Thursday, May 31, 2007

Why Isn't Anyone Talking About Russia?

''As they say in poker, 'If you've been in the game 30 minutes and don't know who the patsy is, you're the patsy.' .'' --Warren Buffet

I've talked about Russia's bubbles on here at least once. How many times I cannot recall. Everyone seems focused on China but Russia's equity market has surged well past China over the past few years. Dueling bubbles amongst the communist capitalists. Who can screw up the most appears to be the question. Think China's money supply growth and financial underpinnings are akin to chop suey? Russia's appears to be as bad or worse. I haven't done any digging on the Russian central banking web site but I read a while ago broad money supply measurements grew 50% last year. That is enough to cause a myocardial infarction if true. Some have speculated Russia's banking system could melt down. As I wrote on here before, Russia knows it and hired a reformer to try to gain control of the banking system. He was assassinated as I recall. (I don't want to take the time to read my older Russian posts so I'm going from memory.) I have never, ever heard of money supply growth beyond 20%, (China's being the only economy with such outrageous growth of 20% and has done so for half a dozen years.) in a leading economy. I'm starting to have a cow. This is likely going to be one hell of an unholy mess in emerging markets.

Russia is likely the most important energy based economy on the planet. The Templeton Russian Fund shown below has not budged for months. In fact, unless it picks up steam, it is looking like a double top has completed its formation and appears ready to tank. Unless the formation on the chart changes, I expect the fund to eventually drop 70-80% from its peak. That'll fix the money supply problem. And, if central bankers try to reflate these overheated economies, then life will really get interesting. Want to see a rapidly rising dollar? That'd likely do it.

That bodes ill for oil, commodities and likely the global economies. Now, I don't know where I can get access to the Russian equity market data other than through this fund but I doubt the data points are much different.

I've talked about it repeatedly since starting this blog but emerging markets do not have the transparency, investment controls, economic controls, regulations and investor protection people in developed markets have taken for granted for decades if not centuries. I believe I used the term "Wild West" to describe their lack of sophistication. I'm beginning to wonder if emerging market messes will stunt globalization. That is an out of bounds statement but these appear to be out of bounds situations. We'll have to wait and watch but I'm dubious of these countries being able to handle the risks and imbalances mounting in their economies.

posted by TimingLogic at 8:00 AM

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