Economic cycles are, by definition, cyclical, as are markets. Much as the sun warms the earth during the day, then things cool at night, economies have their alternating periods of growth and stumbles. As an investor, it pays to play these cycles, but you need to be forward thinking. Buying the market at the height of a cycle is like thinking the day is going to get brighter and warmer at noon.
No, the best investors are the ones who can stare into the eyes of a bear and say, “Enough!” Having the guts to invest in the face of overwhelming negativity is exactly the right thing to do and often leads to the best returns.
Having an economy that is in the toilet, a leader who is the scourge of the planet, economic sanctions hurting them, and getting caught up in the mess that is the Middle East, I would suggest that looking at the Russian bear stands a good chance of being a great investing opportunity.
“Russia is a gas station masquerading as a country” ~ John McCain
There are several reasons to take a look at Russia right now. Let’s start off with the most obvious…oil prices are up and Russia is very dependent upon oil. The country is currently the worlds’ largest producer of oil, with daily production of close to 11 million barrels. Oil and gas generates roughly 50% of total tax revenue yearly in Russia.
With oil prices up, the impact on the economy is a major positive for Russia. To try to put it in perspective, oil is up around $13 a barrel in the last 12 months. This equates to exactly $143 million more dollars in revenue daily for the Russian economy, just from oil sales. Coincidentally, there are 143 million Russians. Now, $1 per day per person may not sound like much, but the average Russian earned $291 in the month of January, 2016. On the back of higher oil prices, you’re looking at a revenue boost to Russia equal a 10% increase in salaries for all Russians!
This should have a positive impact on the Russian currency one would think. And, it has, as the Ruble has gone up around 20% this year. However, look at the 5-year chart.
Obviously, the recent strength in the Ruble is but a minor liftoff when compared with the incredible damage it sustained over the last five years. Yet, I think the smart play is to pile on the recent strength, expecting it to continue as long as oil stays above $50 per barrel.
The final reason I’m bullish on Russia is their improving stance in the international community. To which you might say, “WHAT?” Because, of late, Russia has been more of a plague internationally than a country one thinks of as “improving”.
I’ll take the contrarian side of this coin, however. In that, in my opinion, Russia has only one way it can go internationally, and that’s higher. And, the table is set for this to happen. Here’s why.
In relations with the US, expect things to improve dramatically. Trump and Putin have mutual respect (admiration) for each other. They both are bullies and jerks…they’re really two peas in a pod. This should serve them well in opening meaningful dialogue and reaching palatable decisions in international negotiations. Throw in the fact that the future Secret of State has strong Putin relations and I think Russia/US relations have definitely bottomed and are looking brighter.
Moving on to Europe, you’ve got a group of countries with several problems of their own. They are overwhelmed with immigrants, are having major cash issues, and are very dependent upon Mother Russia for their heating oil and gas. The Europeans are tired of the sanctions against Russia and could, frankly, use Russia’s help more going forward. I wouldn’t be surprised if the sanction against Russia got severely curtailed during 2017 and this would be a big positive as well.
Finally, in terms of the Middle East, I believe Russia bit off more than it could chew. They tried to step into the power void left by Obama’s failed policies and are realizing what we have learned. It’s a quagmire and an expensive one at that. Expect Russia to back down from their aggressive stance there, and start working with the US and other countries on more cooperative policies.
Being a less combative international player, along with higher oil prices and a better economy, will lead to Russia having a day or two in the sun in the near future. This should be a positive for their stock market. And, it has been a strong performer since Trump’s victory, outperforming the US by 12%. Looking at the longer term chart, however, shows that there is still a lot of catching up left for Russia to match the S&P’s performance. And, in dollar terms, it has much farther to go.
“I’m long Russia and buying more…”
~ Jimmy Rogers
Is it really darkest before the dawn? I don’t think so. Seems to me that the world starts to be a brighter place well before dawn. Yet, when the dawn hits, it is a total game changer. I think Russia has passed the darkest part of night. The economy has bottomed, Putin has a friend in DC and the Ruble and market are rallying. Expect this to continue and even accelerate as the world realizes that it’s Russia’s day in the sun in 2017.Tailwinds' Disclaimers & Disclosures: For a full list of disclaimers and disclosures, please visit http://