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Market based approach to Russia

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Let's examine what happened from the beginning.  An extreme right wing group, with US and NATO support (according to released internal transcripts), overthrew the legitimate Ukrainian government (illegally) via violent coup.  The fact that this group had western support is not important really, but should be noted.  So according to 'international law' - this 'country' is NOT Ukraine.  Ukraine cease to exist when this happened.  The new 'government' - not popularly elected, seized control by force.  If anything we could call this country (still yet to be defined) the "New Ukraine" - of course if the current 'government' suggested this it would diminish their power; it serves them to mislead the world (those who are uninformed) that this is in fact the Ukraine, the same country that existed before.  Once the legal process breaks down, there's no going back.  

Now, the smoking gun:

 

Why is this important?

When Russia went into Crimea, they claimed that they were protecting Russian citizens (who are the overwhelming majority there), which at the time sounded as an excuse for 'annexation' of Crimea (although Crimea was always part of Russia and mostly Russians are living there).  Is it possible that Russian intelligence received such real threats to Russians in Crimea?  Also to note the vehement anti-Russian stance of Western Ukrainians, at least those in power.  

RT commentators saying this recording is right out of "Dr. Strangelove" - only problem, Ukraine doesn't have nuclear weapons.  Is she referring to her western friends?  If they hate Russians so much, why not leave Crimea to them?

Where US interest lies

The US has few economic or political ties to Ukraine, other than the NATO agenda to expand further into Europe and Eurasia (Grand Chessboard).  But the US has very strong economic ties with Russia.  Russia is a huge consumer of USD, invests in the US, and has provided transportation and other logistic services to US forces in Afghanistan.  Not to mention US corporations now doing business in Russia:

U.S. companies have also made sizable wagers in Russia. In 2010, PepsiCo agreed to buy Russian dairy and juice manufacturer Wimm-Bill-Dann Foods for over $5 billion, or about 16 times earnings before interest, taxes, depreciation and amoritization. The deal was seen as a way to boost the company's revenue growth, which had slowed as PepsiCo's mainstay U.S. market matured.

..

Today, Russia accounts for about 7 percent of PepsiCo's total revenue. PepsiCo declined to comment.

Ford has two plants in Russia, as does General Motors. Meanwhile,Renault/Nissan and Hyundai also have large operations in Russia.

Russians have also been gobbling up US real estate at an increasing pace, even financing new developments:

Russian Deputy Economy Minister Andrei Klepach recently said that he expects Russians to invest $80 billion outside of Russia over the next few months, up from the $65 billion that he predicted originally.

Until now, investment in the U.S. only accounted for a small fraction of that number. But that may be changing. Mermelstein expects Russian real estate investment in the U.S., both commercial and residential, to double from its current share of 5 percent of Russian investment abroad to 10 percent in 2012.

Not to mention other sectors, such as the Steel industry

Russian steelmaker OAO Severstal yesterday said it is buying a Western Pennsylvania coal company for $1.3 billion in cash, adding to the surge of Russian money into the United States.

Russia holds $136 Billion of US Government Debt.  Ukraine on the other hand, holds so little they are categorized under 'other' (according to data from the US Treasury).

What happened to 'the customer is always right?'

Russia is certainly not the largest customer of the US.  But they are a significant one.  And with US companies in Russia, trade has been two way.

Part of the motivation of dismantling the Soviet Union was to create a capitalist 'open market' system, that the US could do business with Russia.  They have done that.  Their economy has grown, and they've learned from the American system, adopting many US-led economic practices.  They have even replicated the 'open markets' model creating a commodity and derivatives exchange:

In February 2011 JSC “Saint-Petersburg exchange” and JSC “RTS Stock Exchange” carried out a joint project on organization of trading of commodities futures. In this project organizer of trading is JSC “Saint-Petersburg exchange”, clearing organization is CJSC “CC RTS”, settlement organization is “Settlement Chamber RTS”. Trading is carried out on the basis of trade system and risk-management system of FORTS derivatives market. It ensures the principle of single money position in all markets for the participants of trading.

Russia is depicted in the media as a wasteland.  Moscow has built a downtown filled with skyscrapers comparable to many international business districts.  A growing middle and upper class in Russia puts in on par if not more advanced than Western economies:

Stable gross domestic product growth, declining inflation and a record-low unemployment rate are pointing to positive consumer purchasing power in Russia. The Russian middle class, which stands at 104 million strong, is fueling that power. This segment of the population is projected to rise 16 percent between now and 2020, at which point it will represent 86 percent of the population and amount to $1.3 trillion in spending—up 40 percent from 2010, based on a global study of the emerging middle class and related databases by Dr. Homi Kharas of the Brookings Institution.

“There is an equal share of money at the top and in the middle,” said Dr. Venkatesh Bala, chief economist, The Cambridge Group, a part of Nielsen. “Russia’s middle class today has the same share of income as the upper class and has remained an untapped opportunity by many international corporations.”

While the top 20 percent of income earners in Russia represent 47 percent of the country’s total income, the middle 60 percent accounts for 48 percent, according to federal statistics from the Bank of Russia (2012). The bottom 20 percent comprise the remaining five percent of income.

Ukraine on the other hand, has done none of this.  Many of the media depictions of Russia are more applicable to Ukraine.  

Finally, since this issue has become polarized, just to compare the 2 choices.  Is it better to support a coup government that seized power by force, with few economic and political ties (Ukraine); or Russia, a legitimate country, world power, with many economic ties, who has proven in the past 10 years that it has accepted the suggested economic reforms?

Supposedly as traders we look at economic data and make economic decisions.  Following the 'sanctions' logic to the end, we have much more to lose by supporting 'Ukraine' than Russia.  Taking what they have learned from the West, it would not be difficult for Russia to internally reorganize their economy, and make new partnerships that have already been in the making for years (such as with China, India, and others).  Russia also sits on vast natural resources, which could be used internally or sold to China.

Irony of fallacious policy

Hundreds of billions of dollars were spent on propoganda, intelligence, and other means, during the Cold War, trying to convince the Russians to go capitalist.  Open their markets.  Finally it suceeded, and they have developed a sophistocated, capitalist market system.  All of those efforts are now in jeopardy. 

Now, for reasons unknown, the West is sending the opposite message.  Through the use of account freezing, trade sanctions, and other economic tactics, the West is doing exactly what the West tried to convince the Russians not to do for decades.  

No matter the outcome, the West (US and Europe) has much more to lose in any scenario.  

Market approach

Traders should only be concerned about the message being sent to the markets.  Markets operate based on a series of rules.  The market opens at a certain time, closes at a certain time.  Contracts are defined in quality and quantity.  Although traders may be emotional and irrational, they cannot operate outside of market rules (for example, if you are not happy with the outcome of a trade, you cannot just delete it from your account).  A violation of market rules opens a pandora's box.  

What's next? Politicians will decide that in order to support the US market (because it's now suffering due to billions flowing out because of sanctions, or assets are frozen) that now to support our efforts overseas, we can only buy (not sell)?  Or that IRAs are converted to tbills to 'save Ukraine'?  Since when did any Westerner care about Ukrainian politics?

..44 percent weren't sure about the name of the former Ukrainian president with close ties to Russia who was recently removed from office. Only 40 percent correctly chose Viktor Yanukovych from the list. Sixteen percent selected an incorrect answer.

 

A relative lack of knowledge, however, doesn't stop some from giving their opinion on various policy questions. The poll found that 24 percent of Americans were willing to express an opinion on whether the nonexistent Ukraine Administrative Adjustment Act should be repealed in light of the conflict. Respondents who gave an answer were divided evenly, with 12 percent backing repeal and 12 percent opposed.

With the economy faltering as it is, a market based approach to the current situation would have given a boost to the economy, instead of putting further negative pressure.  

Looking economically, any trader should agree that if you can lose 100 and gain possibly  another 20 or more through solidifying the relationship (Russia) and lose a few; OR (Ukraine) gain a few, but in the process lose 100, it's a no brainer trade.  That is the economic magnitude difference between Russia and Ukraine, based on above referenced economic data.  

The reason Nixon opened up China, was to further the US economy, not to meddle in Chinese politics.  Even recently, we've overlooked China's domestic problems, such as human rights, the seizing of Tibet, rampant pollution, and other issues not acceptable by Western standards, in the interest of furthering trade.  And over a period of decades, with US cooperation, China has built itself into an industrial powerhouse, and supplies goods in almost every economic sector, and is the US biggest customer.   

Some important facts to note about Russia:

 

Article updates 

objective political analysis

Different explanation, same topic - must read (Sott.net)

 

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Tue, 03/25/2014 - 08:20 | 4589392 kurt
kurt's picture

Another Contortion for War

Tue, 03/25/2014 - 09:43 | 4589693 doctor10
doctor10's picture

Wait until the USSA peasnats discover China and Russia have acquired a real middle class.

That is what has the oligarcgs here on edge

Tue, 03/25/2014 - 06:26 | 4589211 new game
new game's picture

an empire is on the march and needs to be stopped...

Tue, 03/25/2014 - 10:20 | 4589847 silvermail
silvermail's picture

"an empire is on the march and needs to be stopped..."

Russia stopped the empire in the Crimea. And this is only the beginning.

http://i.imgur.com/G89DoGV.jpg?1

Tue, 03/25/2014 - 07:26 | 4589281 free_lunch
free_lunch's picture

 

 "Russia has no external debt! 

 

Just curious,

Does that mean that central bankers cannot loot the Russian people and confiscate personal savings and state property, like they do in US, EU by creating DEBT, owed to them, out of thin air($, €)? Does that mean they can't drive wages down and taxes up to pay back that imaginary debt?


World debt:   http://demonocracy.info/infographics/usa/world_debt/world_debt.html


Tue, 03/25/2014 - 10:19 | 4589774 Omen IV
Omen IV's picture

The entire reason for the US led, financed and organized Putch in Ukraine is first step - NATO - to the yellow brick road behind the curtain and the real prize

PRIZE=RUSSIA = Master Plan = TOOL is the DEBT CAPACITY "UNUSED" IN RUSSIA

follow  the yellow brick road to land of OZ (for debt resolution of US & EU - the FINAL solution) > RUSSIA >6.6 millon sq miles>$100++ trillion value conservative in probable reserves of: oil, gas, iron, copper, diamonds et etc etc AND SCIENCE > "ONLY" 146 million people - WITH EDUCATION AND SERIOUS IQ > government debt less than 2.5% of GDP - less than $45 "Billion" total versus USA at $17 TRILLION and 102.0% of GDP >russia also has low "private" debt for corporations and individuals as well> means what ???????

LBO (leverage buyout) > privatize Russia via securing national public asset reserves > via consortium of G-8  - hostile takeover - think war > transfer in "reparations" (think! Germany 1917) defacto debt of EU and USA to secured assets of Russia via debt exchange > example: debt of Italy now at $2 Trillion - Italy gets 5% of Russia pie for participation in Hostile Takeover - sells 5% stake for $2 trillion public debt exchange of Italy > NEWCO buys debt for 5% stake - NO DEBT LEFT FOR ITALY TO PAY> proceeds on development of Russia with 10x + IRR > then incentivize massive immigration of Italians and ALL of western europe and USA to Russia - 200 million people to dilute concentration of Russians and eliminate unemployment in EU and USA > change language

SO DEBT EQUATION SOLVED BUT.....! CAN YOU CHECK MATE PUTIN AND ARE THE REST OF THE RUSSIAN LEADERSHIP  - WHORES - TO BE BOUGHT - OR DO THEY BELIEVE IN MOTHER RUSSIA AND THEIR PATRIMONY AND ARE THEY WILLING TO FIGHT TO THE BITTER END (think Napoleon / Hitler / wanted the same thing as gang of 8 ?????

WHO WOULD YOU PLACE YOUR BET ON?

 

 

Tue, 03/25/2014 - 11:59 | 4590307 NotApplicable
NotApplicable's picture

Rothschilds

Tue, 03/25/2014 - 06:39 | 4589225 overmedicatedun...
overmedicatedundersexed's picture

ukraine is changing, russia is expanding, I worry most about my freedoms and economic health in USSA, unless one is about a NWO, why does risking war in ukraine benefit USSA?? the biggest most immediate problems are with our own .gov and the NWO changes to population and control and our non traditional economy..boom and bust FED ..time to turn inward time be isolationist and nationalist. screw bankster wars.

Tue, 03/25/2014 - 12:58 | 4590554 Ghordius
Ghordius's picture

you seem to forget how much of the economy of your country is geared towards projecting a global policing force, and how much of the economies of the rest of the world are geared towards saying "thank you, Uncle Sam"

Tue, 03/25/2014 - 04:39 | 4589137 Ghordius
Ghordius's picture

"An extreme right wing group, with US and NATO support (according to released internal transcripts), overthrew the legitimate Ukrainian government (illegally) via violent coup.  The fact that this group had western support is not important really, but should be noted.  So according to 'international law' - this 'country' is NOT Ukraine.  Ukraine cease to exist when this happened.  The new 'government' - not popularly elected, seized control by force."

faulty theory, easily disproved by history, facts and so on

a country does not cease to exist only because it's government has changed, there is a coup or a revolution. plenty of examples for that, including just recently Egypt

whatever the Ukrainian administration aka cabinet of ministers (aka what we europeans call government) is, it has been confirmed by the current Ukrainian Parliament

the current Ukrainian Parliament cannot even be called a rump parliament, it still has a quorum. and it was elected

so this theory hinges on the missing head of state making the whole setup illegitimate, citing "international law", which is simply ludicrous

of course you have to know what a minister, what a cabinet and what a parliamentary democracy is, in order to understand, starting with the fact that ministers and prime ministers are not elected, they are appointed by... parliament

Tue, 03/25/2014 - 10:17 | 4589834 silvermail
silvermail's picture

 1. Yanukovych is the only legitimate and democratically elected President of Ukraine. Because according to the Constitution of Ukraine , the Parliament does not have the authority to remove the President from power through a simple vote . Parliament has the right only to impeachment proceedings . Impeachment was not.
2. Even with illegal voting in Parliament, there was not the requisite number of votes. Junta seized power in Kiev, is illegal and illegitimate pro-US dictatorship of neofascists.

Tue, 03/25/2014 - 12:03 | 4590327 Canucklehead
Canucklehead's picture

I believe elected leaders forfeit their "rights" after they have stolen somewhat less than a billion dollars.  Yanukovych should have been lynched.

The citizens of the Ukraine have spoken through the court of public opinion.

Tue, 03/25/2014 - 11:57 | 4590298 NotApplicable
NotApplicable's picture

I think it's hilarious how many statist sheeple around here believe that WORDS ON PAPER mean something.

The world is ruled by POWER. Always has been, and always will be.

Those in power will do ANYTHING AND EVERYTHING to keep their hold on it.

That so many believe their lies makes it all the more easier, as the indoctrinated sheep are wholly complicit in their own slaughter.

But please, everyone do go on arguing about a fucking facade...

Tue, 03/25/2014 - 05:47 | 4589185 TrulyStupid
TrulyStupid's picture

Your understanding of what you call parliamentary democracy is deeply flawed. Prime ministers are the leader of the majority party or majority party alliance. They are chosen by members of their own Party at leadership conventions of party members outside of parliament. Only after an election in which the party attains majority (of seats...not popular vote) is the leader now prime minister (even in the cases where he loses his own constituency, but his party gets a plurality). The prime minister then appoints his ministers hopefully from sitting members of his own party,,, though he can reach outside of parliament for non politicians if he so chooses.

Removing the constitutionally legal prime minister by anything other than a vote of non-confidence ... forcing an election.. can be considered illegal. The constitution has been overthrown and the "parliament" has no legitimacy and in any event no practical power.

Tue, 03/25/2014 - 12:51 | 4590481 Ghordius
Ghordius's picture

so, let's take your expert opinion apart

wrong. a coalition of so-called parliamentary fractions can choose someone completely else as prime minister instead of leaders of parties. prime example: Italy, see how Monti became PM, or the current PM

wrong. "Only after an election in which the party attains..." - nope, any Member of Parliament can change party/fraction during his term. examples abound, including Winston Churchill. it's not how you got into parliament that counts, and the party also is irrelevant, it's just plain MPs that can group themselves differently during a legislature. hence the name fraction, btw, then a fraction can be in open political conflict with it's original party

wrong. "Removing the constitutionally legal prime minister by anything other than a vote of non-confidence..." I presume you wanted to write the "head of state", the President of Ukraine. nevertheless, a vote of confidence to a new cabinet is the equivalent of a vote of non-confidence of the old one. plenty of precedents for that, including the German way of doing it, which is always a new vote of confidence

wrong. "...the "parliament" has no legitimacy..." based on what? wishful thinking? for sure not precedent or any constitution, neither the old one nor the older one that this parliament has declared as valid. now here you could argue that this Ukrainian parliament has no legitimacy of switching back to a different, older constitution, yet your discussion on "practical power" is anyway even stranger

parliament can make laws and appoint a cabinet, which then executes on those laws. that simple. what is your "practical power" exactly?

Mon, 04/07/2014 - 20:46 | 4634240 TrulyStupid
TrulyStupid's picture

Practical power is the power to enact laws, when the constitution is overthrown by an outside party (usually the army) they are the ones writing the laws or overuling them. The sitting mewmbers of parliament are captives of the new regime, not its masters. Constitutional rule of law was overthrown in the Ukraine and the current parliament has no constitutional legitimacy and in fact are only rubber stamping the moves of the usurpers.

Tue, 03/25/2014 - 10:25 | 4589872 falak pema
falak pema's picture

The quicker they have parliamentary elections to clear the air in Kiev the quicker can the International community say : "we back a legally elected government with a constitution that functions"...

Is that election currently planned in May?

Tue, 03/25/2014 - 10:20 | 4589848 123dobryden
123dobryden's picture

We are talking about President, that fled here, Prime minister Azarov resigned

Tue, 03/25/2014 - 00:48 | 4588926 Free Wary
Free Wary's picture

Russian people are AWESOME!!!

Tue, 03/25/2014 - 10:15 | 4589819 123dobryden
123dobryden's picture

cause Ukrainian ARENT!!!

Tue, 03/25/2014 - 00:34 | 4588908 DelusionalGrandeur
DelusionalGrandeur's picture

...all I know is the recent ads I've started to see on zh are annoying, I mean unless I can pick up a few for the price of one.

All kidding aside it sure doesn't seem like things are cooling down at all, and America is about to get a really good dose of karms headed their way pretty fucking soon.

Tue, 03/25/2014 - 11:52 | 4590269 NotApplicable
NotApplicable's picture

The internet itself is fast becoming unusable, thanks to all of these stupid fucking intrusive ads served by Google.

AdBlock+ and NoScript are your friends.

Tue, 03/25/2014 - 00:07 | 4588852 ebear
ebear's picture

Slow day?

Tue, 03/25/2014 - 01:31 | 4588777 ATG
ATG's picture

Excellent overlooked free market analysis on Ukraine

Washington in his Farewell Address told us to forget party power politics and focus on Commerce

http://usnvrepcan.blogspot.com/

Mon, 03/24/2014 - 23:11 | 4588734 ms8172
ms8172's picture

Where's Totto??

Mon, 03/24/2014 - 23:00 | 4588704 ThorAss
ThorAss's picture

She looks like a young Eva Braun

Mon, 03/24/2014 - 22:47 | 4588668 The Wisp
The Wisp's picture

But But But... they found the Higgs Boffoon... that has to mean something...

Mon, 03/24/2014 - 22:39 | 4588646 joego1
joego1's picture

The U.S. will come to it's senses as Europe grows dark and cold.

Tue, 03/25/2014 - 11:18 | 4590079 free_lunch
free_lunch's picture

Let's see what would would be the consequences?

 

EU Economy dying ->

-> people and governments can't repay debts->

-> confiscation of savings and houses->

-> privatising of public property->

-> massive unemployment (even more)->

-> lower wages -> higher taxes

= feudalism 2.0

 

You"re right, the thought of all the power and control that would come with it will make them change their minds fast!

 

Mon, 03/24/2014 - 22:30 | 4588615 Who was that ma...
Who was that masked man's picture

Cutting off one's nose to spite one's face can only end in a fucked up looking face.

Who said that?  Oh yeah, me.

Mon, 03/24/2014 - 22:20 | 4588571 stant
stant's picture

and israel is closing all embasies over labor despute, oooookay

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