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“History would be a wonderful thing – if it were only true.”
— Leo Tolstoy 
Historic Mailbag
Q: Are Russian stocks a contrarian buy?
I usually cannot resist a contrarian call, but this one may not be as contrarian as you think: With retail piling in, shares outstanding for the most popular Russia ETF, VanEck’s RSX, have doubled over the past few days. And that’s despite creations being halted!
RSX is down 80% and yet still trades at 4x its stated NAV (net asset value).
That NAV valuation is just a guess, because the underlying stocks are not really trading anywhere.
But if it’s in the right ballpark even, you're paying a huge option-like premium to buy Russian stocks via ETFs.
And if you buy call options, as many are doing, you’re paying an option premium on top of an option premium.
That could work out for you, sure. But I’d suggest you do it only if you have a strong view on what the underlying shares are worth — most of the retail buyers seem to be buying just because it’s down a lot.
Keep in mind that no matter how much something has fallen from its highs, the downside is still, always, 100%.
Q: I can’t buy, like, Gazprom or something on some blockchain somewhere?
Not that I’m aware of, no. Which I think is unfortunate.
Sanctions may or may not be a good idea, I don’t know.
But I do think there should be a decentralized, permissionless way to custody your own investments, be they stocks, bonds or otherwise.
Q: May or may not be a good idea? Really?
I mean, I agree with the intention of punishing bad actors, but I’m not sure banning trade in Russian equities accomplishes that.
It may even do the opposite. American and European investors are being forced to sell Russian shares at cents on the dollar to the one remaining buyer: Russian oligarchs.
They may make so much money off it, it could more than offset everything they’ve lost to sanctions abroad.
It’ll be a rerun of the corrupt firesale of Soviet assets in the 1990s that made them all oligarchs in the first place.
Maybe. I’m just spitballing here.
Q: I thought it was bad when foreigners own lots of US debt? Now it’s good?
I’d say it’s always been good: We send them digital IOUs (aka, dollars) and they send us back, like, cars and stuff.
That’s a good trade in my book. (Send me a car, I’ll send you back a spreadsheet with whatever you want on it.)
In fact, we don’t even send the IOUs. We just add an entry to a Fed spreadsheet and tell them we’re good for it.
Which, as Russia learned this week, we may or may not be. (But, you know, just don’t invade any countries and you should be fine.)
Modern Monetary Theory gets a lot of abuse, but this is one thing I think they have gotten right: Current account deficits are better than current account surpluses.
Importing goods and services in return for exporting fiat IOUs is a good deal.
Q: Are these sanctions really all that severe? Aren’t there loads of loopholes and work-arounds and things?
There are, yes. The Fed has helpfully even laid out exactly how to evade their own sanctions.
But it's complicated: If you want to really understand what’s happening, listen to this podcast.
From my perspective, though, what is not getting enough attention is the Office of Foreign Assets Control (OFAC).
OFAC has added Russia’s Central Bank, National Wealth Fund, Ministry of Finance and political leadership to its list of counterparties that US banks and citizens are prohibited from interacting with.
The OFAC list is no joke — you get on that list, you are toxic in the US financial system.
There’s a carve out for certain banks dealing in energy. But my experience with compliance departments is that it’ll take so long to get an exempted Russian counterpary approved, the carve out is meaningless.
The OFAC measures are effective immediately. So, despite the loopholes, carve outs and 30-day warning periods, I would guess it’s already close to impossible for Russian entities or persons to do anything with their US-related assets.
Banks are overstuffed with compliance officers these days. You can often reason with them and debate some of the gray areas of securities regulation. But when it comes to OFAC, there is not even a discussion to be had.
Q: Why did @Ukraine rug me on the airdrop?
I don’t know. Maybe because of all the jokers that sent 0.001 ETH thinking they were going to make some money on an NFT.
I hope those 0.001 “donors” get airdropped a big fat, Ukrainian yellow and blue “C” — for CHEAP.
And I’d make the airdrop non-transferable so that it forever sits on their wallets like a scarlet letter of cheapskate shame.
(Unless they happen to be newsletter readers. In which case, forget it, you’re good.)
Q: Thanks for your takes on Russia and Ukraine and stuff, but why should I be listening to you?
You probably shouldn’t. But seeing as you’ve read this far, here are my qualifications:
I also lived in Europe for 20 years. But so have, like, 400 million other people, so I guess I won’t list that one.
I’m glad my history degree and all the Economist reading has finally paid off, but I’d much rather get back to talking crypto ponzinomics as soon as possible.
Thanks for bearing with me in the meantime.
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