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Dodging A Bullet In Russia

Portfolio Armor's Photo
by Portfolio Armor
Sunday, Jun 25, 2023 - 2:47
Children pose with Wagner PMC tanker in Rostov-on-Don
Children pose with Wagner PMC tanker in Rostov-on-Don

Submitted via Portfolio Armor:

We're Lucky Putin Still Runs Russia

Before Belarusian President Lukashenko negotiated a resolution to Wagner PMC chief Evgeny Prigozhin's abortive mutiny, neocons and other Putin opponents in the West were gleeful at the prospect of Putin's demise. Venture capitalist David Sacks pointed out why they were wrong to wish for Putin's downfall:  

What’s better: negotiated peace or nuclear chaos?

It looks like the crisis in Russia is abating after many premature predictions, dunks, and celebrations. We’ve come to expect such behavior from mids like [former Congressman and liberal gadfly Adam] Kinzinger, but the participation of so many more serious American policy makers and influencers shows the extent to which they have lost perspective.

They expressed glee over the possibility of a coup in the world’s largest nuclear weapons state by a warlord whose main gripe is that Russia has not prosecuted the war vigorously enough, who advocates full mobilization and total war, and is more likely to countenance nuclear use.

I can understand why Ukrainian nationalists — who are desperate to win the war in light of a counteroffensive that even CNN admitted yesterday is thus-far failing — would be willing to roll the dice and root for chaos and civil war in Russia. But for American leaders to do so shows that they have lost any conception of a distinct American national interest.

What the last 24 hours have underscored is that wars are not just incredibly destructive but also incredibly unpredictable. I continue to maintain that it was in the best interest of the United States to avoid this by supporting the Istanbul deal. It would have cost us nothing except an agreement not to add Ukraine to NATO. In fact, this would not have been a cost but a benefit, saving ourselves from the insanity of committing American boys & girls to fight Russia one day on Ukraine’s behalf.

Now the war seems likely to enter an even more desperate stage for both Russia and Ukraine. Is this what we want? History proves that things can always get worse. ISIS was worse than Saddam, Lenin was worse than the Tsar, and Prigozhin could have been worse than Putin. Do we want to keep rolling the dice? Or do we want to figure out how to bring the killing to an end?

Sacks was right about the obvious risks involved in destabilizing the country with the largest nuclear arsenal in the world, but like many other Western observers, he seems to feel compelled to vilify Vladimir Putin, in ways that are both inaccurate and unhelpful to the prospect of future diplomacy. 

An Objective Assessment Of Putin

As our friend Benjamin Braddock noted on Twitter, despite Sachs putting Putin in the same category as Lenin and Saddam Hussein, Putin is actually a moderate in the Russian political context. 

Braddock made another excellent point as well, that we're lucky America's attempt at a color revolution in Belarus failed. 

What Braddock wrote about Putin being a moderate is true, but Putin has also been the best leader for Russians in at least a century. A few statistics illustrate how much better off Russians are since Putin came to power in 1999. 

Life Expectancy 

Russian life expectancy is up 11.4% since 1999. 

Homicide Rate

As of 2021, the homicide rate in Russia was down 85% since Putin came to power 

Per Capita GDP

 

Finally, as of 2021, per capita income in Russia was up 816% since Putin became president. 

Critics often make two objections when you bring up these statistics: 

  1. Putin came to power at a nadir in Russia similar to America's Great Depression. This is true, but there was nothing inevitable about Russia's recovery from the catastrophe--some countries never recover from disaster, and plod along in poverty for decades. 
  2. Putin benefited from a natural resources boom. This is also true, but it doesn't explain how Russia's per capita GDP growth has outpaced that of other commodity exporters.

Putin As A Force For Tolerance

Since racism (and antisemitism) are the worst sins in the West, Western critics sometimes dishonestly claim Putin is a racist, but in fact he has presided over a multiethnic, multiconfessional empire in a way that's largely been inclusive rather than divisive. In some ways, Russia has handled its diversity better than the U.S. has.

Putin's Restraint

It may seem odd to write about Putin's restraint when we're 16 months into an invasion of the Ukraine that he launched, but it's worth noting how he has so far eschewed retaliating against Western provocations such as the destruction of the Nord Stream pipelines. Consider how many potential targets for retaliation the United Kingdom alone has in the North Sea. 

If Putin were the maniac some in the West claim he was, the Ukraine War would have spiraled into World War III months ago. Hopefully, our leaders won't press our luck and will instead return to diplomacy and negotiate an end to the war. 

In the meantime, let's look at a way we can invest while strictly limiting our downside risk in the event the next geopolitical crisis doesn't get so conveniently resolved within 24 hours. 

Limiting Your Risk In Chaotic Times

The basic idea of our hedged portfolio method is you decide how much risk you're willing to take, and how much money you want to invest, and the Portfolio Armor website presents you with a hedged portfolio designed to do just that. Here's a real world example. 

On December 23rd of last year, this was the portfolio our site presented to an investor with $3 million who wanted to make sure his portfolio didn't drop by more than 20% over the next six months, in a worst-case scenario (you can use this process for portfolios as small as $30k too): 

Seven of these names were the ones with the highest potential return estimates, net of hedging cost, in December. Our site started with equal dollar amounts of each, and then rounded them down to round lots to lower hedging cost. Then it used a tightly collared position in BTU to absorb most of the leftover cash from that process. 

The max drawdown for this portfolio was a drop of 19%, and the expected return was a gain of 8%. Here's how the portfolio actually did over the next six months: 

So, this portfolio ended up 17.59%, net of hedging and trading costs, while SPY was up 15.53% over the same time period. Not bad. You can find an interactive version of that chart here.

 

If You Want To Stay In Touch

You follow Portfolio Armor on Twitter here, or become a free subscriber to our Substack using the link below (we're using that for our occasional emails now). You can also contact us via our website. If you want to hedge, consider using our website (our iPhone app is currently closed to new users). 

Contributor posts published on Zero Hedge do not necessarily represent the views and opinions of Zero Hedge, and are not selected, edited or screened by Zero Hedge editors.
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