Ruble

[phirang]

Does anyone know of a good long-ruble investment vehicle? Russia seems to have everything in place: tons of natural resources and an evolving economy and international presence.

[olivegreen]

I was thinking that myself the other day... not that I know anything, but it seems logical to me... How do you invest in Russia?

olive green

[Jim Nickerson]

I was thinking that myself the other day... not that I know anything, but it seems logical to me... How do you invest in Russia?

olive green

TRF is one closed end fund run by Templeton. There are other mutual funds. I know of no simple way to buy rubles, but I don't know a lot of stuff.

[touchring]

Be cautious of the commodity bubble, especially metals, don't know if it can continue after the construction boom subsides in 2009.



Does anyone know of a good long-ruble investment vehicle? Russia seems to have everything in place: tons of natural resources and an evolving economy and international presence.

[phirang]

Im thinking more along the lines of the ruble becoming a regional reserve currency(ok, laugh it up, guys!)

[medved]

Russia seems to have everything in place: tons of natural resources

Yes, but little to no infrastructure. No decent roads even in Central Russia much less in Western Siberia where they have lots of oil.

and an evolving economy

No. It turns into Saudi Arabia. Whatever pathetic industry existed back in the 70s and 80s is winding down. Last summer I went there and met some old friends. All of us got the same MS degree in electrical engineering back in the 70s. Only about 10% of them are still working as engineers. Others are in real estate, police, social services, tourism etc. St. Petersburg ceased to be an industrial center and turned into a tourist attraction. This makes the locals pretty happy, because the city and the river is much cleaner now.

and international presence

E.g. in Chechnya. Also, I did not notice, that people in Ukraine and Lithuania are really happy about this presence.

[BiscayneSunrise]

Seems to me that the US and Russia should be running, not walking, into each others arms. If they could put the Cold War pride aside, they have much in common and really need each other, culturally, economically and politically. Even though Russia oftentimes looks east and considers itself apart from Europe, it is more western than anything else. As Islam and China continue to rise the Russians will probably find the US to be better allies and more culturally attuned than anyone on their southern and eastern borders.

[Tulpen]

Russia seems to have everything in place
Everything except for a minor thing: a stable political situation. That minor thing is more than enough for me to avoid it like the plague.

[lomaxzoltor]

Everything except for a minor thing: a stable political situation. That minor thing is more than enough for me to avoid it like the plague.

It seems like the short term bet might not be so sure, especially if their oil production continues to decline (http://www.bloomberg.com/apps/news?pid=20601072&sid=arXTpOY4omL4&refer=energy).
It also seems that the dollar is going to gain some ground closer to election time in the US as the Fed there puts some pressure on the ECB and BOJ to start dropping rates to help prop the US $ back up. The final observation is that Russia does not seem to be using this new wealth on infrastructure investments which could pay off in the form major commodities increases (especially PMs, mainly platinum, and copper).

Long term though, I think their lack of oil production infrastructure and spending today will be an enormous plus for them come 2015 or so (since that slows their reserve draw) and could put them in the spot filled by the Saudis today. This will be very clear come 2010 and if KSR is still off their 2006 production numbers.

[GRG55]

Im thinking more along the lines of the ruble becoming a regional reserve currency(ok, laugh it up, guys!)

I recently saw a listing somewhere (not sure if it was on iTulip, but quite possibly) of money supply rate of increases (Finster; did you post a table of these recently?) and I recall correctly Russia was in first place. Not the sort of thing that would lead to adoption as a reserve currency, I wouldn't think.

[phirang]

please read:

http://www.americanfreepress.net/html/russia_leaves_u_s_131.html

insights welcome.

[c1ue]

It is absolutely true that Russia is increasing money supply at a huge rate, but this is misleading for 2 reasons:

1) There is a tremendous amount of black market cash. As Russia squeezes the means of black market money movement, more of this is surfacing.

2) Russia is growing fast. Not as fast as money supply, but ultimately it is the ratio of money supply growth vs. productivity growth. Can you honestly say - even with Russia's large MZ numbers - that it is a higher ratio than the US?

As for investments - it all depends on what you are looking for.

I can definitively say there are lots of very interesting, lifetime type investments in Russia right now. Hence my recent series of trips there.

However, traditional investments in Russia are a huge mistake. Don't buy stocks, don't buy bonds, don't buy the currency. The key is just as it is here in the US - buy assets which will have pricing power and generate income. The trick is that the traditional assets have big boys sitting on them already - thus you must find those areas which aren't 'sexy' or well understood.

[EJ]

It is absolutely true that Russia is increasing money supply at a huge rate, but this is misleading for 2 reasons:

1) There is a tremendous amount of black market cash. As Russia squeezes the means of black market money movement, more of this is surfacing.

2) Russia is growing fast. Not as fast as money supply, but ultimately it is the ratio of money supply growth vs. productivity growth. Can you honestly say - even with Russia's large MZ numbers - that it is a higher ratio than the US?

As for investments - it all depends on what you are looking for.

I can definitively say there are lots of very interesting, lifetime type investments in Russia right now. Hence my recent series of trips there.

However, traditional investments in Russia are a huge mistake. Don't buy stocks, don't buy bonds, don't buy the currency. The key is just as it is here in the US - buy assets which will have pricing power and generate income. The trick is that the traditional assets have big boys sitting on them already - thus you must find those areas which aren't 'sexy' or well understood.

This is as Ron Ward told us last year: Ronald C. Ward, President FutureSelect Porfolio Management (http://itulip.com/forums/showthread.php?t=2173)

He brushed aside the political risks and "asset stripping" that Jim Rogers warned us about: Jim Rogers, Follow-up Interview on Russia and US Housing and Economy (http://itulip.com/forums/showthread.php?t=1130).

Looking forward to hearing more about your trips there.

[medved]

1) There is a tremendous amount of black market cash.

It has always been there, and will always be.

As Russia squeezes the means of black market money movement, more of this is surfacing.

LOLOLOL!! Очень смешно! (Very funny!)

Ivan the Terrible, Peter The Great, Lenin and Stalin already tried to do it without much of success. Why do you think Putin will succeed? I think, in the not so distant future black market cash will go back to the black market.

As for investments - it all depends on what you are looking for.

I can definitively say there are lots of very interesting, lifetime type investments in Russia right now. Hence my recent series of trips there.

I am not sure about lifetime. Even if the situation stabilizes, and you do some good business, it all can change very quickly. I would guess, by the end of commodity bull market Russia will get back into its habitual state of turmoil.

[c1ue]

Ivan the Terrible, Peter The Great, Lenin and Stalin already tried to do it without much of success. Why do you think Putin will succeed? I think, in the not so distant future black market cash will go back to the black market.


Neither Ivan the Terrible nor Peter the Great had fiat currencies.

Stalin had a fiat currency, but no one else outside Russia would use it.

The vehicle today is very straightforward: as inflation remains over 10%, any and all money not in either interest bearing or price power forms continues to disappear.

That the majority of this 'black cash' is in dollars doesn't help; even without Russian inflation, dollar devaluation it also killing savings - especially including black cash.

Right now most business owners are profiteering enough that they don't care about their existing black cash eroding, but at some point this gravy train will end.

I detect the beginning signs of a credit/asset spiral; at some point incomes will have to be better documented in order to access credit.

The rapid increase in business verification is also a factor - I've seen 10x or more inspections recently to verify business owners exist, are alive, live in the area, and actually do something with the business - a very common scam previously.

Between asset inflation, money supply/CPI inflation, dollar devaluation, and the inevitable progression of business practices toward those businesses which can deliver more with less overhead, it does not bode well for those sitting on 'Ben Franklin' mattresses.

I am not sure about lifetime. Even if the situation stabilizes, and you do some good business, it all can change very quickly. I would guess, by the end of commodity bull market Russia will get back into its habitual state of turmoil.

Well, I have my own opinions, and I'm flying into Russia 6 times a year as proof of my own conviction.

If you do business based on siloviki black market contracts, 'new market' smell, or commodities, I completely agree that this can all change.

But as Dr. Michael Hudson pointed out, there are plenty of cash generating resources which are not commodities, which have pricing power, and which are also either local or small enough that large corporations cannot successfully monopolize them.

I'll give you a little taste:

One local opportunity I've already identified is to attack the kiosks.

By working with the local government, I have presented a proposal to replace the kiosks with vending stations in the subways and at the major marshupka/bus stops.

The vending machines look better, are 'clean' so will produce tax revenue, and I can even install versions which check IDs for smoking age restrictions, etc.

A little backhand non-profit institution ownership percentage to you know who, and voila.

Each $1 investment should return around $0.65 per month; I just need to have the business be survive for 6 months to have made a stinking pile of money. This is excluding advertising opportunities on the machines - with the upcoming liquor and smoking bans that money needs to go somewhere...

But if a longer term survival is in the works, the vending concession is a structural monopoly.

First 6 stops are going in in the next 2 months.

And this is the red headed stepchild of the bunch - vending is traditionally a really crappy business in most advanced countries.

[medved]

Neither Ivan the Terrible nor Peter the Great had fiat currencies.

Stalin had a fiat currency, but no one else outside Russia would use it.

This is correct, but does not apply to my post. I was talking about "squeezing" cash out of the black market, whether it was fiat or "real". There is no such thing as Russia without significant black market. Russia without the black market is like America without the Statue of Liberty. The more power the authorities gain, the bigger the black market becomes.

The vehicle today is very straightforward: as inflation remains over 10%, any and all money not in either interest bearing or price power forms continues to disappear.

That the majority of this 'black cash' is in dollars doesn't help; even without Russian inflation, dollar devaluation it also killing savings - especially including black cash.

It is only a problem for the middle class people with some savings. I doubt there are a lot of them in Russia.


Right now most business owners are profiteering enough that they don't care about their existing black cash eroding, but at some point this gravy train will end.

I detect the beginning signs of a credit/asset spiral; at some point incomes will have to be better documented in order to access credit.

Precisely. The more this inflation mentality takes hold, the more people realize they need to keep their cash to the bare minimum. Business owners will reinvest it in the business assets, and consumers will spend it faster, than they earn it. AMOF, this can be good enough for you, if your business beats inflation.

The rapid increase in business verification is also a factor - I've seen 10x or more inspections recently to verify business owners exist, are alive, live in the area, and actually do something with the business - a very common scam previously.

It is just an increase in the real cost of doing business, because you need to buy off more people. It will put some pressure on the black market, but it will survive.

Well, I have my own opinions, and I'm flying into Russia 6 times a year as proof of my own conviction.

If you do business based on siloviki black market contracts, 'new market' smell, or commodities, I completely agree that this can all change.

But as Dr. Michael Hudson pointed out, there are plenty of cash generating resources which are not commodities, which have pricing power, and which are also either local or small enough that large corporations cannot successfully monopolize them.

I'll give you a little taste:

One local opportunity I've already identified is to attack the kiosks.

By working with the local government, I have presented a proposal to replace the kiosks with vending stations in the subways and at the major marshupka/bus stops.

The vending machines look better, are 'clean' so will produce tax revenue, and I can even install versions which check IDs for smoking age restrictions, etc.

A little backhand non-profit institution ownership percentage to you know who, and voila.

Each $1 investment should return around $0.65 per month; I just need to have the business be survive for 6 months to have made a stinking pile of money. This is excluding advertising opportunities on the machines - with the upcoming liquor and smoking bans that money needs to go somewhere...

But if a longer term survival is in the works, the vending concession is a structural monopoly.

First 6 stops are going in in the next 2 months.

And this is the red headed stepchild of the bunch - vending is traditionally a really crappy business in most advanced countries.

In your specific circumstances you might be correct. If you learned, how to handle you-know-whos, you can be successful in Russia. However, I want to emphasize, that any business there is speculation rather than investment, and timing is very important. When I talk about boom in commodities I don't mean, it is the only way to make money there. What I mean is, a lot of money, that goes around comes from the boom in commodities. Try to do your business in Ukraine (which is, roughly, equivalent to Russia without oil/gas) and you will realize, there are much less business opportunities for the guys like you. For now there is enough of the oil money for you, your customers, you-know-whos and Mr. Putin. However, as the you-know-whos become more and more greedy, and the oil boom winds down, your profits will shrink. You need to watch out for the right moment to quit.

Ни пуха, ни пера! (good luck!)

[bill]

Im thinking more along the lines of the ruble becoming a regional reserve currency(ok, laugh it up, guys!)


http://www.reuters.com/article/GCA-Russia/idUSL0827127520080608


IMF says ruble could become reserve currency

Sun Jun 8, 2008 7:34am EDT

By Robin Paxton
ST PETERSBURG, Russia (Reuters) - The Russian ruble could potentially become a reserve currency if the country's economy continues to grow, a top official at the International Monetary Fund said on Sunday.
"It's quite conceivable that the ruble could emerge as a much more important international currency," John Lipsky, the fund's first deputy managing director, told Reuters in an interview on the sidelines of the St Petersburg Economic Forum.
"The structural reforms that would provide this seem clear. The timetable will emerge in turn," he said.
President Dmitry Medvedev said during the forum he wanted to turn the ruble into a key regional reserve currency as part of a Kremlin drive to make Russia an international financial centre.
Lipsky earlier told reporters that fighting inflation and maintaining strong economic growth were among the main tasks facing Russia as it seeks to grow the ruble's influence on world currency markets.
"Developments in the Russian economy have been broadly very favorable. There is a sense of confidence and modernization; an increasing recognition that, if managed well, the Russian economy will play an increasingly important role," he said.
"To become a reserve currency, experience shows that they're always backed by a developed financial system, so the development and modernization of the Russian financial system will open the prospect of the ruble becoming more generally used as a reserve currency."
The IMF forecasts Russian economic growth in the region of 8 percent both this year and next. It forecasts inflation to reach around 14 percent this year, far above the government's current target of 10.5 percent.
(Reporting by Robin Paxton; Editing by David Cowell)

[c1ue]

Ruble as a reserve currency would be a nice freebie for Russia, but I think they first have to break up the wage/price inflation spiral revving up there.

Certainly having a ruble market for oil/natural gas would be close enough.

[metalman]

This is correct, but does not apply to my post. I was talking about "squeezing" cash out of the black market, whether it was fiat or "real". There is no such thing as Russia without significant black market. Russia without the black market is like America without the Statue of Liberty. The more power the authorities gain, the bigger the black market becomes.



It is only a problem for the middle class people with some savings. I doubt there are a lot of them in Russia.




Precisely. The more this inflation mentality takes hold, the more people realize they need to keep their cash to the bare minimum. Business owners will reinvest it in the business assets, and consumers will spend it faster, than they earn it. AMOF, this can be good enough for you, if your business beats inflation.



It is just an increase in the real cost of doing business, because you need to buy off more people. It will put some pressure on the black market, but it will survive.



In your specific circumstances you might be correct. If you learned, how to handle you-know-whos, you can be successful in Russia. However, I want to emphasize, that any business there is speculation rather than investment, and timing is very important. When I talk about boom in commodities I don't mean, it is the only way to make money there. What I mean is, a lot of money, that goes around comes from the boom in commodities. Try to do your business in Ukraine (which is, roughly, equivalent to Russia without oil/gas) and you will realize, there are much less business opportunities for the guys like you. For now there is enough of the oil money for you, your customers, you-know-whos and Mr. Putin. However, as the you-know-whos become more and more greedy, and the oil boom winds down, your profits will shrink. You need to watch out for the right moment to quit.

Ни пуха, ни пера! (good luck!)

so i'm reading this post and gooooooogle is serving up an ad for russian brides! no kidding.

tell ya what. when more women are trying to get into russia than out, i'll maybe start to consider the ruble as a reserve currency.

meanwhile, metalman only accepts rubles this way...

http://www.pandaamerica.com/images/1902BuRussia5Ruble500.jpg

[Verrocchio]

Missing from the discussion so far is the fact that the Russian ruble is a managed currency: 55 kopecks to the US dollar and 45 kopecks to the Euro.

[c1ue]

Missing from the discussion so far is the fact that the Russian ruble is a managed currency: 55 kopecks to the US dollar and 45 kopecks to the Euro.

Huh? The ruble was 30+ vs. dollar in 2000, it was 27-ish 2 years ago, and now it is 23.7-ish. How is that either managed and or 55 cents to the dollar?

You're getting wrong info somewhere.

so i'm reading this post and gooooooogle is serving up an ad for russian brides! no kidding.

tell ya what. when more women are trying to get into russia than out, i'll maybe start to consider the ruble as a reserve currency.


What you are seeing is the divide in Russia: rural vs. Moscow/St. Petersburg/mining towns.

I guarantee you there is a net inflow of women - Russian and otherwise - into these areas.

However, for a dveyushka in the boonies, being a bride isn't so bad.

More importantly, a lot of these women are just that: women (not girls).

Russian women with kids and 35+, and with Russian men having much lower life expectancies - are in a situation.

Only Americans are so oppressed by Women's Lib that they'd go for it.

Then there are the gold-diggers...but those aren't restricted to Russia.

[Verrocchio]

Huh? The ruble was 30+ vs. dollar in 2000, it was 27-ish 2 years ago, and now it is 23.7-ish. How is that either managed and or 55 cents to the dollar?

You're getting wrong info somewhere.


Easy, big fella.

Wrong info? Au contraire, Clue. See the Bloomberg article below (bold added for emphasis).

Ruble Falls Versus Basket in Week as Bank Rossii Sells Currency (http://www.bloomberg.com/apps/news?pid=20602098&sid=aLrosOUkuV.g&refer=world_currencies)
June 6 (Bloomberg)
<excerpt>
The ruble is a fixed, managed currency that Bank Rossii keeps within a trading band versus the basket to limit the impact of its movements on Russian exporters and manufacturers. For the past month, the bank has also bought and sold the ruble at different levels, causing it to fluctuate (http://www.bloomberg.com/apps/quote?ticker=.RUBLE%3AIND) up to 0.3 percent in each direction to spur volatility and reduce its investor-appeal.


Russia's currency (http://www.bloomberg.com/apps/quote?ticker=.RUBLE%3AIND) was little changed at 29.6377 by 11:24 a.m. in Moscow versus the basket, which is calculated by multiplying the ruble's levels against the dollar and euro by 0.55 and 0.45 respectively, and adding the two numbers together.
The ruble headed for a weekly drop versus the euro, losing 0.2 percent to 36.9167 per euro. Against the dollar, the currency was little changed at 23.6740 per dollar, from 23.6840 on May 30.
Goldman Sachs, Merrill Lynch & Co. (http://www.bloomberg.com/apps/quote?ticker=MER%3AUS) and Deutsche Bank AG are among financial institutions forecasting Bank Rossii will be forced to let the ruble rise by as much as 4 percent in the next year to reduce import costs and curb price growth.
Russia's annual inflation (http://www.bloomberg.com/apps/quote?ticker=RUCPIYOY%3AIND) rate rose to 15.1 percent in May, the highest level in more than five years, the Federal Statistics Service said yesterday. As inflation quickened to 11.9 percent in 2007, the central bank allowed the ruble to appreciate three times against the basket by a total of about 1.3 percent.

[c1ue]

Well, if the ruble is managed, then the Bank of Russia is doing a piss poor job.

The ruble has changed 3% just in the last 6 months, and 6% peak to trough, all with volatility:

http://www.exchange-rates.org/history/RUB/USD/T

If you look at the longer term, the change is significantly larger along with significant swings in both directions.

Compare with a REAL managed currency:

http://www.exchange-rates.org/history/CNY/USD/G

I'm sure there are those who like to think the RUB is managed, but you shouldn't believe everything you read.

If the RUB is managed, then so is the Euro:

http://www.exchange-rates.org/history/EUR/USD/T

[Verrocchio]

Well, if the ruble is managed, then the Bank of Russia is doing a piss poor job.

The ruble has changed 3% just in the last 6 months, and 6% peak to trough, all with volatility:

http://www.exchange-rates.org/history/RUB/USD/T

If you look at the longer term, the change is significantly larger along with significant swings in both directions.

Compare with a REAL managed currency:

http://www.exchange-rates.org/history/CNY/USD/G

I'm sure there are those who like to think the RUB is managed, but you shouldn't believe everything you read.

If the RUB is managed, then so is the Euro:

http://www.exchange-rates.org/history/EUR/USD/T

The links that you posted are for exchange rates of the ruble and Euro against the US dollar. Wouldn't the more relevant comparison be the ruble against both currencies (55% E; 45%D)?

[c1ue]

V,

That is a good point - it may be that the ruble is managed against the Euro but not against the dollar.

If that is true, then we should see something like the CNY/USD graph in the RUB/EUR graph:

http://www.exchange-rates.org/history/EUR/RUB/G

Unfortunately, it doesn't look that way either although the delta is less at 4.6% peak to trough and 2.9% nominal.

The same behavior as the EUR vs. DOL in fact.

Again, doesn't look like a very good job of management.

[phirang]

the russian CB is very active in trying to shake off speculators from the ruble... usually a good contrarian indicator that it's a decent long.