Nick Giambruno: Welcome, Jim. As you know, Doug Casey and I travel the world surveying crisis markets, and we always like to get your take on things. Today I want to talk to you about Russia, which is a very hated market right now. What are your thoughts on Russia in general and on Russian stocks in particular?
Well, I’m optimistic about the future of Russia. I was optimistic before this war started in Ukraine, which was instigated by the US, of course. But in any case, I bought more Russia during the Crimea incident, and I’m looking to buy still more.
Unfortunately, what’s happening is certainly not good for the United States. It’s driving Russia and Asia together, which means we’re going to suffer in the long run—the US and Europe. Another of the big four Chinese banks opened a branch in Moscow recently. The Iranians are getting closer to the Russians. The Russians recently finished a railroad into North Korea down to the Port Rason, which is the northernmost ice-free port in Asia. The Russians have put a lot of money into the Trans-Siberian railroad to update it and upgrade it, all of which goes right by China.
Usually, people who do a lot of business together wind up doing other things together, such as fighting wars, but this isn’t any kind of immediate development. I don’t think the Russians, the Chinese, and the Iranians are about to invade America.
Nick: So because of these economic ties to Asia, the Russians are not as dependent on the West. Is that why you’re optimistic about Russia?
Jim: I first went to the Soviet Union in 1966, and I came away very pessimistic. And I was pessimistic for the next 47 years, because I didn’t see how it could possibly work.
But then I started noticing, a year or two ago, that now everybody hates Russia—the market is not at all interesting to anybody anymore.
You may remember in the 1990s, and even the first decade of this century, everybody was enthusiastic about Russia. Lots of people had periodic bouts of huge enthusiasm. I was short the ruble in 1998, but other than that, I had never invested in Russia, certainly not on the long side. But a year or two ago I started noticing that things are changing in Russia… something is going on in the Kremlin. They understand they can’t just shoot people, confiscate people’s assets. They have to play by the rules if they want to develop their economy.
Now Russia has a convertible currency—and most countries don’t have convertible currencies, but the Russians do. They have fairly large foreign currency reserves and are building up more assets. Having driven across Russia a couple of times, I know they have vast natural resources. And now that the Trans-Siberian Railway has been rebuilt, it’s a huge asset as well.
So I see all these things. I knew the market was depressed, knew nobody liked it, so I started looking for and finding a few investments in Russia.
Nick: Yeah, that definitely seems to make sense when you look at the sentiment and long-term fundamentals. So where do you see the conflict with Ukraine and the tensions with the West going?
Jim: Well, the tensions are going to continue to grow, at least as long as you have the same bureaucrats in Washington. You know, they all have a professional stake in making sure that things don’t calm down in the former Soviet Union—so I don’t see things getting better any time soon.
I do notice that some companies and even countries have started pulling back from the sanctions. Many companies and people are starting to say, “Wait a minute, what is all this about?”
People are starting to reexamine the propaganda that comes out of Washington. Even the Germans are starting to reassess the situation. I suspect that things will cool off eventually, because the US doesn’t have much support and they’ve got plenty of other wars they want to fight or are keen to get started.
So Russia will become more and more dominant in Ukraine. The east is more or less Russian. Crimea was always Russian until Khrushchev got drunk one night and gave it away. So I suspect you will see more and more disintegration of Ukraine, which by the way is good for Ukraine and good for the world.
We don’t complain when the Scots have an election as to whether they want to leave the UK or not. People in Spain want to leave. We say we’re in favor of self-determination. We let Czechoslovakia break up, Yugoslavia break up, Ethiopia break up. These things are usually good. Many borders that exist are historic anomalies, and they should break up. Just because something happened after the First World War or Second World War and some bureaucrats drew a border doesn’t mean it’s logical or should survive.
So I suspect you will see more of eastern Ukraine becoming more and more Russian. I don’t see America going to war, I certainly don’t see Europe going to war over Ukraine, and so America will just sort of slowly slide away and have to admit another miscalculation.
Nick: I agree. Would you also say that Europe’s dependence on Russia for energy limits how far the sanctions can go? There’s been speculation that the Europeans are going to cut Russia out of the SWIFT system, like they did with Iran.