Stocks leapt higher yesterday as Ukraine and Russia agree to further talks. Jerome Powell made it clear that a rate hike is coming, but not a big one, further energizing the rally in stocks.
Goodbye, yellow brick road. If you looked up the definition of oligarch in the Oxford English Dictionary, you would find 2 definitions:
Because I am not sure that the first definition can even be defined as such, we will just have to go with the second. November 9, 1989, the Berlin Wall fell while the world (and I) watched with jaws slightly agape. It seemed to come out of nowhere and it appeared to happen so quickly. One day we were witnessing East Berliners climbing the wall while being shot at with AK-47s and the next day, that very same wall was being knocked down by bull dozers. A little over a year later, on December 26, 1991, the Soviet Union fell, and that ominous red banner was replaced by the now, ubiquitous white, blue, and red tricolour of the Russian Federation. Of course, it was bantered about for decades prior, but the banter sounded more like capitalist patriotism than fact. Banter had become reality and all at once, Russia was thrust into a new world of capitalism. State-owned enterprise needed to be privatized, en masse, which created a big opportunity for enterprising everyday entrepreneurs and a huge opportunity if one had friends…in the right places. Average citizens became instant millionaires while the well-connected would eventually become multi billionaires. The later would become the group of magnates that are now referred to as the Russian Oligarchs. Now, of course, that is a sweeping generalization. Some Russian industrial billionaires truly rose from the ashes, creating great enterprise and capitalized on their success. As we know quite well however, success in an autocracy can only thrive if the autocrat allows it to. So, at some level all of Russia’s oligarch class is connected to its leader in one way or another.
In the more than 30 years since the fall of the Soviet Union, Russia has become an integral part of the global economy. The country is rich with natural resources and its ability to trade with the rest of the world provided benefits to not only Russia, but everyone else. A robust banking system emerged to support that industry and Russia thrived. It was not just banking and industry. Russia was rich with mathematicians, scientists, and computer scientists, many of whom created service companies akin to those in the US’ Silicon Valley. It is safe to say that Russia created enormous value since the fall of the iron curtain. That value would be challenged in 2014 when Russia invaded and annexed Crimea in Ukraine. The international community cuffed Russia with some sanctions, largely a slap on the wrist, and we first heard of restrictions on Russian Oligarchs. In the years since that first invasion, the struggle between Russia and Ukraine didn’t cease, nor did wealth creation. Since the annexation, Russia’s MOEX stock index gained +156% through the end of 2021. During that same period, the S&P500 gained 160% and the Euro STOXX 50 gained +37%. Russian Oligarch wealth was evident all around the globe with their mega yachts moored up in the hottest ports. They own lavish homes in the South of France and London. Many jokingly refer to London as Londongrad, a tongue in cheek reference to its large number of oligarch-owned properties. Similarly, it is fabled that many of the most valuable…and empty penthouses in Manhattan are owned by the same oligarchs. Alas, my favorite Premier League Football club, Chelsea, has been owned by Oligarch Roman Abramovich for the past 20 years. Wealth, prosperity, and the 11th largest economy (as of 2021) in the word.
All of that would change several days ago with Russia’s incursion into Ukraine. Target number 1 became the Oligarchs who are known to be part of Putin’s inner circle. Frozen assets, cancelled visas, impounded mega yachts, and confiscated properties were just the beginning of the unraveling. Sanctions brought the Russian banking system to its knees. Though energy and commodities were not included in sanctions, Russian exports have been shunned by its trading partners. Shippers are unwilling to take Russian cargo and international bankers are unwilling to provide any trade financing. Large international conglomerates have announced the unwinding of more than 30 years of investment in Russia…all within 1 week. Russia’s largest market cap public companies have gone from being multibillion dollar behemoths to penny stocks…all within 1 week. Stock in Russia’s largest bank, Sberbank, fell by -99.58% in just 8 days. Similarly, for well known energy concerns Lukoil, Gazprom, and Rosneft which all tumbled by -99.06%, -91.89%, and -89.80% respectively. Guess who some of the largest shareholders in these formerly large industrial concerns are. Indeed, 30 years of value building put in question in just over a week.
YESTERDAY’S MARKETS
Stocks rallied yesterday after Ukraine and Russia agreed to meet. The S&P500 gained +1.86%, the Dow Jones Industrial Average climbed by +1.79%, the Nasdaq Composite Index rose by +1.62%, the Russell 2000 added +2.51%, and the S&P500 ESG Index advanced by +1.86%. Bonds fell and 10-year Treasury Note Yields jumped by +15 basis points to 1.87%. Cryptos lost -0.81% and Bitcoin gained +0.43%.
NXT UP