What we Know – Part II

russian night What we Know – Part II

Last night Canada’s greatest contribution to global culture, Leonard Cohen rocked the Kremlin Palace.

Rocking the Kremlin Palace would have been no small feat for Mick Jagger ­much less for Leonard; the place was designed for the 23rd session of the Soviet Communist Party and has all the charm of the 1960s train station. Yet rock it he did. T&B had no idea the bard had so many Russian fans.

We shall spare you any reflections on the profound significance of the author of Manhattan/Berlin, and Suzanne, singing a stone¹s throw from Lenin’s grave. Perhaps there is none.

Moscow is enjoying a wonderful Indian summer ­ the only reliably good time of the year here ­ and girding itself for another cold winter (every Russian grandmother warns that this year will see record cold ­essentially because this summer saw record heat – that, of course, was due to LAST winter having been bitterly cold, and so on…)

Meanwhile, the continuity of Russia’s resurrection is primarily imperiled by Moscow traffic ­ which has gone from the sublime to the ridiculous. T&B flew in on Aeroflot to the new Terminal D at Sheremyetovo ­ nice, European-style airport, and we were through immigration, baggage claims and customs in 20 minutes flat. Congratulating ourselves, we got into the car … and a mere 3 1/2 hours later we were home to central Moscow! Someday
soon this place is going to stop ­ literally crystallize ­ and they will have to helicopter us out…

Enclosed, our reflections on Russia ­ increasingly like everywhere else: a middle-income, middle-European country gradually slipping into middle-class aspirations.  Probably the best possible outcome, but a source of some nostalgia for those of us who enjoyed the madness of the first post-Soviet decade.

T&B will again tilt at our favourite windmills ­ in particular the Western Press, such an excellent contrarian indicator for all things Russian. For those interested primarily in trading calls ­ we recommend you skip to the last pages, where we give our macro views.

In brief, the market is no longer either the world¹s best, nor its worst. Currently, it is a high-beta play on global markets. Given our absolute conviction that QEII is drawing nigh, and our reiterated call for further dollar weakness (after a moment of consolidation) and ‘lower-for-longer’ ­we continue to see some good trading opportunities.

Having been long-time bond jockeys, we are now forced to look for value in the equity space.  Given that the equity market is cheap by almost any measure, with some of the equities offering dividend yields superior to their corresponding bonds, we continue to expect the RTS to close the gap with some of its emerging markets peers. That said, global sentiment is currently not particularly favourable ­ a blessing for fixed-income investors, but not for the equities.  Nevertheless, the rouble has just surged back from a still-unexplained bout of weakness, and with oil prices on a slow climb back toward the 3-digits (you read it here first!) perspectives for the equity market are looking very decent.

Happy Sitting in Traffic!


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3 Responses to What we Know – Part II

  1. Viktor Lander says:

    Dear T&B

    It is nice to see that What we Know – Part II is released. How would it be possible to obtain the full copy of the publication?


    Viktor Lander

    • T&B says:

      Dear Viktor,

      Thanks for your interest. This will shortly be available on the website, in the meantime we will e-mail you a copy of the newsletter.

      Best wishes,


  2. Vlad Sobell says:

    Another great piece bursting with delicious food for thought.

    Just a couple of points. First, Russia-China complementarity, which you discuss briefly, is very important. Notably the point about the security of supplies for China. This is Russia’s ultimate “China card” – and I think it probably is the main reason why sane Old Europeans (Germany/France) are finally accelerating Europe’s rapprochement with Russia.

    Regarding Gideon Rachman’s article, I feel that Rachman (and you?) could go further. The economic crisis born from the West is ultimately also a crisis of democracy, or so called “democratic model of governance”, which the West believes is vastly superior to anything else.

    Well, perhaps the most important consequence of the crisis is that this model has been thoroughly discredited.

    Democracy is supposed to be superior for many reasons, but among the most important is its ability to promote rational discussion and hence policies based on such debate. Such solutions are then supposed to be superior (more effective) to policies produced by authoritarian regimes.

    Secondly, democracy is about responsibility. Above all, democracies should not end up with unsustainable budget deficits and spiralling government debts.

    Given that the “democrats” have managed to completely bankrupt their economies, we can no longer claim that democracy is working. In fact democracy IS NOT WORKING; DEMOCRACY IS FAILING. And the Chinese (and Russian) story is shows that what IS WORKING is their model of “centrally controlled politics”.

    I refuse to call it “autocracy” or “authoritarianism”. As you helpfully suggest (page. 9) why not call it “blue” or “charmed”?

    (Incidentally, I have always disliked the inappropriate label “autocracy” – autocracy to my mind means being accountable to no-one but God; so the notion that this accurately describes the Chinese and Russian governance is absurd. To my mind, the neocons’ “autocracy” is simply translatable as independence and refusal to comply with US instructions, pure and simple. Please note that Yanukovich has now entered the ranks of “autocrats” for the same reason).

    Finally, democracy will of course survive, but it needs to correct itself. It has been abused and perverted. Essentially, Western democracies led by the US, have behaved irresponsibly – like the Orange regime in Ukraine – and have managed to thoroughly discredit, if not destroy, democracy as a model to follow.

    – Vlad Sobell

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