Marc Faber

Bullish – On the Bear!
ERIC KRAUS
Krausmoscow@yahoo.com STRATEGY 7 JULY 2008
Truth and Beauty

(… and Russian Finance)
Crack of Doom
The Little Bear Who Cried “Wolf” 1 Emerging Equities – Show me the oil! 12
The Death of the Global Central Bank 3 Russian Equities –Place Here / Time not Now 12
Commodity prices – An Unbalancing Act 4 Asian Equities 13
Fear and Loathing in the Oil Patch 5 Bonds 13
Inflation – the expanding Universe 6 Currency trades 13
Our Currency (and Now - Our Problem!) 8 Appendix I 14
The Eternal Russia – Of Tempest and Teapots 9 Appendix II 17
How to Trade it - Fishing in turbulent waters 11
The Little Bear Who Cried “Wolf”

T&B is amazed! The financial television channels – that adult equivalent of the Cartoons Network – are
all abuzz with arguments about whether or not the United States is technically in a recession… Frankly,
if a recession is the worst thing to hit the US, T&B shall heave a great sigh of relief. What we hope to
avoid is the spectre of Depression…a mere Recession would be something of a reprieve.
T&B has long tried our reader’s patience with our tedious and reiterated warnings of the unsustainability
of the entire US financial montage. More recently, we have suggested that rather than a US subprime
crisis, we were witnessing a more thoroughgoing and systematic credit crisis; despite a series of dead-
cat bounces, it is still far from over. We continue to believe that the entire Western financial montage is
under threat due to a decade or more of faith-based economic (mis-)management – monetary, fiscal and
financial.
This crisis is certainly not confined to the US; thanks to the globalization of financial markets, and
especially, to the criminal negligence of many global financial executives and regulators who wilfully
chose to ignore the overwhelming evidence of impending disaster. This failure can be attributed to their
inability to challenge their long-held and comfortable assumptions and mindset. Thus, US financial
assets continued to be viewed as the ultimate store of value, long after any rational and diligent person
should have taken steps to hedge his exposure. If our view seems somewhat harsh, we would invite the
reader to ask himself how structured subprime securities issued by Russia, China or Brazil would have
been rated, or how long any of the above countries could have run massive twin deficits before Mr.
Market started to demand upfront payment.
What we may have missed was the impact the inevitable was going to have upon much of the rest of the
world – not via the mechanism most usually cited - a mechanical transmission from the slowdown in US
GDP to industrial activity of the CA-surplus countries (given the unsustainability of the trade flows, this
shift was inevitable, and it should gradually be absorbed by the increasing domestic consumption in the
CA surplus countries) but rather, due to the ongoing collapse of a dangerously maladaptive global
financial system: the quasi dollar-block.
© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

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historical precedent for a tanking West and a
Despite its global implications, we define the
still booming BRICs complex – time will tell.
crisis currently cutting its way through global
financial markets not as the subprime crisis or Given this lack of precedent, T&B is quite
even the credit crisis, but as the “American unable to predict how the current crisis ends –
crisis1” since it originated with the failure of the but we would advise our readers against
dollar-standard, as well as the implosion of harbouring any illusion that the worst is past,
the US financial system. Those countries and or especially, that, when the crisis eventually
institutions most tightly tied in with US does pass, everything will be just as it was
financial markets have been hardest hit – before. The current crisis will durably alter the
those furthest from the epicentre, in particular physiognomy of global economics and finance
Russia, have thus far emerged relatively – investors will now find intellectual flexibility
unscathed. to be a vital survival skill. If you are not
scared, you are probably not paying attention.
Given the inevitability of the global
rebalancing, what is perhaps regrettable is
that it was so long in coming – i.e. that it did Decline of the Dollar – Desolation Row
not hit before the imbalances had grown so During the Bush years, the share of US dollar
huge as to preclude an orderly work-out. It in global reserves has declined from 71% to
should have been obvious that any trading 63% - an enormous move in light of the
system whereby a single country accounted inherent financial conservatism of central
for the bulk of global demand, running banks, as well as the intellectual conservatism
increasingly huge, debt-financed budgetary of many players in the financial markets.
and current account deficits – thus essentially
swapping ever-increasing volumes of paper T&B has been an obsessive dollar bear since
assets for valuable consumer goods and 2001, and we remain so today. Properly
commodities – simply could not last. Likewise, leveraged, this has proved to be a singularly
the massive creation of leverage throughout lucrative position. Though there have been
the global financial markets bore the seeds of some rough patches – notably 2004 – the
its own destruction – like heroine, financial secular decline in the US currency, rendered
leverage requires ever-increasing dosages to inevitable by the unsustainable current
produce the same high – eventually, toxicity account deficit and faith-based economics of
sets in. the Bush administration, has played out very
much as we had expected.
Unfortunately, the financial crisis has triggered
an economic crisis in much of the G7, and Thus far, on the other had, a dollar-crisis has
beyond. Had it not been for the rise of the been avoided; instead, we have witnessed a
emerging economies, global output would reasonably orderly decline. Although T&B is
already be collapsing – as it is, there is no hesitant to make any short-term calls (we
would recently have expected more of a
bounce – the failure to break through 1.54
1 against the Euro argues for a further decline
T&B is bored to tears arguing against those who would
once the market realizes that the Fed cannot
accuse us of “anti-Americanism.” We are neither pro- nor
anti- any particular country; we are descriptive, not
possibly hike US rates), we remain convinced
proscriptive; and certainly, in light of recent events in that the already-cheap US dollar will be driven
Tibet, we see no reason to assume that a world under further below its PPP (a very weak predictive
Chinese (or more improbably, Russian-) hegemony would indicator for currency valuations) due to a
be a happier place than the Americano-centric world of the chronic US, CA deficit along with progressive
latter half of the 20th Century. divestment of dollar reserves by global central
That the meltdown began in the US is a reflection not of
any particular moral failing of the American way of life, banks and financial entities. We think it
but rather, of the dangers of unregulated or inadequately inevitable that the US eventually “pays off” its
regulated credit-intensive financial systems. Furthermore, unsustainable debt load the only way it can –
four years after the reelection of an administration which via inflation.
no sensible person would have trusted to tend to their pigs,
the American electorate has astonished us – a black man of In the current issue, we will focus more on the
extraordinary intelligence, insight and openness to the somewhat-unexpected collateral damage
views of other countries is the presumptive next President suffered by countries in the “effective dollar-
of the United States. While we do not envy him this job – zone,” as well as the effects of the tanking
there is massive damage to be repaired – hope dies last, and
dollar upon commodities markets.
we certainly wish him Godspeed.

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The Death of the Global Central Bank Monetary Policy - The Fire this time
The standard criticism levied against the Euro – Globalization’s Rainbow
is that it necessitates a single interest rate to The “decoupling debate” should, by now, have
be set for two dozen highly divergent been laid to rest. Unlike equity markets, the
economies, and that at any given time, the underlying economies have shown at least
monetary policy required for the proper some propensity to decouple - as the United
function of the German and Dutch economies States heads into a deep recession, the
may be inappropriate for, say, Spain and Italy. economies of selected emerging countries are
Is it not then extraordinary that a far greater faced with a very real risk not of recession but
bit of economic insanity has apparently been of overheating. The recrudescence of inflation
overlooked – the “effective dollar-zone” which – until recently consigned to the dust-bin of
now subjects an infinitely more divergent history by the economic establishment – is
group of countries – China, Hong Kong, being fuelled by a flood of cheap, devaluing
Mexico, Qatar, Saudi, Venezuela, Ukraine, (to dollars.
some extent) Russia, etc. – to a monetary
policy set by the US Fed. Furthermore, whilst Faced with shrinking domestic demand and
the European Central Bank has at least a the dire state of the US financial sector, the
mandate to set rates in the theoretical overall Fed may well be justified in pouring liquidity
interests of all members of the Eurozone, as into a rapidly decelerating American economy.
is perfectly logical, the US Fed is mandated Unfortunately, given the fluidity of the global
by law to set rates in the interests of a single financial system, a large proportion of this
country – the United States. This is now newly created liquidity simply leaks into the
creating economic havoc in numerous fast-growth CA-surplus economies – which
emerging countries with dollar-pegged are in dire need of monetary tightening, rather
currencies. than of a further flood of dollars.
Global markets are seriously deluded as The globalization of financial markets has
regards the risk of a Fed rate hike; Eurodollar dangerously limited the ability of national
futures are a strong “buy.” Our prediction that central banks, inter alia the Chinese and
at least one of the major US banks would Russian monetary institutions, to control their
collapse was too optimistic. We now expect domestic money supplies by classical means
that only about three will survive as – interest rate hikes and currency
independent entities. The decline in the US appreciation. Capital controls have been
economy has been briefly arrested only by the abolished in Russia while their efficacy has
$200 bn tax rebate intended to carry the dying been seriously weakened in China. Thus, a
Bush administration through the November hike in domestic interest rates by a given
elections. With the elections behind, and the Central bank simply attracts a flood of foreign
deficit exploding, tax hikes will be ineluctable hot money, exacerbating excess liquidity. At
– the recession will shift gears, and the next the same time, given their access to global
move in US rates will be down, not up. money markets, local commercial banks can
neutralize their higher borrowing costs by the
The effect upon the dollar is likely to be dire – simple expedient of borrowing cheap dollars
we would expect some form of concerted abroad, thus making an end-run around their
Central Bank intervention by this autumn, in Central banks. Dollars borrowed by the
an attempt to forestall a full-scale currency commercial banks are promptly converted into
crisis – we suspect that intervention will prove the national currency and lent on to domestic
ultimately futile. clients, allowing the banks to capture both the
We have warned of the impending collapse of domestic and the cross-currency spreads,
the dollar in well-nigh every issue since 2002, secure in the knowledge that the ineluctable
we now have little to add – instead, what is of appreciation of these currencies will further
interest is one of the main consequences of increase effective lending margins.
the demise of the dollar standard in an Complicating the task of EM central banks,
increasingly globalized financial system: the the expectation of gradual currency
loss of the ability of foreign central banks to appreciation simply fuels the willingness of
control their domestic monetary supplies, and domestic entities to borrow in dollars,
the explosive growth in commodity prices. exacerbating the increase in domestic
liquidity. We thus suspect that the central
banks of the CA-surplus countries have come
to the conclusion that they may have to live

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with high inflation, not out of any moral traded in dollars, this should be intuitively
failings, but simply because the classical obvious – if the unit of value declines, then
disinflationary mechanisms available to them more units will be required to buy a kilo of any
have become counterproductive. It is left to given commodity.
the finance ministries to control inflation by
Other factors are, of course, involved.
fiscal means alone – and a super-restrictive
Excessive liquidity is fuelling rapid
fiscal policy can be extremely costly, both in
consumption growth in Emerging Asia,
terms of lost growth and of political resistance
sucking in increasing quantities of
to running huge budget surpluses in the
commodities. Amazingly, we still encounter
presence of substantial unmet social needs.
the occasional analyst predicting an imminent
The ideal solution from the standpoint of the commodity crash given slowing US activity.
EM economies would, of course, be a sharp This ignores one simple fact – China has
rise in US interest rates and dollar parities – already supplanted the US as the worlds’
alas, they are very unlikely to see either. largest importer of numerous commodities –
Thus, at least on the Russian side, monetary from copper to nickel, and as regards the
policy has recently been reduced to remainder, the annual growth rate of Asian
expressions of the hope that a slowdown in commodity imports so far exceeds the US rate
growth in global commodity prices would pull of growth as to reduce the latter to a rounding
the chestnuts out of the inflationary fire; given error.
the status of the dollar, more an expression of
Somewhat more surprisingly, as of this
hope than a rational expectation.
writing, the decline in US consumer demand
That said, provided that budgetary discipline has had no discernible effect upon industrial
can be maintained (and the new Russian production growth in China, Russia or Brazil,
budget reflects Kudrin’s characteristic rigour) with only a marginal decline in India. While
we are not convinced that – given the limited effects of the US slowdown are considerably
options – the Chinese and Russian greater in selected Asian dragons (e.g. Korea,
governments have erred in prioritizing growth Taiwan) and Latam, these countries are not a
over disinflation. major force in commodity markets.
Commodity prices – An Unbalancing

Act
T&B must thank our old friend Marc Faber2 for
having helped to focus our minds on
commodities as a diversification out of
depreciating paper assets, early in this
decade – well before it became the
consensus view. We are now happy to
welcome both the US Treasury and the
Federal Reserve Chairman to the club – what
a shame they did not get religion before it was
finally crammed down their throats!
It has finally been recognized by even the
dimmest of observers that the commodity
complex is now trading as the reciprocal of
the US dollar. Since commodities are still As one can see from the above chart,
(borrowed from the most recent issue of Marc
2
As a private investor, over the years, we have found Faber’s Doom and Gloom – with thanks)
Marc Faber’s famous monthly, The Doom and Gloom commodity prices are not at all high by
(and Boom) Report to be the single most useful historical standards; indeed, they have only
source of trading ideas and analysis. While we just regained the levels of 1990, and are only
would often take exception to Marc’s “Austrian” a fraction of those of the middle of the last
economic, and do not always follow his advice – century. Thanks to soaring growth in demand
experience has repeatedly shown that it is never to be for finite natural resources by the fast-growing
simply disregarded out of hand; and when one trades
emerging Asian economies, we expect a
against it, there had better be a very good reason
continued rise in commodity prices from the
why. For subscription information, contact
luciew@gigamail.hk aberrantly lows of recent years – price levels,

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which themselves, alongside the misguided It was long believed that $80 oil would cause
predictions of the regression-to-the-mean a global economic meltdown, leading to
analysts, did much to exacerbate the current demand destruction. Prices surged through
squeeze by discouraging investment in this limit, demand continued unabated, and
exploration and production. the target was moved to $100, then to $120,
and now DB warns that the lights will go off at
Fear and Loathing in the Oil Patch – $200. The simple fact is that no one knows –
You Cannot Make this Stuff Up! not even whether current prices are
compatible with continued function of the
Sometimes the stupidity of politicians literally global economy, since they have not yet been
takes one’s breath away – and Oregon at current levels long enough for second- and
Representative DeFazio left us speechless third-round effects to make themselves felt.
with his demand that the Bush administration
bring legal action against OPEC! Setting aside Further compounding the fear factor, no one
for a moment the fact that, cartel or no cartel, has much of a clue as to why prices are as
OPEC is now producing every drop of oil it high as they are. What we do know for certain
possibly can, his great inspiration was that is that it is due neither to OPEC (which is
action should to be brought under WTO rules watching helplessly from the sidelines) nor to
banning quantitative restrictions. “speculation” (commodity speculators sell as
much oil as they buy; while they can certainly
There may or may not be a valid legal increase volatility – that works both ways).
argument here, but he apparently missed one The most likely explanation remains old-
minor issue – enforceability! The sole legal fashioned supply and demand; this despite
remedy allowed under WTO rules would be Saudi claims that the refiners are fully
the imposition of countervailing duties; since stocked, and that there is no demand for more
the United States imports precisely one thing oil.
from the OPEC countries – crude oil – and
prices are already quite high enough without T&B certainly does not claim to have the
slapping customs duties on oil imports, where answer, but there is reason to be concerned
precisely would Rep. DeFazio suggest that that some of the major oil consuming nations
retaliatory duties be imposed? Sand? Camel have grown a bit arrogant (given a long-
meat? Korans? standing habit of dictating to the rest of the
world from a position of absolute strength)
In any event, the Libyans were apparently not and have not yet fully comprehended just how
amused, and angrily retorted with a warning of dangerously vulnerable they have become.
a possible cut-off in oil supplies if the US This poses a risk of serious miscalculation,
sought legal redress. So nervous are the e.g. further sable rattling as regards Iran could
markets that this simple threat sent prices be taken a bit too literally by the Iranian side,
soaring several dollars to a new historic high, resulting in a sudden withdrawal of some 3M
thereby increasing the US oil bill by another bbd of oil from global markets; or even – just
couple of billion. Good shot, Congressman! conceivably – the Russian government,
feeling hard-done-by in the face of chronic
The Oil Patch II - No pilot / No plane NATO expansionism, could decide to gently
remind the West that, with $550bn dollars in
Looking up at the sky, he realized that the reserves, Russia could easily forgo a few
seat was empty – there was no God looking weeks of oil revenues. We leave the likely
down, no one to pray to… outcome to the reader’s imagination…
Arthur Miller (paraphrased) In any event, T&B, a chronic oil bull since
Of the several words which spring to mind to 19983 has no further forecasts. At least in the
describe the oil market; “terrifying” seems near term, crude price – like cats or horses –
most appropriate. Most disconcertingly, there will do pretty much whatever they damn well
is no one “pulling the strings” – the market is chose, and political attempts to temper the
now totally beyond the control of any single increasingly bloody mood of the oil market will
entity – OPEC, producer nations, consumer more likely than not prove counterproductive.
governments, investment banks. It also
appears to have, at least temporarily, broken 3
loose from any obvious correlation with the when the ultimate contrarian indicator, The
global economy and is flying on its own Economist, ran its famous “Awash in Oil” cover
story wherein it predicted that oil would drop…to
momentum.
$5/barrel

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Inflation – the expanding Universe most severe in those countries still clinging to
the dollar currency peg.
These days, it seems that every second piece
of bulge-bracket research we open obsesses We thus consider that the current bout of EM
about the rise of inflation. How odd that, until inflation is primarily a consequence of an
about six months ago, the sell-side research accelerating fundamental process – the
was virtually unanimous in declaring that – debasement and loss of reserve status of the
thanks to the export of deflation by China – US dollar. As the Fed desperately pumps
the inflationary dragon was safely confined to liquidity in an attempt to forestall a meltdown
its cave. In fact, there is a simple explanation of the US financial system, this liquidity is
for the inflationary winds now blowing across sloshing over into global markets, swamping
the planet – but one which is apparently too efforts by emerging market central banks to
painful for the bulge bracket to even consider restrict domestic credit growth. In other words,
- the debasement of the US dollar due to analogous to the curtailment of the ability of
deeply irresponsible fiscal-monetary the Fed to set US domestic borrowing rates
policy. due to the disintermediation of financial
markets, the ability of national central banks
We would note that many of these same to control domestic liquidity has been curtailed
global institutions have been warning of the by the triumph of financial globalization.
impending collapse in the “oil price bubble” for
the past ten years – and more latterly, had
assured us that the dollar would quickly
And What is a Poor Central Bank to Do
bounce back simply because, in the past, it – Buy Gold?
always had. As per usual, the consensus T&B parts company with his “Austrian”
does an excellent job of examining the monetarist friends as regards their “Gold
historical precedents, predicting outcomes Buggery.” Keynes’ “barbarous relic” is merely
based upon mean-regression and solutions of another commodity – no more than silver,
continuity – while proving utterly dire in its rhodium or petroleum, it has no God-given
ability to deal with fundamental discontinuities. status as an “ultimate store of value.” The
It is clear that the US consumption-led growth Great Spanish Inflation of the 16th century was
engine was but a temporary state of affairs, driven by the enormous inflows of silver and
and that – in the fullness of time – the gold from the newly colonized Americas. The
Chinese would be compelled to outgrow their resulting increase in the “money supply” had
dependence upon the US market, substituting precisely the same effect as would have been
a domestic-led growth model for one in which expected were a central bank to have cranked
vast piles of valuable goods were exchanged up its printing presses – an increase in cash in
for devaluing paper assets. circulation not counterbalanced by any
increase in goods available for sale – i.e.
It would appear that this transition is inflation. Similarly, it should be obvious that
eventuating sooner than anyone had while global economic activity and trade have
expected. The Chinese currency has begun a increased many thousand-fold over the past
long-term process of revaluation (coincident century, the supply of gold has remained
with China’s assumption of a major pretty much constant. Had it been necessary
international role); with continued double-digit to revalue gold to the point where there was a
economic growth apparently supported by a sufficient value of physical metal to back
combination of domestic consumption and every transaction, the price per ounce would
diversification of export markets. While this have reached absurdly high levels, leading,
has led to a decline in the rate of dollar inter alia, to a severe misallocation of
accumulation, somewhat surprisingly, we see resources (e.g. into the mining of gold.)
little evidence of wholesale dumping of US
treasury securities. In our view, such None of this suggests that gold is a poor
divestment is inevitable, with a risk of sharp investment – it has performed well over the
downside both for the dollar and for the past few years – and given its liquidity and
pricing of long-term “risk-free” US assets. ease of storage, it provides a reasonably
efficient commodity hedge. That said, it is now
Whilst the inflationary burst in the emerging the object of much speculative trading, and
markets is neither “healthy” nor “good”, it is an one must be careful to time the market,
arguable proposition that it may be best buying near the bottom of its recent range.
characterized as “inevitable” – with inflation Baskets of industrial commodities, energy, or
foodstuff, all of which are now readily

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available from the investment banks, provide History repeats itself
a viable alternative. – Analysts repeat each other
As Einstein put it – a theory should be as When reading the sober, scholarly and mind-
simple as possible – but no simpler. The bendingly dull research of the major
nostrums of the past are likely to prove investment banks, one would do well to bear
counterproductive. Having found themselves in mind the cautionary example of the
suddenly bereft of the US dollar anchor, extravagantly poor predictive track record of
central banks (including the CBR) will need to the oil analysts – who until recently harassed
apply a heterogeneous mix including controls us with their constant warnings of oil’s
on bank lending and reserve requirements, inevitable retreat to its historic norm – say –
along with the more classical mix of interest $10/barrel. Meanwhile, T&B – with not one-
rate and currency policy. The decision of both hundredth the analytical toolkit of the
the Russian and the Chinese central banks to professional analysts – was muttering darkly
prioritize growth over disinflation is about $100 oil. In the end, we both
controversial but potentially justified. underestimated!
The fundamental problem of most “respectable”
The Decline of the West- academic analysis is not sloth or intellectual
Decorrelation Row weakness; quite the opposite, many of the non-
Rather than a simple bump in the road, soon traditional analysts are more inclined to be soft
in their treatment of the data. The problem
to be reversed by the triumphal march of
instead is the almost-systematic inability of the
North Atlantic-style capitalism, the current
economic establishment to accept the possibility
credit crisis marks a fundamental discontinuity of fundamental change – of major discontinuities
- a change in models, necessitated by the and shifts in the basic model. In brief, they are
collapse of the dollar-centric post-war financial extremely skilled in the assessment of
system – Bretton Woods and its successors. continuous, stepwise shifts in the current system
Despite the striking outperformance of the – but hopeless at spotting the occasional
BRIC economies (if not their financial significant disruptions.
markets) the debate continues to rage over
the decoupling of the global economy. The commodity analysts had spent generations
building their finely-honed analytical models
As usual, the intellectual conservatism of a
assessing the impact of marginal changes in G7
majority of market participants leads to
economic growth, price elasticity, and reserve
extraordinary mispricings – excellent replacement ratios. Unfortunately, these models
opportunities for those able to accept the were not designed to take into account the
primacy of change. deeply disruptive effects of soaring demand from
One of our recurrent themes over the years the rapidly emerging economies of Asia. Given
has been the secular decline in the economic the difficulty of factoring these non-continuous
pre-eminence of the West due to the rapid factors into their tidy and well-tested models,
rise of the newly emerging economies, almost to a man they chose to simply ignore
especially of Asia. We believe that the current them – thus underestimating future oil prices an
financial crisis marks a sharp acceleration in amazing ten-fold or more…
this process – and that by the time the crisis We find similar – if somewhat less outlandish –
has past, our perceptions of the relative misconceptions in the currency research of one
importance of the emergings vs. the old G7 of the major US houses. While providing superb
economies will be fundamentally altered. The US macroeconomic4 and emerging markets
almost incredibly short-sighted economic coverage, their dollar calls have been
policies the Bush administration will have consistently misguided, given their systematic
greatly accelerated (though not caused) this expectation of imminent mean-reversion – i.e.
process. As a major commodities producer that the US dollar always was – and thus,
and a re-emerging economic power, Russia always will be – the centre of the global trading
will be a net beneficiary. and reserves system, and thus, that any dollar
devaluation would necessarily be purely cyclical.
4
What a shame that their senior management appears
not to have heeded the warnings of their own
strategists – it might have saved them a fair chunk of
change – indeed, in several cases, their careers!

-7-
Our Currency - A loss of reserve status would imperil both the
and Now, Unexpectedly, Our Problem! funding of the current account and of the
burgeoning budget deficit. Thus the edifying
We're strong dollar people in this administration - and sight of US Treasury Secretary Paulson touring
have always been for the strong dollar…
the Gulf States, pleading with them not to drop
George Bush the dollar peg. Meanwhile, Ben Bernanke broke
Pigs can fly – they nearly blot out the sun! with longstanding Fed practice whereby it never
becomes involved in dollar-policy, proclaiming
T&B the “fundamental strength” of the US currency.
T&B was much amused at the spectacle of the For once, these strong dollar statements were
heads of both the US Treasury and the Fed very much intended to be taken at face value,
scurrying about trying to prop up the dollar. Until with even just a hint of threat of outright currency
very recently, their statements in support of a intervention – previously proscribed as
strong dollar but also for “letting the markets unthinkable in light of their puerile, vacuous Ayn
work their magic” were systematically Randish free-market philosophy.
accompanied by a wink and a nudge. Official Alas, their policy options are essentially nil. The
policy was to allow the dollar to weaken in order decline of the dollar could be arrested only by
to support the flagging US economy. – the expectation of a series of US rate-hikes –
No longer! not currently a realistic option. Even assuming
that US financial institutions are not faced with
As the decline in the dollar has picked up
further collapse, the second dip of the recession
momentum, threatening a veritable dollar crisis,
will hit no latter than next autumn, and it will
the very real possibility that the greenback might
most likely be severe.
forfeit its benchmark status caused a sudden
reversal in US policy – and for good reason: The current hiatus in the US economic downturn
is attributable to a combination of extremely lax
a. Since WWII, the US has had the luxury
monetary and expansionary fiscal policies. Both
of paying for virtually all its imports, in
are exhausted. The US no longer has the luxury
particular commodities, in its own
of enjoying the decline in the dollar; further
currency – and was thus sheltered from
loosening of either fiscal or monetary policy
the inflationary consequences of dollar
would be catastrophic for the currency,
weakness. This provided an enviable
accelerating its loss of reserve status, and
degree of predictability, as well as the
driving commodities ballistic.
freedom to neglect the international
implications of macroeconomic policy, Talking the Walk – Just ask Oscar!
which could be set solely as a function
We were thus bewildered to see both Paulson
of domestic requirements.
and Bernanke, neither of whom are total fools,
This situation is now seeing a sacrificing so much of their limited credibility by
fundamental shift. Although energy and “open-mouth operations” and hollow promises,
mineral prices are still nominally set in in the absence of any concrete measures to
dollars, in fact, the exporting countries support the dollar. The dollar initially reacted to
now calculate their revenue streams in their strong expressions of support as had been
Euros; as anyone following the oil intended, strengthening towards the 1.54 mark
market will note, dollar-term prices now against the Euro. This lasted for all of about 2
quickly adjust to reflect the depreciation days, before the untenability of their position
of the US currency. became obvious. As we go to press, the USD is
b. For the past 60 years, the reserve role falling back towards its historic lows, with oil
of the dollar has been enormously prices breaking new highs almost daily.
profitable to the US, due both to the Talk is cheap, but to actually reverse the secular
seniorage generated by printing dollars, loss of primacy of the US currency would require
and latterly, because it allowed for a series of painful interest rate hikes along with
enormous current account deficits, a restrictive fiscal policy, i.e. engineering a
conveniently funded by the CA-surplus severe recession aimed at redressing the twin
countries5. It was perhaps only human deficits. We see no signs of anything
for the US to expect this pleasant state approaching the staunch political will to do so,
of affairs could somehow be permanent. and we can safely assume that the US
administration will faithfully adhere to Oscar
5
The simple fact appears to have been lost upon most Wilde’s maxim that “ to regain my youth, I
of our peers that, while debtor-creditor relationships would do anything in the world…except, of
do imply some degree of mutual dependency, the course, take exercise, get up early, or be
creditor ultimately has by far the strongest position… respectable”

-8-
The Eternal Russia – Of one of the worst failings of his two mandates
was his inability to end corruption. Similarly, to
Tempest and Teapots allow a working civil society and more
pluralistic political system to develop in Russia
The Dynamic Duo – Putin Mark II will require the painstaking work of lawyers
and bureaucrats – not of charismatic leaders.
Numerous readers have written demanding to
know why we have hardly bothered to comment Thus, a carefully managed transition was
upon the new Russian government… In fact, we engineered – Putin’s political legitimacy was
have so little new to say. first consolidated in a landslide victory in the
We know full well just how irritating it is for us Duma elections, when, breaking with
precedent, he himself led the party (actually,
to go on about how “we told you so” … but
we did! Amidst all the idiotic prattle by the little more than a Putin political vehicle.) His
clowns in the Western media as regards the heir apparent Dmitri Medvedev was then duly
“vicious fights going on between bulldogs elected Russia’s third president, with Putin as
under multiple layers of carpets,” T&B presumptive Prime Minister.
repeatedly prognosticated that the change of With the support of some 80% of the Russian
presidency would come off with the nail-biting people and in control of all of the major levers
intensity of a Rotary Club by-election in of power, Mr. Putin remains very much the
Nantes. And so it did. Mr. Putin appeared to key figure for Russian policy – the ultimate
be fully in control of those purportedly guarantor of the implementation of the “Putin
murderous Siloviki factions spinning their Plan,” a hugely ambitious plan aimed literally
deadly webs, and given his overwhelming at the resurrection of Russia – from failed
popularity, there were no outward signs of state to global power.
their having caused him any difficulty
In terms of foreign policy, there has been a
whatsoever in keeping the situation under
change of style – not one of substance. Dmitri
control.
Medvedev has explicitly warned those West
Predictably, those same Western sources observers dreaming that under his presidency
which spent the entire year warning of the Russia would return to the cuddly, submissive
impending Siloviki war will now spend the next policies of the Yeltsin years that they were
one fantasizing about a mythical power deluding themselves. Russia will continue to
struggle between Putin and Medvedev. Yes, reassert her prerogatives as a major regional
of course, as in all human affaires, things may power, as well as an important player in the
someday go terribly wrong – but the day they global balance of power.
do, it shall certainly be the Western
Russia’s more nationalistic policy has had at
commentariat which figures it out last!
least some initial successes – and in any
The means by which Mr. Putin chose to event, there are simply no alternatives. A
remain in power are somewhat controversial. return to the “Pro-Western” policies of the
An enthusiastic Putin supporter, T&B would Yeltsin years would signify nothing less than a
have preferred for him to have simply called a Russian forfeit of any independent role in the
referendum to change the constitution, global political space. Thus, Medvedev is
eliminating presidential term limits – he would tasked not with the development of an
have easily won both the referendum and the alternative to the Putin Plan, but rather, with
election by an absolute landslide…and its implementation - the extremely challenging
Western public opinion be damned! job of reforming Russia’s Kafkaesque judicial
This begs the question of why in fact he chose system, deeply dysfunctional bureaucracy,
while making some serious inroads into the
to hand power over to Medvedev. Those
analysts who argued that Putin did not want to millennial problem of corruption.
appear to world opinion like one of the Just as we were embarking on a more
“Presidents-for-life” of the Stans vastly thorough review of Russia’s relations with the
exaggerate the importance of their own West (yes – we swear – the dog ate our
sunset countries for Russian politics, and homework) we received an e-mail copy of the
anyway, the example of Singapore’s Lee superb IHT editorial by Professor Cohen.
Kwan Yew seemed entirely appropriate. Probably the most intelligent piece of Western
opinion on political relations with Russia we
Instead, our best guess is that Vladimir Putin
have encountered in recent months. Vide infra.
had the wisdom to know what he was good at
– and what he was not. Putin himself stated that

-9-
Wrong on Russia
by STEPHEN F. COHEN, International Herald Tribune, July 1, 2008
Neither of the two major American presidential candidates has seriously addressed, or even seems fully aware of,
what should be our greatest foreign policy concern - Russia's singular capacity to endanger or enhance our national
security.
Despite its diminished status following the Soviet breakup in 1991, Russia alone possesses weapons that can
destroy the United States, a military-industrial complex nearly America's equal in exporting arms, vast quantities of
questionably secured nuclear materials sought by terrorists, and the planet's largest oil and natural gas reserves.
It also remains the world's largest territorial country, pivotally situated in the West and the East, at the crossroads of
colliding civilizations, with strategic capabilities from Europe, Iran and other Middle East nations to North Korea,
China, India, Afghanistan and even Latin America. All things considered, our national security may depend more on
Russia than Russia's does on us. And yet U.S.-Russian relations are worse today than they have been in 20 years.
The relationship includes almost as many serious conflicts as it did during the cold war - among them, Kosovo, Iran,
the former Soviet republics of Ukraine and Georgia, Venezuela, NATO expansion, missile defense, access to oil and
the Kremlin's internal politics - and less actual cooperation, particularly in essential matters involving nuclear
weapons.
Even the current cold peace could be more dangerous than its predecessor, for three reasons: First, its front line is
not in Berlin or the Third World but on Russia's own borders, where U.S. and NATO military power is increasingly
ensconced. Second, lethal dangers inherent in Moscow's impaired controls over its vast stockpiles of materials of
mass destruction and thousands of missiles on hair-trigger alert, a legacy of the state's disintegration in the 1990s,
exceed any such threats in the past. And third, also unlike before, there is no effective domestic opposition to
hawkish policies in Washington or Moscow, only influential proponents and cheerleaders. How did it come to this?
In the U.S. policy elite and media, the nearly unanimous answer is that Russian President Vladimir Putin's
antidemocratic domestic policies and "neo-imperialism" destroyed that historic opportunity. You don't have to be a
Putin apologist to understand that this is not an adequate explanation.
During the last eight years, Putin's foreign policies have been largely a reaction to Washington's winner-take-all
approach to Moscow since the early 1990s, which resulted from a revised U.S. view of how the cold war ended.
In that new triumphalist narrative, America "won" the 40-year conflict and post-Soviet Russia was a defeated nation
analogous to post-World War II Germany and Japan - a nation without full sovereignty at home or autonomous
national interests abroad.
The policy implication of that bipartisan triumphalism, which persists today, has been clear, certainly to Moscow. It
meant that the United States had the right to oversee Russia's post-Communist political and economic development,
as it tried to do directly in the 1990s, while demanding that Moscow yield to U.S. international interests. It meant
Washington could break strategic promises to Moscow, as when the Clinton administration began NATO's eastward
expansion, and disregard extraordinary Kremlin overtures, as when the Bush Administration unilaterally withdrew
from the ABM treaty and granted NATO membership to countries even closer to Russia - despite Putin's crucial
assistance to the U.S. war effort in Afghanistan after 9/11. It even meant America was entitled to Russia's traditional
sphere of security and energy supplies, from the Baltics, Ukraine and Georgia to Central Asia and the Caspian.
Such U.S. behavior was bound to produce a Russian backlash. It came under Putin, but it would have been the
reaction of any strong Kremlin leader. Those U.S. policies - widely viewed in Moscow as an "encirclement" designed
to keep Russia weak and to control its resources - have helped revive an assertive Russian nationalism, destroy the
once strong pro-American lobby, and inspire widespread charges that concessions to Washington are
"appeasement," even "capitulationism." The Kremlin may have overreacted, but the cause and effect threatening a
new cold war are clear.
Because the first steps in this direction were taken in Washington, so must be initiatives to reverse it. Three are
essential and urgent: a U.S. diplomacy that treats Russia as a sovereign great power with commensurate national
interests; an end to NATO expansion before it reaches Ukraine, which would risk something worse than cold war; and
a full resumption of negotiations to sharply reduce and fully secure all nuclear stockpiles and to prevent the
impending arms race, which requires ending or agreeing on U.S. plans for a missile defense system in Europe.
American presidential campaigns are supposed to discuss such vital issues, but neither John McCain nor Barack
Obama has done so. Instead, in varying degrees, both have promised to be "tougher" on the Kremlin than George W.
Bush has allegedly been and to continue the encirclement of Russia and the hectoring "democracy promotion" there.
To be fair, nobody has asked the candidates about any of these crucial issues. They should do so now.
[Stephen F. Cohen is professor of Russian studies at New York University. His latest book is "Failed Crusade:
America and the Tragedy of Post-Communist Russia." Distributed by Agence Global.]

- 10 -
How to Trade it - To seek ex-post-facto indicators revealing the
Fishing in turbulent waters imminence of the crash is futile – we suspect
that an equal number of signs could have
T&B was recently taken to task by one of our been found in any of a half-dozen periods
readers, who reiterated Rory’s6 jibe about our which were not in fact followed by a crash.
having predicted all three of the last one Instead, perhaps stating the obvious, we
recessions! Yes, as we repeatedly asserted would suggest that there are three
earlier in the decade, what is unsustainable approaches to trading in unsustainable
will ultimately not be sustained, but in fact, environments:
it was sustained for several years longer than
we would have imagined to be possible. -Go short – and stay that way. We know
Anyone heeding our warnings too early would one investor who did so about 24 months ago
have missed out on the last and most exciting – and after some near-death experiences, he
phases of the great credit bubble.7 is feeling mightily pleased with himself today.
We have nowhere near the courage to do
Fortunately, while dodging the bubble assets, likewise, given the twin dangers of this
both we and many of our readers were able to approach – that one might simply be wrong in
grow fat from the shift in global growth to the one’s fundamental analysis, or more painful
BRICs economies, most particularly Russia. yet, one might be right too early.
This secular growth story is far from over, In the immortal words of JM Keynes, “markets
although from a trading perspective, it should can remain irrational for far longer than you
be approached with considerable caution until can remain solvent” Julian Robertson, he of
global markets can finally find a bottom. the Tiger funds, shorted the Internet bubble at
By the beginning of the present decade, it 3000; his funds blew up as it surged past
should have been obvious that the 4000 on its way to 5000 – eventually hitting
Americano-centric financial system was long 5200…before crashing all the way back to
in the tooth; while the US remained 1000; by which time, alas, Robertson was no
superficially prosperous, said prosperity – longer in the game.
maintained by increasing doses of cheap -Be fleet-of-foot…or merely lucky. Late
credit and the apparent willingness of Asian stage bull-markets can be extremely lucrative,
central banks to absorb unlimited supplies of provided of course that you get out near the
debt paper – was dynamically unstable and top and are not lured back in. The problem of
susceptible at any time to a sudden loss of course is not only the fact that “nobody rings a
confidence. Certainly, it was well beyond our bell at the bottom” but especially, that
forecasting ability to predict that, following a repeated false alarms can cause one to bail
series of false alarms, the ultimate unwind out prematurely, requiring substantial friction
should suddenly be triggered by the collapse costs to reposition, and especially, creating
of two relatively minor Bear Sterns hedge grave doubts as regards one’s fundamental
funds. assumptions given of the repeated recoveries
The problem here is a fundamental one – (d.b.a. “buy the dips”!)
man’s psychology is essentially optimistic, -Seek fundamentally safe/decorrelated
and we tend to ignore hypothetical risks, assets. We have been provocatively
especially when no one else around us seems asserting that, most uncharacteristically,
to be overly exercised about them. The Russia constituted the ultimate flight-to-quality
“rolling bubbles” had persisted long enough to for much of the past decade; we see no
prove the sceptics “wrong” – the perma-bulls reason to change our tune now. Since well
“right.” It was fiendishly difficult to predict how before the credit crisis, we have been
far it would go, and especially, which would be recommending short-duration Russian rouble-
the final straw to break the bubble’s back. denominated bonds; despite the negative real
rates, the short term assets offer a compelling
6
yield as well as an excellent haven from the
Who can still not bring himself to forgive Russia for global storm. While there have been a couple
having been overwhelmingly successful, despite of bouts of price volatility, these assets have
having done everything “wrong” – while meanwhile, offered a rich coupon in a gradually-
“clean and pro-Western” Julia Timoshenko is strengthening currency with negligible risk.
working hard to confirm the old line about Ukraine
Although the equities theoretically offer more
being a joke which gets funnier each time you tell it!
7
upside, under current market conditions we
Bull-markets - like sex - are said to be best just would err on the side of caution.
before the end…

- 11 -
Emerging Equities – Show me the oil! justified – it reminded us of the run-up in
Ukrainian and Kazakh assets at the end of the
T&B was precisely half-right in our debunking Russia bubble of 1997. Once all the investible
of the critics of the decorrelation hypothesis, market had gotten too expensive, it was time
i.e. those folk who believe that, since from the for some late bull-market bull…
middle of the 20th Century the US economy
was the absolute global bell-weather, it would Much of the EMEA has been an absolute
forever retain that position. In fact, while blood-bath, as a receding tide of liquidity
selected economies have decorrelated revealed that some of Russia’s neighbours,
sharply from the US – with Russia, China and especially the Balts, had been swimming
Brazil threatened with overheating as the US naked. As we have repeatedly warned, 15%
tumbles into recession – financial markets annual C.A. deficits are not long sustainable.
clearly have not done so. The Wall Street tail The Ukrainian market had been walking on
continues to wag the global dog! thin air, ignoring the crisis in governance and
the increasingly dire macros. No longer.
There have been outperformers and
underperformers – amongst the former Brazil, On the other hand, we must confess to having
and especially Russia have done quite been surprised by the ferocity of the bear
respectably, with the RSX traded index up 7% market in Asia. Since in most cases the sell-
since the beginning of the year. We note that off was driven by a withdrawal of liquidity
both countries run oil surpluses – Russia rather than by any substantial economic
huge, Brazil both substantial and growing. slowdown, we are reduced to arguing that the
markets have suffered nothing more than a
On the other hand, Central Bank withdrawal of severe case of poor sentiment and financial
liquidity has wrecked havoc in the Chinese contagion, and that they should rebound
market. Shanghai had soared early in 2007 in strongly once the G7 markets hit bottom –
what is widely seen – especially in retrospect time will tell!
– as a massive bubble8 and has sold off by
nearly 40% since the top. Again, this has not
been accompanied by any substantial Russian Equities –
economic slowdown. India, is doing even The Place is Here – the Time is Not Now
worse – selling off violently in response to an
Would everyone who had predicted that,
inflationary burst and rising rates. Both are
despite the announced cut in export taxes, the
setting up to be truly extraordinary buying
stock market of the world’s largest oil
opportunities – but it is too early to pull the
producer would essentially tread water
trigger on either.!
despite the strongest oil market in recorded
As would be expected, the GCC petro-states human history please stand? This seeming
are doing very nicely – flat at worst, up 25- madness is a testimony to the strength of
30% at best (Kuwait, Oman, Qatar) – and correlation in global markets.
clearly outperforming their global peers as the
We continue to believe that Russia offers
regional economies absorb a far larger share
some of the best macroeconomic
of the oil bonanza than previously. The major
fundamentals on the planet, however the
problem in this region is inflation, entirely due
equity market remains very much the
to their tenacious adherence to the dollar-peg,
appanage of the foreign devils, and we would
leaving them to contend with interest rates at
give it a reasonably wide berth for now. In
levels totally inappropriate for these high-
relative terms – it has had a decent year,
growth economies.
handily outperforming the US and Europe,
Despite a very challenging global and leaving the other BRICs and main EMEA
environment, the Latin American markets markets in the dust.
have all outperformed their northern
neighbour, with Brazil leading the pack. On The unfortunate point is that market dynamics
the other hand, our scepticism as regards the have regressed back to a situation where the
recent interest in Africa appears to have been RTS trades almost entirely off of the global
environment – and the global market is not a
happy place of late. Even the extremely good
8
we are not certain it was; if one looks at market news from PM Putin as regards oil taxation
performance over a slightly longer period, the 2007 failed to provide more than a temporary blip in
rally was simply a long-delayed catch up following prices. We could be wrong – and Russia
several years of flat equity performance despite could suddenly decorrelate, but we would not
booming economic growth

- 12 -
bet on it – investors who disagree may wish to support provides the only hope of their staying
use the dips to pick up long-dated, out-of-the- solvent. Those investors able to fund this
money call options on selected oil blue chips. trade by borrowing US$ should find the carry
quite enjoyable.
Asian Equities (cont.) – Currency trades

Tomorrow’s such a Long Time For those macro-investors disinclined to short
the alphabet soup of synthetic credit
The ongoing massacre in the Asian equity instruments, the currency markets currently
markets – in particular India, is setting up offer some very attractive macro opportunities
buying opportunities we could only have – in particular, some compelling carry trades.
dreamed of at this time last year, but it is
almost certainly too early to jump back in. As -Long NOK/Euro – short USD.
long as the bloodbath on Wall Street The predicted short-term bounce in the dollar
continues unabated (and it will get worse was something of a damp squib, far weaker
before it gets better) global equity markets are than we had expected, and contingent upon
going to be pretty sad places. The real skill continued weak economic releases, we
will be in identifying the point at which all the expect to see it breaking through 1.60 against
bad news is in the price and markets become the Euro in coming weeks. That said, volatility
seriously oversold. For now, beware the is likely to be a bit daunting.
sucker rallies – even if one misses the
absolute bottom, there is a long recovery At some point – perhaps above 1.65,
ahead – and for now, we would prefer to let concerted intervention by global central banks
someone else catch the falling knives. becomes likely, and if so, we could see the
US$ retest recent lows around 1.52; beyond
Bonds 1.62 positions should be carefully stopped.
We reiterate our previous calls, though, as We continue to see the Norwegian Kroner as
regards timing, it is entirely possible that the a good Euro-substitute, given the higher carry.
current wave of global volatility will provide -Short JPY – Long AUD
better entry levels by mid-July.
A pure carry trade – and what a carry it is!
The SIBAC 8.3 of 2011 in Euros continues to About 700 bp, and widening. The Japanese –
offer a very generous coupon for what we see heading back in to recession – are not about
as negligible risk; 10% Euro-term yields are to tighten, and the Aussie’s are fighting
quite compelling, especially with leverage. commodity-driven inflation. This trade will
As a carry trade, those investors who can perform badly in the short term during each
borrow dollars at Libor may find great joy in successive wave of volatility, so it is best to
some of the Russian bank dollar instruments: put it on during one of the occasional periods
Promsvyazbank, Russiskye Standart, Alfa and of flight to quality. That said, we suspect it has
NFC (a factoring company, not a bank) and a multi-year life in front of it as Japanese
URSA all spring to mind. Needless to say, we investors seek better yields offshore. We do
would hedge out the dollar exposure. NOT believe that Japan can afford to raise
rates, given its astronomical public debt load.
Russian negative real interest rates are a
temporary phenomenon, but for investors -Short GBP – Long NOK/AUD
based in other currencies, or who can borrow The British economy is heading off a cliff not
in other currencies to fund rouble trades, there entirely dissimilar to the one the US just saw
are some compelling opportunities in the beneath its feet. House prices are collapsing,
short-duration assets. In particular, we favour credit is crunching, savings rates are rising –
those entities most likely to benefit from and the Chancellor of the Exchequer recently
Central Bank support, i.e. the above had the decency to tell the good folk at home
mentioned banks, along with selected that their life-styles would have to contract (it
financial names which are strong stand-alone will be a cold day in hell before you hear such
credits or are likely to benefit from language in Washington!) The GBP is
shareholder support – NFC, Evrokommerz, expensive to short, so we would sell it against
Vostochny, etc. Other relatively high-quality NOK or AUD, for a slightly positive carry.
industrial names include Sinergia, Sitronics,
EM Alliance, and T-Nikol. We would stay clear - Long Russian rouble – Short USD/Euro
of the engine builders and aviation industry –
since here, government or shareholder

- 13 -
Dollar bears may decide to express their view passive funds which do not suffer high
via this trade, though Rouble positions should management fees.
be seen as carrying a 50% dollar risk due to
Uranium – one of our favourite trades 2-3
the composition of the basket, i.e. to remain
years ago – Uranium stocks have received an
dollar neutral one should short 50 cents USD
appalling drubbing given the 50% drop in
vs Euro for each dollar-equivalent of Rouble
metal prices. We once again think it is
position.
oversold and due for a major bounce. Those
-Commodities – with a speculative bent and some money to
At least One Glows in the Dark lose could pick up a basket of the mid-sized
production/exploration companies, rather than
Prudent portfolio management now requires
the pure explorers. Paladin, UEX, UUU, EME,
that all investors have at least some exposure
URRE, etc. Caution – this is not a trade for
to physical commodities. This can be via gold,
widows and orphans, and we could very
other precious metals, or using baskets
possible be jumping the gun here. That said,
offering exposure to industrial metals,
the potential upside is easily 3-4x. We would
agricultural commodities, or energy.
buy in very cautiously on the dips.
We would seek widely diversified exposure to
all three major classes, preferably with
Appendices
I always quote myself – it gives spice to my conversation!
Anon
T&B is an occasional contributor to the Russia Profile Experts Panel run by the very insightful and
provocative Vladimir Frolov. Papers ordinarily run to about 600 words.
Below, we reproduce selected T&B contributions to some of the recent panels, somewhat edited and
expanded given the absence of the 600-word guillotine.
I - Bear and Dragon – On Medvedev’s First Trip Abroad – to Beijing!
If intelligent life were to eventually develop here on Earth, future historians would doubtlessly puzzle
long and hard to understand why the Western Alliance, so obviously threatened by a rising China,
did everything in its power to drive Russia into the Chinese camp – surely a Neocon’s worst
nightmare!
When the present author warned of this threat almost a decade ago, he was met with total derision
– some variant of “Russia is far too afraid of China, and has no choice but to either submit to
Washington’s diktat or face total isolation” was the stock reply.
A few short years later, and after the quick resolution of all outstanding border disputes, there is
rapidly expanding military cooperation (with the largest war-games in either countries histories),
political alignment in the Shanghai Cooperation Organization and the UN Security Council,
burgeoning trade flows, and repeated major diplomatic initiatives. All border disputes have been
resolved peacefully, major cultural exchanges are now commonplace, the desperately needed oil
pipeline is being built to China – rather than to Japan – while Russian diplomacy is gradually
becoming more balanced between East and West.
The secular rise of China will fundamentally alter the geopolitical makeup of the 21st Century world.
Never in man’s history has a major world power arisen without substantial friction with the existing
hegemon; it is most unlikely that this time will be the exception. Lesser powers will be increasingly
obliged to take sides. Rich in energy, mineral resources, agriculture, and with a vital role in Central
Asia, Russia should be seen as one of the greatest prizes.

- 14 -
While Russia has traditionally viewed China with some mixture of fear and contempt, she was not
alone in so doing. The unprecedented transformation of the Asian colossus will increasingly shake
the cozy self-assurance of the Atlantic Alliance. While Western policy makers have generally been
cautious and tactful as regards China, towards Russia they have been needlessly hectoring and
aggressive, making little secret of their desire to isolate and contain her in the European space. As
NATO armchair generals geared up to re-fight the last war, the Chinese approach to Russia has
been a model of diplomacy, supporting Russian interests wherever possible, refraining from
unsolicited advice as regards domestic issues, and generally treating Russia with the respect owed a
major power. Thus, while the recurring threats from NATO seem immediate and pressing, any
potential Chinese threat appears vague, hypothetical and situated far in the distant future. And
China is not an ally to be scorned.
It would verge on the utopic to imagine that the alignment between China and Russia is anything
other than a marriage of convenience - great powers have not friends but interests. Yet, except
perhaps for Russia’s traditional fear of Chinese territorial expansionism, there are no obvious
strategic conflicts. In fact, throughout its history China has tended not to seek to occupy
neighbouring states, but rather, has sought to neutralize them as potential routes of invasion or
threats to the Han Chinese heartland. In any event, the notion of wars of territorial aggrandizement
between nuclear-armed states seems almost quaint.
To some extent the two giants must be seen as strategic competitors in Central Asia, but even here
they have adopted a largely collaborative approach. Having resolved the question of oil export
pipelines in favour of China, the two are now engaged in a long hesitation waltz regarding gas
deliveries, as China has thus far refused to agree to pay global prices for Russian gas. Since Russia
is not starved for cash, while China is hungry for energy, one would expect the gas pricing issue to
be eventually resolved in Russia’s favour. In the meantime, there is ample scope for further
cooperation, both in fossil fuels and nuclear energy.
The 21st century will be characterized by the struggle for resources and the dislocations caused by
the rise of the Asian powers with, at least in relative terms, a decline in the relative weight of the
West. The notion that Russia - bridging Europe and Asia – could be “isolated” flies in the face of the
most elementary geographic logic. Though the West has won some minor battles in the CIS, each
successful battle brings them that much closer to losing the war.
We long ago relinquished any hope of seeing Washington and Brussels take Russia’s vital interests
into account. Perhaps there remains some small hope they may yet decide to act in keeping with
their own fundamental interests. Whether or not the Russian style of governance is agreeable to the
West is irrelevant – the ability of the West to influence Russian policy in a direction favourable to
themselves is essentially nil. The Atlantic powers must realize the potentially huge cost of pushing
Russia into the Chinese camp – both in terms of lost opportunities and of new threats. A radical
rethink of relations with the Kremlin is vital, and a respect for Russian geopolitical concerns would
be a vital first step. Indeed, the West could do far worse than to copy Chinese diplomacy as
regards Russia.
II - Putin – Medvedev – Gorbachev

(or, If Daddy says “No”, then don’t go running to Mummy”!)
There is something touching naïve in the propensity of Western commentators to delude themselves
into believing that somehow, after Russia’s tragic failures of the supine Yeltsin years – followed by
the emergence of a more nationalistic Russia under Vladimir Putin – that the Washington Consensus
will somehow re-emerge triumphantly under Putin’s chosen successor.
While Gorbachev and the “young reformers” of the late 1990s may still be remembered fondly in the
West, in Russia, both Gorbachev and Yeltsin are remembered as much for their roles in the collapse
and humiliation of the Fatherland as for their contribution to the demise of the dysfunctional Soviet
system. While Medvedev’s style is somewhat more emollient than Putin’s, he has shown no sign of
deviating from Putin’s more assertive diplomatic line, for example as regards NATO expansion, US

- 15 -
missiles and CIS relations (as an aside, we would note that Mr. Gorbachev himself remains a deeply
committed if sometimes-critical supporter of Vladimir Putin.)
Given the paucity of real information, there is never-ending speculation as regards Mr. Putin’s long-
term plans. Perhaps he himself does not yet know. Although some commentators have speculated
that, after 8 years of wrestling with Russia’s millennial problems, he is looking forward to a well-
deserved rest, few men relinquish power gladly; and Vladimir Putin would be re-elected by an
absolute landslide were the Russian people to be allowed the option.
One option – and it is only a guess – is that Vladimir Vladimirovich is waiting for some assurance
that Medvedev can manage the task unassisted; that the power factions who wrecked such absolute
havoc in the 1990s – as much the dread oligarchs and the corrupt regional barons, as the
reemergent Siloviki and the Soviet-era revanchards, pose no real threat to his successor. Perhaps he
simply wishes to make certain that the new president maintains the continuity of the diplomatic line
Putin laid down for the future.
On the other hand, it is quite possible that Mr. Putin sees his task as unfinished, intending to return
to the Kremlin at some future time. What is clear is that he currently cedes to Medvedev only that
power which he wishes to cede, and that his protégé has been appointed to manage a hugely
complex and challenging domestic agenda – his is the tedious work of building the institutions
necessary to subtend a modern Capitalist state.
Russia does not define her role primarily as “an Opponent of America” – she has far greater
aspirations! Major powers have complex interactions with their peers – sometimes cooperative,
sometimes competitive. Russian interests must be defined in a complex field of interplay between
the old powers of America and Europe and the emerging powers of Asia and the developing world.
Certainly, to imagine that Russia will reverse an increasingly well-articulated policy to reassume the
role of a passive member of the Western camp is idiocy. Had Putin suddenly decided to abandon his
tough foreign policy line, we would not see Russian peacekeepers rushed to Abkhazia, nor would a
firm line have been drawn against NATO expansion into Russia’s backyard. Although the Bush
administration is doing its level best to render the decision to site missile bases along Russia’s
borders irreversible, given the massive budget deficits and weakened economy they leave behind, as
well as the less aggressive policy preferences of Obama, it seems likely that the missile plans shall
be left to die a natural death. In any event, as Medvedev himself has warned, those who imagine
that he will be easier for the West to deal with are setting themselves up for a serious
disappointment.
No developing country has emerged as a fully-fledged industrial power under a truly liberal system –
such systems are a luxury reserved for wealthy, stable and long-established economies. Medvedev is
assuming the presidency of a country half-way through its transformation from a dysfunctional
Soviet system to a modern industrial state. After a false start characterized by internal Balkanization
with centrifugal forces threatening her very existence as a unitary state, Russia is now undergoing a
classical phase of consolidation of capital and recentralization of power – both economic and
political. After centuries of bad luck, history is beginning to smile on Russia – which is reemerging at
a time of soaring commodity prices and a secular shift in the global centre of gravity from the
Atlantic to the Pacific.
While Russian state-sponsored companies are undoubtedly less efficient than the best among their
Western peers, equally, they are infinitely more functional than the oligarchic pyramids which
sprung up during the chaotic 90s. As was the case for the Asian Dragons, this modified command
system will eventually prove inadequate for the needs of an advanced industrial economy. The
majority of the Russian mixed public-private chaebols will eventually be fully privatized or broken up
once they have fulfilled their tasks – but this is a problem for the next decade. For now, anyone
tempted to see a follower of Ayn Rand in Medvedev need look no further than his longstanding role
at Gazprom – a veritable octopus of a private/public company which has combined at least some
concern with the generation of operating profits with a deeply nationalistic furtherance of the
interests of the Russian state.

- 16 -
The following appendix is in no way germane to the dual focuses of T&B – i.e.
Finance, whether Global or Russian. Instead, what follows is a purely personal view
of the author regarding a slight problem as concerns the medium-term
sustainability of human habitation on this planet. Our conclusions are by no means
cheerful. Those readers who retain a healthy focus on those things they can
somehow hope to influence may choose to stop reading here…for the others
Appendix II - The Fire THIS Time…

If you can keep your head when everyone around you is losing theirs, you probably do not
understand the situation.
Anon
80 million – can you keep this number in mind?
T&B
We recently encountered a full page advert in the IHT asking us to remember the number 350 – i.e.
the atmospheric CO2 concentration of some 30 years ago. According to the text – the current
concentration of 380 ppm is already unsustainable, with urgent measures needed to bring it back
down.
Despite a doctoral-level scientific education, T&B has no claim to any particular expertise in
geophysics, and which level of CO2 is ultimately bearable we will leave to the experts. Instead,
reading the advert, we were awed by the inability of the authors to see the fundamental problem –
one which is staring us all right in the face!
The Global population has just hit 6.8bn. At the beginning of the 1960’s, it was about 3.3bn. In other
words, in 40 years – about half a single human lifetime – world population has increased by more
than it did over the hundreds of thousands of years since man first climbed down from the trees –
think about it.
Global population is now increasing by 80 million people per year - every year - good years and bad
years. This is more than the combined population of France, Belgium and Switzerland added to the
world annually – this year, next year, the year after. Think of a huge soccer stadium – 100,000
people can fit in it. Now think about a line of 800 of them. Two and a half new ones are created each
day. Every day. Or, for those who, like T&B, are bored by professional sports, think instead of the
most recent natural disaster – 100,000 dead in X-land. Terrible — in fact, this tragedy was
equivalent to the loss of …10 hours worth of population growth. This story shall not end well.
With the passage of time, T&B finds ourselves increasingly unafraid of giving offence by speaking
some simple truths which Western opinion – a prisoner to its 19th century prejudices and values –
has simply chosen to block out. The Rights of Man – seen as some sort of a physical phenomenon –
and the mystical, transcendental value of human life appear increasingly absurd as uncontrolled
demographic growth exceeds all available resources.
People who should know better are loath to challenge the fundamental benevolence of dead Popes
who railed against even the most basic attempts at birth control in the desperately poor countries of
Asia and Latin America. No one dares challenge the moral superiority of those would cure malaria
(the last remaining line of defence for the rapidly disappearing rain forests), with liberal and
conservatives alike fustigating the Chinese for “authoritarian” measures to control their huge
population. This sits well with the warm sense of wellbeing that recycling one’s trash brings,
imagining that somehow, token gestures will save the planet from a fate which is already writ large.
Alas, despite the charm, enthusiasm and intellectual weight of Al Gore he is fighting the wrong battle
– riding out against the symptoms, while ignoring the fundamental causes.
Simply put, the world does not have “many problems.” Poverty, war and injustice are a function of
human biology and have been with us since the beginning of history; while not pretty, they have
never durably impeded the continued progress of Man. Instead, our civilization is now threatened

- 17 -
with a decline into mere anarchy, as new and intractable problems come to the fore, all of which
have a single root: uncontrolled population growth.
It will be argued that with increasing wealth, the rate of population growth will slow. While this is true,
unfortunately, it is coming a bit too late – had this phenomenon occurred 100 years ago, the global
population could have been stabilized at a sustainable level. In our view, the current global
population already exceeds what is sustainable in even the medium-term; it requires consumption of
non-renewable resources at an exponential rate. In any event, the relatively young age-pyramid in
much of the developing world means that a further increase to somewhere between 10-12 billion is
inevitable, absent a major disruption leading to a sudden decrease in population density. In fact, in
our view a disruption will inevitably occur before growth levels out – be it by famine, disease, war,
social collapse or some combination of these scourges…the questions may simply be whether
anything will remain of the natural ecosystem before the pressure is removed by the collapse in the
human population.9
This situation is aggravated by the fact that the increasing wealth of the developing countries is
depleting resources at an accelerating rate. For the past several hundred years, the developed world
enjoyed the luxury of consuming an overwhelming share of planetary resources: food, energy,
minerals – simple poverty kept the populations of the poor countries out of the market. This is no
longer the case. As Chinese and Indian growth have catapulted more than the entire population of
Europe and America into the lower rungs of the consuming classes, with several times that many
waiting in the wings, the competition is becoming increasingly cutthroat.
These legions of new consumers want no more than what you and I have – a seemingly reasonable
request; most unfortunately, the planet is finite. It is starting to show signs of severe strain.
-Like those who would deny Darwinian evolution, anyone still not believing in global warming does
so not on the basis of any objective evidence, but rather, because for ideological reasons he wishes
not to. Not only is global warming very real, but rather more depressingly, it is both irreversible and
ineluctable. Given political structures which reflect man’s fundamental socio-biology, all recoverable
hydrocarbon resources will eventually be burned – a bit faster or a bit slower, but it is a safe bet that
all accessible carbon will be released back into the atmosphere. Unfortunately, carbon sequestration
via hydrocarbon formation occurs over hundreds of millions of years – its combustion over decades.
Once again, the problem is rendered far more threatening by the widening out of economic growth.
By all means, turn out the light when you leave the room – but as you do so, some 2.5 billion Asians
are turning theirs on. They are also buying cars, air-conditioners and refrigerators, just as fast as
their nascent credit markets will allow – and while the size of American’s cars will shrink at an
extraordinary rate, this will not begin to compensate for the millions of new cars on the roads of
India.
Food prices are beginning to show the strain. Aquifers are being depleted – despite modest
improvements in crop yields, total areas under cultivation are decreasing worldwide – the melting of
the Himalayan glaciers threatens to dry up rivers feeding as much as 40% of the world’s population.
Drought has wiped out much of Australian wheat production, the US Great Plains are increasingly
affected by extreme weather, and according to the UN, at the present rate of growth, all
commercially exploited global fish stocks will be wiped out by 2050 (after hundred of millions of
years in development, a mere 47 years away.10)
This competition for a finite resource is sending oil prices surging to new historic peaks almost every
week; the annual growth of Chinese/Indian consumption – partly hidden by manipulated statistics –
may well exceed the entire energy savings made by all the Western countries since the 1973 oil
crisis. As a result, climatologic events which, twenty years ago, scientists had warned would occur
early in the twenty-second century are happening today. Eleven of the twelve hottest years since
9
If that statement appears a bit extreme – the reader should reflect upon the extermination of virtually all of the
great predators, the great apes, and the catastrophic decrease in the populations of numerous species of herbivores.
10
Pacific salmon stocks and Mediterranean tuna being the most recent victims. As a keen scuba-diver, T&B can
confirm that the tropical seas of today are largely sterile by comparison with the teaming reefs of 30 years ago –
with the rapid growth of wealth in Asia, the rate of exploitation of local fish-stocks is accelerating rapidly – enjoy
the Sushi while it lasts!

- 18 -
records started to be kept have occurred in the past twelve years. Last year, we got our first real
snowfall in Moscow in mid-January, a full 3 months late.
Pre-Cambrian Park
Those with the appropriate time horizon (God the Father, most rocks…) will appreciate the fact that
this is not the first time that this happens - a billion years ago, in the pre-Cambrian age, the planetary
surface was far hotter than today; thanks to a reducing atmosphere (i.e. a high concentration of
carbon dioxide, with the absence of molecular oxygen) which trapped solar radiation, the earth’s
atmosphere constituted a veritable greenhouse, trapping solar energy. Over billions of years,
photosynthesis by the evolving plant species consumed most of the carbon dioxide, trapping the
carbon in sugars, and freeing molecular oxygen. The carbon sequestered as plant matter was
gradually buried beneath the earth’s surface, forming hydrocarbons. The earth’s atmosphere
became the oxidizing one which allowed the development of animal life, multicameral parliaments,
and properly regulated financial markets - while the planet cooled as the atmospheric CO2
concentrations became negligible.
Alas, beginning with the 19th century, the trapped hydrocarbons started to be burned, returning their
carbon to the atmosphere as carbon dioxide. While some of this carbon could be absorbed by
various carbon-sinks, primarily the oceans, their absorptive ability has become saturated, resulting in
a rapid acceleration in the rate of increase of CO2 concentrations. With the application of enhanced
technologies, in particular deep-offshore drilling, exploitation of tar sands, and the massive increase
in the use of coal, it seems certain that the entire stock of accessible carbon deposits will be burned
by the end of this century (or – if not – it will be because there is no one left to burn them…)
Out of the Closet - Crimes against Nature

Political correctness prohibits our speaking a few simple truths. Philanthropists who combat malaria
in Africa do more harm than a swarm of locusts. Increasing the population by a few million more
hungry mouths will simply hasten the impending catastrophe. A beloved Pope whose rantings
against birth control terrified innumerable Filipinas and Latinas into having as many babies as the
Lord commanded should be remembered for his crimes against humanity.
China’s one-child policy was, perhaps more by accident than by design, the single greatest attempt
to save humanity in recorded history. As PM Chou En Lai replied when challenged about China’s
authoritarian approach by French President Valerie Giscard d’Estaing, “Mr. President, if we did not
limit our population growth, we would be sh…ing out a country the size of yours every year! 11”
India, on the other hand, has made only the half-hearted and inconsistent efforts consistent with a
functioning democracy. As a result, the population of India – half that of China in 1950 – is set to
exceed it over the next decade. The question of how anyone expects to feed that population has not,
to the best of our knowledge, been addressed.
But – there will always be dinosaurs!

Trying out our cheerful predictions on a cross-section of our esteemed readers and friends, we met
the same universal scepticism we encountered when we predicted – a decade ago – the collapse of
the dollar as the world’s reserve currency.
The answers encountered fell broadly into two categories: “Man’s ingenuity will find a solution for
everything” and “but it has all been predicted before – wrongly”.
• The first one is the easiest to dispatch – it is a statement of theological faith rather than of
rational analysis – it is exceedingly difficult to argue against an affirmation based on nothing
more than sincere hope. Man’s ingenuity has not solved any number of thorny problems with
which he has been faced since the beginning of time: the inevitability of death, and the
existence or otherwise of a Deity are just two that spring to mind. We are no closer to
colonizing other planets, flying through the air with rocket-packs, or stopping nuclear
proliferation than we were 50 years ago. The fact that a catastrophe has long been avoided
tends to instil a very dangerous sense of security.
11
We are loath to employ ellipses, but otherwise, the spam filters kick in!

- 19 -
Furthermore, and perhaps more controversially, this argument must assume a sudden and
very fundamental change in behavioural patterns which are deeply coded within the human
DNA. While the political discourse has become increasingly refined, in reality, the world
remains a lawless and brutal place, characterized by an unbridled competition for resources.
This is certainly not confined to the current hegemons. There is no reason to assume that a
rich and developed China would be any less domineering than the current great powers. As
the demand for resources grows beyond their supply, it seems most unlikely that a civilized
means for management of scarcity will develop. Instead, there will be a growing struggle to
capture vitally necessary resources: food, energy, minerals, land. Thus far, mankinds record
for managing such conflicts in a peaceful fashion has not been encouraging. Nothing
suggests that this has changed.
• The second argument is slightly stronger. The “end of the world” has been just a few years
away for as long as recorded civilization has been recorded. Unfortunately, it is also a
commonplace that whilst the ultimate collapse of selected bridges, economies, bubbles and
ecosystems can be reliably predicted, timing such collapses is always tricky, and like the
current credit bubble, they tend to last 20% longer than could have been rationally predicted.
“Meta-stable” systems may survive in a state of dynamic disequilibrium for an indeterminate

time before they suddenly collapse – think of the Internet bubble, Dutch tulips, Pacific
Salmon stocks…or the US dollar as the universal reserve currency.
The Fire Next Time

As we wrote some years ago as regards the US Economic expansion, “What is unsustainable will
eventually not be sustained”. Experience has proved that, to predict precisely how, a dynamically
unbalanced system will right itself, is hugely challenging.
Animal species are kept in check by predators. Man’s technology quickly killed off his predators.
Food supply is another possible mechanism – new species introduced into an environment where
there are no natural predators quickly exhaust the food supply. In the post-Malthusian world, we
have come to believe that food supplies are amenable to infinite increase. In fact, physical limits are
increasingly being encountered – limited land and water resources are the most obvious. Diseases
have been held in check, but this is a dynamic process. As the outbreak of AIDS and the
proliferation of MRSA in the developed countries have demonstrated, the huge and densely-packed
human population provides a marvellous culture medium for microbial evolution.
Out best guess is that the population bubble will grow for some years longer, well past the point of
long-term sustainability. But somewhere out there – there is the biological equivalent of another Bear
Stern hedge fund gradually going critical.
Happy trading
This message is provided for informational purposes and neither the information nor any opinion expressed herein constitutes an offer, or
an invitation to make an offer, to buy or sell any investment funds, securities or any options, futures or other derivatives related to such
securities.
Investment in emerging markets bears a high degree of risk, and is not suitable for all investors. This report is based upon information we
believe to be reliable, however it is provided solely as an intellectual exercise, and no investment decisions whatsoever should be based
upon it, in full or in part. In particular, investing in securities, including Emerging Markets securities involves a great deal of risk and
investors should perform their own due diligence before investing.
Past performance is not necessarily a guide to future performance. Some investments may be subject to sudden and large falls in value and
on realization customers may receive less than they invested or may be required to pay more.
Changes in foreign exchange rates, interest rates, or other financial parameters may have an adverse effect on the price, value or needs of
customers. We would recommend that investors take financial advice as to the implications, including taxation, of investing in any financial
product.
Some investments may not be readily realizable and valuing the investment and identifying the risk to which customers are exposed may be
difficult to quantify.
It should be assumed that the author and/or the funds he advises will from time to time have long or short positions in any of the assets
discussed, or derivatives thereof. These positions may at times be contrary to the views expressed.
Although the Nikitsky Fund is a sponsor of T&B, its trading policy is totally independent of this publication, and it should not be assumed
that it is positioned in a fashion in keeping with the market views expressed herein.
Like cats and horses, markets – whether emerging or emerged, are apt to do as they damned-well choose, and a considerable measure of
luck is required to come out in one piece. Exercise caution in all things. Good Luck!

- 20 -

Marc Faber

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Bullish – On the Bear!

Truth and Beauty

The Little Bear Who Cried “Wolf”

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

Commodity prices – An Unbalancing

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

Asian Equities (cont.) – Currency trades

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

I - Bear and Dragon – On Medvedev’s First Trip Abroad – to Beijing!

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

II - Putin – Medvedev – Gorbachev

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

Appendix II - The Fire THIS Time…

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

Out of the Closet - Crimes against Nature

But – there will always be dinosaurs!

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

“Meta-stable” systems may survive in a state of dynamic disequilibrium for an indeterminate

The Fire Next Time

© Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008

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