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    Outside the Box

    Notes on Russia

    November 19, 2014

    Russia and its redoubtable president, Vladimir Putin, have been much in the news lately. The latest flurry came when Putin was taken out behind the woodshed at the G20 conference in Australia last weekend over his recent moves to inject more Russian troops and arms into Ukraine.

    For today’s Outside the Box we have two pieces that deliver deeper insights into the situation with Russia and Putin. The first is from my good friend Ian Bremmer, President of the Eurasia Group and author of Every Nation for Itself: Winners and Losers in a G-Zero World. You probably caught my mention of Ian’s presentation at the institutional fund manager conference where we both spoke last weekend. He had some unsettling things to say about Russia; and so when he followed up with an email to me on Monday, I asked if he’d let me share the section on Russia with you. Understand, Ian is connected, and so what you’re about to be treated to here is analysis from way inside. (He’ll be presenting at our Strategic Investment Conference again next April, too.)

    Then we turn to a piece that my friend Vitaliy Katsenelson published last week in his monthly column in Institutional Investor. I need to preface this one by mentioning that Vitaliy was born in Murmansk, Russia, where he lived until age 18, when his family emigrated to the US. Fast-forward 23 years, and today Vitaliy is Chief Investment Officer for Investment Management Associates in Denver and author of the highly successful Active Value Investing: Making Money in Range-Bound Markets and The Little Book of Sideways Markets. That’s quite a journey, and Vitaliy has some very strong feelings about the country he left as well as the one he came to. In his intro to today’s piece he admits,

    [This is] one of the most emotionally taxing things I ever wrote. A few days ago my wife looked at me and said, “When are you going to be done with it; this article is bringing you down.” She was right.

    But I think you’ll agree that when Vitaliy recently subjected himself to a 7-day news diet of nothing but Russian media, the better to comprehend current Russian attitudes, he resurfaced with some valuable insights.

    And I can’t leave our deliberations on all things Russia and Putin without mentioning again Marin Katusa’s new book, The Colder War, which I featured in Outside the Box two weeks ago. It’s a compelling survey of the history and dynamics of world energy markets and the role that Putin seeks to play in them.

    Geopolitically, the world seems to be a calmer place as we head into the Christmas season, with the significant and glaring exception of Russia. And remember, falling oil prices will seriously impact an already stressed Russian economy.

    But before we turn to the eye-opening if somber notes below, I want to share with you a fabulous story from my friend Art Cashin, who is one of the world’s great raconteurs. I make sure to have dinner with Art whenever I’m in New York. In addition to his wisdom concerning the markets, he simply has the best stories. The last dinner (also attended by Barry Ritholtz and Josh Brown) was at an establishment called Sparks, an old New York watering hole and famous steakhouse not far from Grand Central Station.

    Art shared the following story with us and had us in tears. Back in the day, the New York Stock Exchange was a mighty interesting place with a very curious cast of interesting and interlocking personalities. It has calmed down some over the decades, but the stories … well, let’s just let Art tell it.

    For years, one of the communal tables at the Luncheon Club would issue a group challenge. They would all set a target for losing weight by some date a couple of months out. The one who weighed up furthest from their target had to buy dinner for the others.

    In 1985, the loser was Maurice (Monk) Meyer of Henderson Brothers. Among the others were Jack (Jackie D) D’Alessandro, Pat McCarthy, Bill Fitzpatrick, and Roger Hochstin.

    They decided to turn the event into a sort of a Christmas party and scheduled the dinner for the week before Christmas. They made reservations at Sparks Steakhouse.

    As the day approached, there was an unexpected development. Mafia kingpin Paul Castellano was gunned down, along with his driver, on the sidewalk outside Sparks.

    Nevertheless, the show must go on.

    When the fated date arrived, the group decided to meet at the Luncheon Club bar for some rehearsal cocktails. They rehearsed for a couple of hours and then headed for Sparks.

    As they arrived, around 7:00, there were some early hints it might be a bumpy evening. When they walked in, the hostess asked if they had reservations. “Only about the food,” snapped Pat McCarthy. That was followed by the maître d’ asking where they’d like to sit, only to hear Roger say, “In the non-shooting section, please.”

    Once they were seated, they ignored the menu and ordered more cocktails and several bottles of wine. For the next three hours, they ignored the pleas of several waiters and the maître d’ to order some food to go along with the wine and drinks.

    In the meantime, Roger may have been getting bored. He noticed another table with six Japanese men in their twenties and one older man, who looked maybe 60.

    Somehow, Roger found a Chinese takeout menu from Chou Lu in his pocket. He put his napkin over his arm as though he were a waiter and went over to the table of Japanese men and began reading the menu in a form of broken Chinglish that would have embarrassed even the producers of the old Charlie Chan movies. Things like “Pork Flied Lice.”

    Ironically, only the older man spoke English, and he seemed to think it was a wonderful joke. He told Roger that Roger’s table seemed to be having a wonderful time and asked if he might join it briefly.

    Roger brought him over and introduced him around. There was a pleasant exchange for about 15 minutes and then Jackie D asked him where in Japan he came from. They man replied – “Actually, I’m from Okinawa.” Bill Fitzpatrick darkened and said, pointedly, “My favorite uncle was killed on Okinawa by you people during the war.” The man quickly excused himself.

    Pat McCarthy reminded Bill that he had not had an uncle in the war. Jack turned to Pat and said, “That doesn’t matter; Bill went through the barrier about two drinks ago.”

    Anyway, the waiter finally prevailed upon the boys to order entrees by 10:00. Meanwhile, Maurice was sinking fast. He had come out despite a bad case of the flu, since he was the designated payer. It quickly became evident that Meyer would not make it much past 10:30. He called for the check.

    As they were about to help Meyer to his feet, Jackie D noticed that McCarthy had had his untouched entrée put into a doggie bag. Not wanting to be outdone, Jackie reached down and put his medium rare petite filet in his inside jacket pocket without benefit of a doggie bag.

    At the coatrack, Jackie attempted to help Meyer get his overcoat on. In doing so Jack lifted his own hand high and out. That swept his jacket off to the side, revealing a shirt dripping with blood from the medium rare filet in his pocket.

    Perhaps recalling Castellano’s recent fate, one woman at a table spotted Jack’s shirt and screamed, “My God! He’s been shot!”

    Everybody in the restaurant hit the deck, including the maître d’ and our adventurous group. When everyone got back to their feet, the maître d’ told the boys they were never allowed back – collectively or individually.

    In a huff, the boys headed off to the John Barleycorn.

    Art can go on all night with stories like that. You really should put them into a book, Art.

    You have a great week. I am off to the gym, where The Beast will continue to try to whip this poor old body into some similitude of shape.

    Your still smiling from all the great stories analyst,

    John Mauldin, Editor
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    Notes on Russia

    By Ian Bremmer
    Nov. 17, 2014

    the russians are taking every opportunity to escalate an already plenty hostile relationship with the united states and some selected allies. the g20 summit was particularly negative on that front, with russian president putin bringing along some warships to australia, while canadian prime minister stephen harper led a rope line of western leaders calling putin a scoundrel and a liar. putin…

    Discuss This


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    hendrikus hoksbergen

    Nov. 22, 2:30 a.m.

    why is it ignored that the Russians are nearly debtfree and dont have any reason to “fight” the US and de EU?

    the standard of living in Russia, during putin, has gone up steadily.

    that puting took crimea is understandable: it used to be russian and only because Nikita Chroesjtsjov (ukrainer himself) gave it to ukraine does not mean that the crimea people are ukrainian.
    if putin did not respond to the western invasion un ukraine then the russian fleet in the blacksee was gone. and ....a US navy fleet would have been arrives.
    would that bring stability ??  I doubt it.

    I think putin doesnt have any intention to “invade” other former sovjet countries, he just wants NATO to stop from going east.

    europe should stop doing what the US wants it to do and think for itself. if things go wrong the war will be in (eastern) europe and not in one of the US states. and as an European citizen (in switzerland) i dont want a WW III in my backyard.

    so stop behaving like fools and TALK without sanctions and treatning.


    David Wooten

    Nov. 20, 9:38 a.m.

    Neither Bremmer nor Katsenelson addressed relevant facts about the recent conflict between Russia and the West.  The fact is that Russia, despite its huge land mass, only a population (145m) and economy that are both tiny fractions of NATO’s and is NOT a threat to US or to Europe - it is the other way around.  Russia has a large and easily penetrable border through which armies from Western Europe invaded twice in the last century at great cost to Russia as a single country in WWI and as part of the Soviet Union in WWII. NATO’s borders are 1000m east of where they were two decades ago before the dissolution of the Warsaw Pact, and this advance was a blatant violation of (oral) promises made by former 20yr) W. German foreign minister, Hans Dietrich-Genscher and US Secretary of State James Baker.

    And it doesn’t matter how much of the taxpayers’ money Assist Sec of State Victoria Nuland spent on Ukraine. She, along with Senator McCain and (Ambassador) Geoffrey Pyatt, was actively involved with organizing (PAID and violent) demonstrators against Ukraine’s legitimate President just because he accepted a much better offer from Putin than the one he negotiated with Nuland and the EU. Moreover, his ouster was accomplished in a most DECEITFUL manner while Putin was hosting the Olympics.

    And it is dangerous - because Russia has little in the way of conventional weaponry to hold off an invasion by NATO that is quite clearly in the future. Their only defense against NATO is the unthinkable. Think they won’t use it?  Think again.  NATO planners are not going to take that chance, once the real hostilities begin. NATO is going to try and take out Russia’s only deterrence as soon as possible - and the Russians know it. That is, for Russia, it’s use ‘em or lose ‘em. Sure ‘we’ will win.  ‘Only’ a few hundred million will perish. But, (if I survive) I won’t be proud of ‘my’ government. Its leaders will just make me even more sick to my stomach than I already am.

    BTW, Katsenelson says Russia does not have a free press. Does he not know that most US newspapers are on the financial ropes and that their reporters are dependent on mostly government news sources for their stories?

    John Richards

    Nov. 20, 9:01 a.m.

    I was disturbed to read this article, and to be presented with such a distorted, one-sided view of the world. Putin wears the black hat, the US wears the white. But when I read the comments from other readers, I took great heart in the fact that there are quite a few respondents who are thinkers and are paying attention to the events in the world.
    Many of the problems in the world are created directly by the pervasive US Security State, over which no one has control any longer. If the author is conflicted, it is because he loves his new home, but perceives many of the same flaws which were so evident in his Soviet birthplace. He is in denial.
    So today we have a situation where “spy” and “traitor” are defined as someone revealing how that security state is spying on the general public and breaking the law to do so. Perhaps it is time to reread Orwell’s “Nineteen Eighty Four.”  It took us thirty additional years to reach it.

    Duncan Hume

    Nov. 20, 8:33 a.m.

    After reading the intro I was expecting some interesting insights from Katsenelson but what do we get but the same mumbled story that Putin is evil and plans world domination that is the dominant theme of American news. I watch western news, I see no evidence there to back up the stories of Russian aggression in the Ukraine. no pictures of troop movements, no pictures of Russian forces fighting alongside the separists. It is the Western press that is manipulating the story, and it is plain to see. Looking to the future there is no telling what happens next, America has covertly declared war on Russia, it is quite possible (maybe even probable) that Putin is a lot smarter than his western counterparts, dont be surprised that there will be surprises!

    Curt Sanders

    Nov. 20, 7:09 a.m.

    Excellent article, accurate and revealing. Czar Putin is a clever and a dangerous leader. Like all deluded megalomaniacs he will overplay his hand at some point. He may have done so already. No worries for the Czar and his cronies they are unlikely to suffer, only the poor average Russian citizen and those of the neighboring country involved in his exploits will…

    Barry Rose

    Nov. 20, 3:15 a.m.

    I was disappointed in the content of the article, which for the most part gave the Bush & Obama administrations a ‘bye’ on their horrible foreign policy decisions. We do not have to like the president of other countries, but it is insane to underestimate those with nuclear weapons and force them into a ‘fight or flight’ response.  These 2 articles, below, are clear indicators of where our sanctimonious government’s behavior is leading.

    If the West continues on this self-destructive path, it will not end well.

    Nov. 20, 1:42 a.m.

    John, this is neo-con propaganda, and not even very artfully done.  Why would you feature it?  You can’t believe this stuff.

    The “Putin as aggressor” meme is so clearly manufactured ... and repeated endless ... by the Washington war establishment and the Pravda-like US media.

    Look, I’m an American, born and raised to fear the Russkies.  But lordy, after a while, you figure out the con.  I and a lot of my fellow Americans are anti-US foreign policy, which is insane.  That doesn’t mean we’re “anti-American.”  I suspect the same is true of the Russian people.

    I reckon the real threat in the world emanates from foggy bottom and the military industrial complex, not the Kremlin, which has acted completely defensively if you ask me.  This talk of invading the Baltics is the stuff of John McCain’s delusional fantasies.

    I can understand why Mr. Katesenelson struggled to write the article.  It’s always harder to write fiction that non-fiction.


    Nov. 20, 12:36 a.m.

    The Ian Bremmer and Vitaliy Katsenelson articles are careen-biased to the point of awash.

    First, why is ok for forces in Ukraine (financed and supported by western interests or not) to overthrow a democratic elected govern when that govern was not overtly against Russia, but not to make a referendum in Crimea or eastern Ukraine? As for international law, Crimea was transferred to Ukraine 1954 in the specific context of The Soviet Union. And the Black Sea region is vitally essential, or perceived as by Russia, for security reasons. On the other side we have the U.S Guantanamo Naval base. International Law violation? Who is kidding whom?

    Second, one cannot stress enough the folly of the provocation and sanction from U.S.A and E.U against a force that they cannot deal with without immense political and economy disruption with no guarantee whatsoever of a favorable outcome. Russia has allies and has sew up strategic economic and obvious potential military alliance with China and South America (geopolitically and resource essential). Retaliation from the NATO missiles on the border of Russia is a very real possibility such as Installation of multi head nuclear missile in Venezuela, or other South America Country, pointed to United States. Even if redundant and merely symbolically (after all Russia almost touch United states from the north and so its strategic missiles), it is powerful symbolism. And as we know perception in world economics matter, dearly.  What will the United States do, if he can do anything? Can the World afford a second Cold War, or possibly even a third War?

    For last and as an aside to give a notion of a normally forgotten part of the world whose resources will be taped by Russia. The “Foro de Sao Paulo” (FSP), is a international organization founded in 1990 in the wake of the Soviet Union Collapse by the extreme left incumbent PT party of Brazil and Fidel Castro. FSP proclaimed aim is reconquest in Central and South America all what the radical left lost in Oriental Europe. FSP members and relations includes Colombian terrorist organization Farc and Hezbollah. This organization did exactly what it set up to do. In a very short time (less than 20 years) almost all of South America and a good Chunk of Central America have extreme left governs headed by members of the FSP. Among Them Brazil, Argentina, Venezuela, Chile, Uruguay, Bolivia, Nicaragua and Ecuador. And are now infiltrated in Colombia internal politics to press a legalization of Farc as a legitimately political party (with an amazing help of notorious members of the United States democratic party), if this occurs Colombia will in no time be governed by Farc in a typical computer vote machine Fraudulent election. In Which occasion,  with exception of minor Paraguay, all of South America will be aligned to the left and, make no mistake, to Russia.     

    Incidentally Russia doesn’t suffered economic consequences from the imposed sanctions on imports of European food; the European countries were substituted by a willing Brazil - the greatest source of meat in the world - and Argentina. And probably cheaper.

    Don Leufven

    Nov. 19, 4 p.m.

    What percentage of Russians have internet service, and what are younger people on Facebook thinking?  What percentage of Russians are not schooled enough to read outside/internet sources and think critically?