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Russian Bonds: Are They the Ultimate Safe Bet?

Russian imports and exports
Russia imports and exports are only the tip of a coming economic superpower status (Gelio Vostok)

Is it just me, or is Forbes' Kenneth Rapoza the last smart investment adviser standing in mainstream media? A report from the veteran financial analyst yesterday gives us the "down and dirty" on Russia's real economic future. On the same day media from BBC to Newsweek spouts tabloid-like pokes at Vladimir Putin's sleeping habits, Rapoza throws down sound investment advice for long-term fixed income investors. Investment yields everywhere are at an all time low, so why is this reporter the only voice of reason? Here's some insight, from and on Ken Rapoza, and straight talk on where Russia is headed.

In a media world dominated by corporate levers and controlled messages, Rapoza is unique among western journalists. My first contact with him was one of those "Aha!" moments of unexpected enlightenment a few years back. Having read one of this columns when I was the publisher at Russia Insider, a report of mine that mentioned his name provoked an email response. The long and short for those who do not know Ken, is that he's "old school" journalism, an analyst and reporter too good to be "let go" for his convictions. I'll not say more here, but just so the reader knows. Now to continue. 

Kenneth Rapoza via Brazil Wire and Craig Smith

Rapoza's latest report, on the Russian bond market that was in 2015, all set to self-destruct, reveals more truth about Russia than 500,000 Obama propaganda newsreels. My readers know I love metaphors, but news Russia's central bank is chopping interest rates down, down, down can mean only one thing - recovery seems imminent. While the Forbes analyst does not go so far as to proclaim the Russian economy out of the woods, Rapoza calling these bonds "a good bet" is significant: 

"In a yield hungry world, if investors keep believing that Russia can service its debts — and it can — and if inflation remains under control, then Russian bonds might be a good bet for global fixed income investors."

This report is not a long analysis, but Russia's fiscal makeup is clearly forecast. Conservative and cautious as Russian economists and politicians are, for Central bank governor Elvira Nabiullina to chop these interest rates now, it's a meaningful tidbit, and Rapoza is very good at leaving a trail of investment breadcrumbs. Take this report on China's "Silk Road" spending revitalization. Even though Forbes' top analyst does not tie in the Asian Infrastructure Investment Bank (AIIB) with Russia potential, we know what lies underneath these announcements and projections. A case in point is the recent ASEAN-Russia Summit in Sochi, which bears mightily if we want to understand global financial markets. President Vladimir Putin had invited the AIIB to invest in Russia, and the documents from the summit reveal cooperation across the board, from sports and youth programs, to security, to the environment, and even human rights issues in between these nations. In May the AIIB announced road shows into Russia to help businesses access some of the $100 billion in investment China has to lend. China says "ditto Ken Rapoza" on Russia being the safe bet. 

Russian President Vladimir Putin with ASEAN-RUSSIA SUMMIT delegates at a working breakfast in Sochi last month

The significance of the so-called Sochi Declaratikon derived from this summit have gone unattended by western media. The delcaratikon of stated potential of agricultural cooperation alone, is monumental in the context of global futures. Vladimir Putin's recent condemnation of GMOs, and the agricultural potention of the Russian Federation cannot be overlooked in the context of investment potential. To quote a section from the Sochi Declaration, the signators agree to:

"Promote cooperation in agriculture, ensuring national and regional food security, as well as the expansion of trade and investments in healthy and ecologically clean food products."

Vladimir Putin on working meeting with Governor of Amur Region Alexander Kozlov (Kremlin)

And the indications for agriculture are mirrored in high-tech and science, sustainable energy, maritime activity, transport, and even free trade agremments. Furthermore, Russia is not only forging an immensely powerful financial alliance with China, but with the BRICs and with Southeast Asia nations like Vietnam, Laos, Thailand, and the rest. I'll leave off here for the sake of saving your time, and our space. The bottom line on Russia is, the world of global finance can go nowhere without Russia, and especially not with China in the same game. This is in fact, Vladimir Putin's biggest trump card, and it is irrefutable. Returning to the level headed Kenneth Rapoza.....

Even financial gurus, if they are being honest, cannot ignore the hype and friction that new Cold War geopolitics fosters. Rapoza, who seldom ventured into NATO and militarism issues before, has been compelled to voice some reason for his readers. This post from June 6th (D-Day interestingly), speaks of a new kind of holistic analysis, a "cautionary" footnote on usually clinical investing news. "Russia 'Will Never' Attack A NATO Country, Unless Provoked" differentiates the Forbes author even further, for his uncanny understanding of Russian policy. Russia has no intetion whatsoever over snatching more territory, Putin's people have more than enough. Rapoza even ventures so far as to "name" Hillary Clinton for what she is; is the biggest anti-Russia war hawk, having warned numerous times that the Russians are a threat to the Baltics. As the neocons and Washington think tanks pander Russian imperialism, inside the country people like Prime Minister Dmity Medvedev work to build the "new Russia". To the keen observer, the tag-team of Putin and Medvedev is working miracles under extreme circumstances. 

Prime Minister Dmitry Medvedev's role is vastly underestimated by western analysts. Here he Forum of the party "United Russia", "Education and science – the future of Russia"

I chose to report about Ken Rapoza here for a couple of reasons. First and foremost, I respect the guy, and respect for journalism these days is a priceless commodity. But the main reason I used the Forbes writer as an "investment belief" benchmark, is the he is right 99% of the time. Like any good analyst, he is conservative in his assessments, for reputation and credibility mean a lot to such people. This is one reason Forbes, which is owned and run by American publisher and politician Steve Forbes, has to cling to such journalists. I am no fan of Forbes, because for every Ken Rapoza, there are 10 sellouts writing for the magazine (don't call me on it, I can prove it). So Forbes is almost alone in having in its stable, somebody capable (for whatever reason) of eluding the bias. Looking at the bond story, only Bloomberg covered it, and only because they had to, Google News reveals no other investing positive.

In water resources alone, Russia stands alone. In the coming years, water resources will be the new oil - (via our partners at Gelio Vostok)

So, the bottom line for any investor is "who to trust". When all is said and done, analysis that leads investment away from the greatest profit becomes worthless. And Rapoza has been right time and again, conservatively (but often positively) forecasting Russia, the BRICS, and especially Brazilian economic situations. A good case to finish off with is "yes Russia can live without Europe", where the Forbes soothsayer really just restates the chill obvious. Russia has always been a world its own, because of geography, and attempts to subdue or isolate her. The significance of level reporting like that of Rapoza is crystal clear for me. Eventually, underneath the tabloid propaganda speak, the real thinkers weigh what is really going on. This article on The Diplomat cites Rapoza, in correctly assesing many needed measures Putin's adminsitration must initiate. I'll conclude here, as author imani Pant concludes in the Diplomat piece: 

"Russia’s path to recovery and growth depends on the pace of reforms, especially in the next two years. Facilitating structural change will be especially critical as Russia strives to cope in the long-term with a simultaneous demographic and economic transformation. Reforms would require privatization of selected sectors (like textiles), transparent and efficient public investment, better customs administration, and reduced trade barriers to increase the performance of domestic market."

 

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