By Chris at www.CapitalistExploits.at
Chairman Trump may well be a child in a man's body - erratic, lacking in finesse, as articulate as a gangsta rapper, contradictory, and missing the cognitive functions allowing one to think before acting. But.. But... he does seem smart enough to have thought a little about Russia. Thought alone is a welcome surprise from Washington.
The establishment for their part are fuming!
First their rice bowls are at risk, and to top it off they're now publicly mocked. To egomaniacs this is worse than acne to a prom queen. As I mentioned a couple weeks back the mockery has come thick and fast:
CNBC’s John Hardwood decided to conduct a Twitter poll to see who the American people trusted when it came to the DNC hacks. Did they believe Wikileaks, who deny Russian involvement, or do they believe the intelligence community who has blamed Russia despite ZERO hard evidence being shown to the public?
The results were shocking and it stunned the media elite!
The absurdity over Russia has turned into a social meme. Few buy the narrative and those that do increasingly find mainstream thinking to be questioned.
Instead of allowing ourselves to be caught in the back and forth about Russia let's try understand who's saying what and why. The implications for capital flows could be worthwhile.
Why Washington and the Establishment Need a Russian Enemy
Without a Russian threat the need for NATO is... well, jeez Louise, there isn't one. Hmmm.
After all, NATO doesn't need Eurofighters to deal with angry Algerian teenagers. They were built to do combat with Ivan. What if Ivan isn't the threat they need him to be?
Europe (and NATO) actually need weapons designed for a knife fight in a cubicle. Nuclear submarines seem like overkill for jihadists donning exploding underwear and yelling "Allahu Akbar" in a Paris subway. You sure as hell can't fight him with a Mig-29. The problem is, none of this works for the lobbying military contractors sucking at the teat of Washington.
"Scrap the 20 F-22 Raptor jets boys. We've got an order for... Oh, jeez... An order for... 45,000 stab vests??... No, that can't be right."
Without NATO Lockheed Martin may not build as many ugly and ludicrously expensive planes. Without a Russian enemy Halliburton don't provide "services". Rice bowls are at risk. It's about the money. It's always about the money.
Remember weapons of mass destruction disappearance in Iraq?
9/11 was used as a wonderful tool to stir the rubes into a bid to secure more oil. What Iraq had to do with a bunch of angry Saudis with box cutters they never told us.
Afghanistan... What was that about again? Why the never ending bloodshed and mayhem? Filling rice bowls.
Let me remind you that KBR, Inc. (NYSE:KBR), which was spun off from its parent - oilfield services provider Halliburton Co. (NYSE:HAL), was the no. 1 recipient of tax payer funding during the Iraq war. A cool $39.5 billion, according to this source. Remember this guy?
The appropriately named "Dick" Cheney. Rice bowls at risk, folks. Trump's tipping the bowls over. He'd better watch his back.
He's threatened to pull out of NATO, pull out of South Korea, even Okinawa, and instead he wants to build a wall on the Mexican border. Pray tell how the establishment are going to make billions from that?
This must be truly terrifying for them. How the hell do you frighten the rubes without a big bad foe? How do you keep the defence contracts in place and ensure the spigot is kept open on full throttle? Those homes in the Hamptons don't clean themselves, you know?
Then Trump goes and nominates Rex Tillerson (ex-Exxon Mobil CEO) as secretary of state. Rex has close ties with Putin (as he negotiated a deal with Russia to help develop Russian oil reserves) and doesn't seem at all angry with Russia.
Is Russia a threat to the United States?
Pleeez. It's a nuclear power so in that respect it's a threat to everyone but then so is the fat kid in Korea and he's a lot less mentally stable than Putin is. Russia is currently an economically depressed country that hasn't threatened the United States and won't. Russia isn't going to invade Europe as the establishment would have the rubes believe. Why would they, when all they have to do is bide their time a few years and then find a decent real estate agent to go buy it.
Is Russia hacking the US?
No more than every other countries spy agencies are constantly hacking each other. Snakes bite, dogs bark, and governments spy on and hack each other.
What now?
Well, unless the clowns manage to spark some conflict Russia stands to benefit from many angles.
- Better relations with the US, including perhaps an easing of or total lifting of sanctions
- Europe currently imposing sanctions will continue to fragment with member nations deciding their own fate and likely renegotiating trade deals and sanctions
They have already taken a big hit to their currency, allowing it to bear the brunt of the pain when oil collapsed. Something the Saudis never did.
What's it got going for it?
- A freely convertible currency
- One of the cheapest markets in the world at a P/E of 9.1, P/B of 1 and a CAPE of 5.9
- Commodity driven economy which can be good and bad (more on this in a moment)
It doesn't come without risks.
The markets is heavily tilted towards cheap state owned banks and energy companies so if you're just buying an index or ETF tracking the index, you're often making a bet on energy prices and the promises of the Russian government.
All that being said, I can certainly see capital shifting in a momentum driven trade into things "Russian".
Below is a list of Russia's to 10 exports:
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- 1. Gems, precious metals: US$7.4 billion (2.2% of total exports)
- 2. Machines, engines, pumps: $8.1 billion (2.4%)
- 3. Cereals: $5.5 billion (1.7%)
- 4. Aluminum: $6.9 billion (2.1%)
- 5. Wood: $6.2 billion (1.8%)
- 6. Fertilizers: $8.6 billion (2.6%)
- 7. Copper: $4.2 billion (1.2%)
- 8. Iron and steel: $14.9 billion (4.5%)
- 9. Oil: $168.7 billion (50.6%)
- 10. Inorganic chemicals: $3.7 billion (1.1%)
The stand out for me? Grains, or more specifically wheat.
Consider a return to an inflationary environment and then take a look at wheat.
If the world turns insular (as I suspect), then protectionism, interventionism, stupidism, and an increase in nationalism (see my post from earlier this week on what's likely in store for France) will have the effect of making entire industries less productive. Furthermore, what is more politically sensitive than energy and food?
Governments always impose export controls, making a bad situation worse.
Could something like La Niña combine with interventionism to send wheat prices from the lowest levels in over 30 years back over $1,000 a bushel?
Another thing to think about:
Guess who buys wheat from both the US and Russia?
China.
Guess who Trump is promising crippling tariffs against?
China.
Guess who China wants to buy their wheat from now?
Those pesky Ruskies.
Have a great week!
- Chris
"I took a speed-reading course and read War and Peace in twenty minutes. It involves Russia." — Woody Allen
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