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You May Want to Take a Shower After Investing in Russia
If you wonder why I recommend a shower after investing in Russia, Bill Browder will give you the reasons at length on his YouTube video (click here for the link at http://www.youtube.com/watch?v=84MsRuC-1l8 ). Bill is the founder and CEO of Hermitage Capital Management, one of the firms that pioneered equity investment in the former Soviet Union in the nineties.
After a decade of pursing a campaign of activist investing that brought major changes in corporate governance in big companies like Gazprom and Sberbank, a mafia connected government struck back with a vengeance. It deported Browder in 2005, arrested his lawyer, and pressured him to provide false testimony against his boss, which he refused. A year later, the man died in prison from “natural causes.”
The Russian government then seized Browder’s operating companies, but fortunately for investors, not before he was able to sell off $4.5 billion in holdings and spirit the funds out of the country.
Browder, who is of Russian descent, and whose grandfather was chairman of the American Communist Party, says his case is but the tip of the iceberg. Major multinationals like Shell, BP, and Ikea have also been the victims of corruption and faced arbitrary seizure of assets by the well connected. This lawlessness is the reason why Russian companies perennially trade at single digit multiples. They are cheap on paper, but carry hidden, unquantifiable risks.
Browder has since refocused his interests, and is now managing $1.2 billion in other safer emerging markets, like Indonesia (IDX), Thailand (THD), and India (PIN).
Despite all of the above, mega hedge fund Traxis Partners founder, Barton Biggs, says there is still a case to make for investment in Russia. It is the classic emerging middle class story. Russians have no credit card debt, no home mortgages, and terrible housing, but the resource wealth to buy what they need. Barton sees Russia eventually becoming a basic, functioning European country, but will first have to engineer a growth spurt to get there. That is the play. The principal vehicle for most foreigners to get into the land of Lenin and Red Square is to buy the ETF, (RSX), which was up 300% in 2009.
No doubt that investing in Russia is a double edged sword. It offers enormous oil reserves and natural resources, with GDP flipping from a -7.9% rate in 2009 to an expected 3.2% this year. But you run the risk of a knock on the door in the middle of the night.
For more iconoclastic and out of consensus analysis, you can always visit me at www.madhedgefundtrader.com , where the conventional wisdom is mercilessly flailed and tortured daily, or listen to me on Hedge Fund Radio at http://www.madhedgefundtrader.biz/ .
Sure, you may deal with corruption in the US, but there are avenues to combat it (think journalism, law, protests, etc). In Russia, you land in jail for an undetermined time or death. Look over the last 10 years how many journalists have been killed: http://en.wikipedia.org/wiki/List_of_journalists_killed_in_Russia
There is no comparison between corruption in the US versus Russia. None. No, I'm serious, no comparison. Hey, don't start with me, there isn't one, so let it go.
Sure, you may deal with corruption in the US, but there are avenues to combat it (think journalism, law, protests, etc). In Russia, you land in jail for an undetermined time or death. Look over the last 10 years how many journalists have been killed: http://en.wikipedia.org/wiki/List_of_journalists_killed_in_Russia
There is no comparison between corruption in the US versus Russia. None. No, I'm serious, no comparison. Hey, don't start with me, there isn't one, so let it go.
and i mean, Safra and Russia, go WAAAY back too, so bear that in mind
sorry for multiple posts, didn't show up somehow
what is worse, what russians did to american investors, or what american consultants did to russians?
http://en.wikipedia.org/wiki/Andrei_Shleifer
you may want to take a shower every time you deal with harvard economists, especially larry summers.
ah yea, and good luck with the emerging market that is USA, where billions are stolen on like a daily basis.
You piss boys make me laugh with your astounding ignorance.
Pick a country and I guarantee you it is hollow and bankrupt.
Any country you pick that is "sovereign" is lying and you are the sucker.
Pump and dump baby.
what is a bigger scam, what the russians did to american investors, or what american consultants did to the russian people?
http://en.wikipedia.org/wiki/Andrei_Shleifer
you might take a shower every time you deal with harvard economists. especially summers.
http://en.wikipedia.org/wiki/Andrei_Shleifer
you might want to take a shower any time you get harvard economists involved in anything
Madhedgefundtrader/Leo Kolivakis:
For two informed analysts who consistently publish excellent commentary your staggering ignorance of Russia is perplexing, you obviously only read the Neo-Con propoganda published in the MSM. Goldmans Sachs Jim O'Neil has predicted Russia will be the best performing Stock Market for 2010 and Citi Recently upped its Russia 2010 growth forecast to 6.2%. The bank of Russia has a funding rate of ~ 9%(mortgages are 14%), contemplate that for a moment. Russia can trigger growth at its leisure by cutting the funding rate, a tool no longer posessed by the USA/UK with their 0% effective funds rates. Appropriation has never happened in the Post Soviet Era, Yukos was a criminal enterprise which evaded taxes on a colossal scale and assinated its opponents, therefore legal proceedings were initiated against the company to collect back taxes and its chief of security was convicted on several counts of murder. From Wikipedia(http://en.wikipedia.org/wiki/Yukos): "In July 2004, Yukos was charged with tax evasion, for an amount of over US$7 billion. The Russian government accused the company of misusing tax havens inside Russia in the 1990s so as to reduce its tax burden; havens were set up by most major oil producers in outlying areas of Russia which had been granted special tax status to assist in their economic development; such "onshore-offshore" were used to evade profit taxes, resulting in Yukos having an effective tax rate of 11%, vs a statutory rate of 30% at the time. Yukos claims its actions were legal at the time. Yukos subsidiaries also declared the oil they produced to be "oil-containing liquids." As we say in America money talks and Bullshit walks, to that point here is a shortlist of companies with major investments in Russia during the LAST year:
Nissan
Volkswagen
Siemens
Unilever
Nestle
Samsung
Caterpillar
John Deere
Hyundai
Renault
Fiat
Mcdonalds
Alstom
Toyota
Alenia Aeronautics
Proctor and Gamble
International paper
I am not ignorant of Russia and do not believe in Hollywood movies which portray Russia as a basket case where the Russian mob rules all businesses with brute force and intimidation. But Russia has a lot further to go before it becomes a true economic superpower. It's fortunes are still too closely tied to oil and it needs to diversify its economy. Hopefully this will take place over the next few years.
The same may be said for doing business in the US. I don't think Russia is any more corrupt than the US is. In fact, I think the US has exported that business modell all around the world. Obviously, others are learning fast.
In December, Time Magazine had an article featuring Bill Browder and the death of Russian lawyer Sergei Magnitsky:
The Danger of Doing Business in Russia
I know Bill Browder, invested with Hermitage and he's a brilliant man who is well plugged with what is going on in Russia. The sad part is that Russia has tremendous potential and one of the most educated workforces in the world. They have bright people in all fields but this "Russian mafia culture" (and the worst thugs are in the Kremlin) is going to kill them.
I personally want Russia to be an economic superpower, but they have to address this issue of cronyism and pervasive corruption. It's simply killing them. One of my uncles in Greece wanted to do business in Moscow. When he got there, some supplier owed him money. His Moscow contact told him "no problem, we will pay him a visit". They got to the office, his contact pulls out a gun and asks for the money from the supplier. My uncle hightailed it out of Moscow and never went back to do business there.
Then again, read my latest on corruption at US public pension funds. The "pension mafia" has been getting away with murder here for years and nobody bothered paying attention, until now.
RSX ... looks like (and correlated to) SPY on steriods. Can it weather a grand mal seizure in SPY?