What The Wagner Mutiny Was About

Portfolio Armor's Photo
by Portfolio Armor
Monday, Jun 26, 2023 - 11:26
A Russian civilian speaks with Wagner Group soldiers in Rostov.
A Russian civilian speaks with Wagner Group soldiers in Rostov.

Submitted via Portfolio Armor

What The Wagner Group Mutiny Was About

In our last post (Dodging a Bullet In Russia) we looked at why we're lucky Putin survived Prigozhin's abortive mutiny; in this one, we'll share some informed speculation about why Prigozhin did what he did. Following that, we'll add a follow up to our investing note from our previous post. Before we get to that, let's clarify what the Wagner mutiny wasn't: it wasn't some pre-arranged kayfabe between Putin and Prigozhin. As Clint Ehrlich points out below, it wasn't staged, and it wasn't bloodless. 

Piecing It Together 

The mutiny probably wasn't a Western intelligence operation either. If it were, presumably, they would have tried to schedule some kind of Ukrainian operation at the same time, to take advantage of the chaos, but they didn't (it's also likely the Ukrainians had their hands too full with their failing counteroffensive to attempt another ambitious operation at the same time). Our friend Euggypius offered one of the more plausible explanations of what happened: 

I think it's easy enough to piece together what most likely happened here:

  1. Prigozhin and shadowy others unhappy with the [Defense Minister Sergei] Shoigu/MoD [Ministry of Defense] approach to the war planned a mutiny to coincide with the Ukraine offensive, which they expected (wrongly, it turns out) to be another disaster for Russian forces.
  2. Prigozhin with a small Wagner contingent marched on Moscow; the army stood aside (a clue to the identity of Wagner's friends) but the air force remained hostile and engaged them in limited ways, leading to some casualties which Putin/the MoD will now studiously ignore [the Russian podcasters "Russians with Attitude" estimate the mutiny resulted in a total of 20-30 deaths].
  3. In the course of [Saturday], counterparties to the mutiny in Moscow were bought off or appeased, such that Prigozhin was finally isolated. He remains protected by powerful friends, which is why his head is not on a stake, but the relative Russian success in Ukraine denied them the political capital necessary to force the reforms they wanted and Putin felt unable to back them.
  4. The uneasy compromise is that Prigozhin will go to exile in Belarus, Wagner forces will mostly sign the contracts demanded of them, and the leadership will have to hope that continued success in Ukraine will keep dissatisfied internal parties at bay.

Euggypius's fellow German, Kim Dotcom, has been an insightful observer of the war, and he anticipated Euggypius's first point over the weekend [emphasis mine]: 

This started as a power struggle between Prigozhin and Shoigu. In the beginning of the Special military operation Shoigu and his team made mistakes and Prigozhin became of strong critic of Shoigu.

Prigozhin then had success in Bakhmut with Wagner Group presenting himself as a better military leader than Shoigu. In my view Shoigu then provoked Prigozhin by limiting ammunition supplies to Bakhmut resulting in Wagner Group losses and a strong reaction from Prigozhin. Many of you have seen the video of Prigozhin attacking Shoigu and the Russian military leadership.

Ammunition deliveries were restored and victory in Bakhmut was achieved but the video outburst by Prigozhin was likely counterproductive for him because the Kremlin and senior political leaders in Moscow saw him as a loose cannon who can’t be trusted.

Prigozhin doubled down predicting a massive loss for the Russian military claiming that it was not ready for the Ukrainian counter-offensive. He claimed that the Russian troops are badly equipped and poorly managed by Shoigu. With the Russian military successfully repelling the Ukrainian counter-offensive Prigozhin had played himself into a corner and his time was running out because Shoigu and his Generals delivered a major victory for the Kremlin.

While the negotiations were happening on Saturday, the Russians with Attitude podcasters offered their ideal resolution to the situation: 

In their podcast on Sunday, they noted that two out of three of those outcomes appear to be happening, with Prigozhin exiled to Belarus, and Wagner getting incorporated into the Russian army. As far as Shoigu getting dismissed, they noted that if Putin did decide to do that, he would probably wait a decent interval before doing so, so as not to appear to be giving in to Wagner's demands. 

As it happened, the Russian Ministry of Defense shared a video early Monday of Shoigu visiting the front in Ukraine, so he certainly hasn't gotten dismissed as of this writing. 

Monday Afternoon Update

Prigozhin made another statement today. Via War Translated

Summary of Prigozhin's 26 June address to clarify the situation: it was to demonstrate protest against the "destruction of PMC Wagner, not toppling the Russian authorities":

What were the prerequisites for the March for Justice? - PMC Wagner carries out tasks around the world. It was meant to stop existing on 1 July 2023. “Employees” all refused to sign the contract with MoD, only 1-2% decided to join the Russian army.

- The original plan was to go to Rostov on 30 July and transfer all vehicles to MoD, which were ready for transport.

- Despite any aggression, Wagner suffered a missile attack, followed by helicopter attack. Around 30 PMC Wagner fighters died. This triggered an immediate decision to move out early and respond militarily.

- Throughout the 24-hour march, one column went to Moscow, another to Rostov. They made 780 km of progress in one day. They regret being forced to attack the army aircraft but the bombs were dropped which caused the response. During the march, all military objects on the way were blocked and disarmed. None of the military have died on the ground.

- The objective was to not allow destruction of Wagner and take to responsiblity those who with their unprofessional actions made a huge number of mistakes during the SMO. All the military met along the way supported this.

- Wagner stopped when the advanced storm unit deployed artillery, conducted reconnaissance and realised a lot of blood will be shed in an upcoming battle. They decided that demonstration of the protest was enough, and turned around.

- Factors that made Wagner turn around: first, they didn’t want to shed Russian blood. Secondly, they wanted to demonstrate their portest, not overtake the authority in Russia.

- Lukashenko offered to find solutions for further legal operation of Wagner legally. Columns turned aroound and went back to field camps.

- The march showed many things demonstrated before. Serious security concerns around the country. All military bases and airfields were blocked.

- If actions on 24 Feb 2022 were done by forces as trained as Wagner, the special operation could have ended in 1 day. This shows the level of organisation that the Russian army should be following.


Over the weekend, Anatoly Karlin offered a counterpoint to Prigozhin's comment above that Wagner's fast advance showed "serious security concerns" in Russia: 

Investing Note Update

In your previous post, we mentioned our hedged portfolio approach, which is designed to limit your downside risk in the event something unexpected happens, whether a geopolitical surprise like the Wagner rebellion or anything else: 

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.

We presented an example of a recently finished hedged portfolio that had beaten the market, which raised some proverbial eyebrows among commenters, but this is partly a function of how much risk you are willing to take. In our previous post, we showed a portfolio hedged against a >20% decline over six months; here's one from last December that was constructed for an investor unwilling to risk a decline of more than 25%: 

Those names were the ones with the highest potential return estimates, net of hedging cost, when hedging against >25% declines 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 NFLX to absorb most of the leftover cash from that process. 

The max drawdown for this portfolio was a drop of 23%, and the expected return was a gain of 8%. Here's how the portfolio actually did over the next six months: 


This one took on a bit more risk than the portfolio hedged against a >20% decline, but it also generated higher returns: up 22.09%, net of hedging and trading costs, versus a 15.53% for SPY over the same time period


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