When Markets Stabilize, Russia's a Better Bet Than the U.S.

By Irwin Greenstein

The news that Washington is fast becoming the world’s biggest slumlord through its buyout of distressed mortgages has helped send international markets skyward.

The biggest gains were in Russian stocks. And this could be the situation for quite some time, says emerging markets expert Irwin Greenstein, writing for Contrarian Profits.

The irony, of course, is that Washington and Moscow are now marching in lockstep with each other when it comes to their stance on market intervention. After a series of unprecedented bailouts, the US has effectively renounced the principle that markets are self-regulating.

This from Irwin:

Russia’s RTSI Index [RTS.RS] jumped 20.17%. That’s huge, especially in comparison China’s SSE Composite Index [Shanghai:000001.SS], which gained 9.46% and the Hang Seng Index [HKSE:^HSI], which closed up yesterday 9.61%.

Meanwhile, the Dow closed yesterday with a gain of 3.9%.

That Moscow and Washington have both used massive bailouts to rescue domestic (and international) markets shows how close the former enemies have come in terms of their so-called capitalistic philosophies.

Like the US, Russia’s stock markets fell into disarray on fears of an economic slowdown. Depending on which news outlet you read and believe, there are three main reasons for this: 1) that Moscow can’t manage markets; 2) that the US played economic warfare and punished Moscow for the Georgia incursion; and 4) that the international business community got completely freaked out by Putin’s nationalization movement and bailed.

Although Moscow and Washington weren’t the only central banks to pump cash into global markets, there is a sense of irony that these two in particular are operating in lockstep when it comes to rescue strategies.

Investors in the RTSI Index clearly came out on top with this huge gain (whether or not it’s sustainable remains to be seen). But profits aside, Moscow scored an even bigger win as the US pretty much renounced the notion that free markets are self-regulating - something that Russia and China have known for a while.

With Washington’s tacit admission that it really did lose the Cold War to Russia any forthcoming clashes will end up becoming mere theater.

It seems almost impossible to believe that future run-ins can have anything to do with contrasting political philosophies. Instead, we may be entering a new type of Cold War that’s all about natural resources - and consequently money.

If you believe that line of thinking, the long term bet would be on the RTSI Index. It’s almost comical to think that either of the presidential candidates and the current administration can stand up to Iron Man Putin (although it would be interesting to see what Sarah Palin can do).

Sooner rather than later the markets will once again stabilize. You should consider going long with the genuine article, the RTSI Index, versus the imitation capitalist index, the Dow.

Disclosure: None

Comments

[Lewis Whoke...:]

The potential exists that Vlad Putin may do to Russia what Robert Mugabe did to Zimbabwe. Zimbabwe's destruction started with land seizures. If the government doesn't defend property rights then there are no rights in the country.

Ironically, Putin may view the destruction of Russian capitalism as a "good" thing if his goal is to bring back his beloved Comunist dictatorship.

I would only play Russia from the short side.

2008 Sep 23 07:59 AM

[svosavvy:]

Yes, I think pootie fancies himself the next peter the great. That scares me a bit. The playbook for crazy dictators probably says when the economy is in the toilet, go blow something up to take our mind off it. So go ahead and flex that "red" muscle and go back to the times of a potato truck half full of rocks is worth the same as a potato truck full of potatoes.

2008 Sep 23 12:45 PM

[MarvinMBA:]

When excess liquidity is created visa visa the housing bubble sooner or later the excess liquidity disappears by devaluation or loss of buying power. We are experiancing both. The bailout will just create more excess liquidity as it trys to start the bubble process all over again. Trying to solve our problem by throwing money at the losers is sure to create more losers. In this case we are creating new losers and going to be losing more and more. At this stage there is nothing this administration can do and there certainly is nothing the average guy in the street can do except go bankrupt.

2008 Sep 25 11:16 AM