What if you discovered that America actually lost the Cold War?
When you accept the truth that the Cold War was an American catastrophe, everything starts to make sense from an investment perspective. Even the craziest money-making ideas, like giant shopping malls in Siberia.
You have to check it out...
This article about the new Siberian mall ran in the May 17th issue of the New York Times. It's a must-read for investors interested in emerging markets such as Russia. The story is important, not only for its gist, but for what it doesn't tell you. It's a classic case of Big Media delivering the sizzle without the meat.
From his high perch in the cynic-sphere, Times reporter Andrew Kramer takes the view that mall sprawl in Siberia is just another installment in the rags-to-riches insanity of 21st century Russia.
The mall is jammed with shopaholic Ruskies, once again waiting in excruciating lines, but this time to buy Ikea sofa beds instead of moldy bread. Former Soviet factories tumble under the wrecking ball of old-fashioned American consumerism. A big round of applause for Uncle Sam.
The story could easily give you a rush of patriotism. Yes, democracy has saved demon Siberia. Yes, our way of life has touched the most wretched of the Evil Empire. Yes, the Siberians can now share the joy of assembling an Ikea filing cabinet. It makes you feel so darn good to believe we really did win the Cold War.
But if you assume that we lost the Cold War, you can see that the retail boom in Russia is exacting a high price on you.
With premium gas at $4.09 a gallon, and a barrel of crude ready to breach $130, energy-rich Russia is inflicting revenge on America. In March, we imported about 1 million barrels of oil from Russia, up 35% from February. Year-over-year imports of Russian oil dropped 1.9 million barrels -- a decrease of 47.3% -- but that's just a fluke.
Because Russian oil production in Q1 of this year saw a pullback in general. Plus the U.S. Government's Energy Information Administration (EIA) predicts that Russia's oil production will rise later this year -- fattening the coffers of the Putin regime as oil climbs to $200 a barrel.
Don't worry, though. If the Russians have their way you won't be able to afford to drive very far. Yes, comrade, like the Soviet gulags that have been paved over for big-box retailers, the Russians want to imprison you at home and make you pay dearly for heat.
Natural gas is used in 61% of American homes for 64 million natural gas customers, according to the American Gas Association.
As the world's largest producer of natural gas, Russia indirectly calls the shots on how much Americans will pay to stay warm this winter. There, in your big-screen, surround-sound gulag, you are at the mercy of Mother Russia.
Natural gas spot prices increased in a majority of the Lower 48 States the week of May 7-14. The Henry Hub spot price increased $0.43 per million mmBtu to $11.51 -- the highest average price recorded at the Henry Hub in more than two years, according to the EIA.
At the New York Mercantile Exchange, natural gas prices also continued on an upward trend that resulted in price increases in six of the last seven weeks, reports the EIA.
And a Goldman Sachs analyst just predicted that natural gas prices the winter of 2008-2009 will go up by 23.8% from $10.50/mmBtu to $13.00/mmBtu.
Even though we get most of our natural gas from Canada, energy has become a global commodity. Gas goes up in Peoria because people in Mumbai are buying more cars. Coal goes up in Maine because China is depleting its primary domestic source of energy. And with 80% of Europe relying on Russian natural gas, prices go up because they can.
Besides, just because we don't get natural gas from Russia today doesn't mean we won't get it tomorrow. There are always reports of Russia attempting to forge agreements with American Big Oil for liquefied natural gas.
Russia won the Cold War and to the victor goes the spoils.
In 2006, Russia's GDP bolted by nearly 7%, surpassing average growth rates in all other G8 countries. In fact, 2006 marked Russia's seventh consecutive year of economic expansion -- largely driven by energy exports.
By comparison, America's overall 2006 GDP growth was 2.9%, nearly flat with 2005.
Russia's economic lead over the U.S. is stunning and shows no real signs of easing up. In terms of inflicting devastation, the old Cold War ICBMs just don't hold a candle to a $130 barrel of crude.
A study by the International Monetary Fund revealed that a $1 per barrel increase in Russia's Urals blend oil prices for a year is estimated to raise federal budget revenues by 0.35% of GDP, or $3.4 billion. To manage this oil windfall the government established an investment fund in 2004. Two years later, the fund was expected to be worth almost $80 billion, or about 7% of the country's nominal GDP.
And despite the turmoil in Russia's oil industry, oil accounted for 35.5% of overall Russian exports in the Q1 2008, up from 33% a year ago. Russia exported 50.5% of the oil it produced in the three months and 49.7% of that produced in March.
Sure the Berlin Wall came down in 1989. We saw the dramatic saga unfold in the New York Times and other Big Media conglomerates. Yes, Russia has lost the Cold War. We won. Ha, ha, ha. Let's party. Back then, a gallon of regular set you back about $1.00.
Well, I would like to suggest that if you use energy prices to measure the balance of power today, Russia has clearly won the Cold War. And for America there will be no repatriation, no Marshall Plan, no foreign aid.
Your new imperative is finding a way to protect yourself...
And the best way to do that is to invest in Russia.
You may not like the sound of that. It smacks of defeat. But only if you wrap yourself in an American flag (which you may do anyway to stay warm this winter).
On the other hand, if you stand back and take a long, cool view of the situation, investing in Russia makes a world of sense.
A quick look at the Russian RTSI Index (RUS: RTS.RS) plots the path of Cold War victory, when compared with the S&P 500 (^GSPC) and the Dow Jones Industrial Average (^DJI).
What that 12-month chart shows is that the RTSI Index soared 39.2%, while the S&P 500 dropped 6.8% and the Dow fell 4.4%. You can't negotiate those numbers into some form of American victory.
--Irwin Greenstein
