass.

    Comment by La Russophobe — December 16, 2011 @ 3:44 am

  15. […] As Vladimir Putin’s job approval rating dropped to its lowest level all year, barely above a majority, RIA Novosti reported that Russia’s population is doing likewise, plummeting out of sight.  The stock market and the ruble are following suit. […]

    Pingback by Vladimir Putin, Sinking « Dying Russia — December 16, 2011 @ 4:05 am

  16. Capital flight now soaring out of control.

    Comment by La Russophobe — December 16, 2011 @ 7:47 am

  17. […] Protests of a different kind, and perhaps more meaningful – Streetwise Professor notes that while the Russian stock market overall has fallen by 11% since the election, stocks in companies clo…. […]

    Pingback by This Week in Russia Blogs #3 — December 16, 2011 @ 3:14 pm

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