Use access key #2 to skip to page content.

The Crimea Affair….Blood in the Streets OR Putin’s Playground?



March 14, 2014 – Comments (14) | RELATED TICKERS: LUKOY , SBRCY , RUSL


Disclosure 1:   I am holding positions in RUSL and Sberbank Of Russia ADR SBRCY and may buy more/others if the SKY doesn't fall or if it does fall but doesn't permanently break anything.

Disclosure 2:   If I knew anything would I be spending my time here?

Disclosure 3:  My real life Due Dilligence is about 10 hours, I've been spending most of the last week DD'ing Natural Gas.  

Note:  This is not meant to be a political discussion.  It's a financial.  For now, the "situation" is what it is....

It's very hard to separate the 5 straight DOW down days from general movements, China Syndrome, (more on that another day), and the uncertainty of Ukraine.   There are always multiple levels in a market that is either topping, or consolidating as it sets new highs (I believe the later, but again, not for today).

It's clear that since February the Russian Indexes and Ruble (10 year low), have taken major corrections.  I started "watching" on CAPS with RUSL and thought I'd "dollar cost in" with RUSL.  When both of those went heavily underwater, I started looking at other plays. Dollar cost averaging in CAPS can be done with entering in "like as" investments, but of couse it can increase the pain if you continue to be wrong  (i.e. PLUG, FCEL, BLDP).

My thesis is that eventually this crisis will pass.  Yes, the Russian Markets may go down more...much more, but like the bottoming in March 2009, (coincidentally five years ago), one can run and hide and miss the rebound or take small stakes, averaging in and looking for capitulation.  In the short run Gold is up, but markets seem to be taking things in stride, except the Russian market.  IF we start trading sanctions, then all markets could "adjust".

Europe, the largest trading partner is unlikely to have the stomach for Sanctions. The UK is one of the largest Russian investors. 

Some folks are buying hard into RUSS, the 3X BEAR. I'd suggest that if nothing bad happens, they will get stuck in RUSS as it will never be this high again.  Buying into Russian equities that are 20-50% down, however may result in a short term portfolio loss, but will recover at some point.

At any rate, this is a high risk, traders, thesis, not a long term buy/hold.

Looking at the Russian equities, one can start with RSX which is the base for the 3X RUSS and RUSL.

Gazprom ADR OGZPY: Sberbank Of Russia ADR SBRCY: OAO Lukoil ADR LUKOY:

MMC Norilsk Nickel JSC ADR NILSY; Novatek GDR NOVKY: 

OJSC Magnit GDR MGNT; OJSC Rosneft Oil Company GDR OJSCY; OAO Tatneft ADR OAOFY;

Yandex NV YNDX;  Surgutneftegas OJSC ADR SGTZY:  

  Of these I singled out, YNDX, (Internet) SBRCY (banking), OGZPY (Natural Gas), and LUKOY (Oil).

 I screened for solid companies, without a lot of real infrastructure in Ukraine, that shouldn't be hurt too much by sanctions if this goes long.  I used a baseline price from a quarter ago to separate real life from real life plus Ukraine and should pull out swings that the market put in for other reasons.

YNDX, I already had a long term CAPS call at $20.51, down 26%.  YNDX is a growth stock, with a high forward P/E.  While I don't think the situation will affect an intenet company much, I don't see as much potential gain if this goes long, but an excellent entry for someone who was considering it anyway as a long.

SBRCY,   In the case of Skerbank it is down about 1/3rd in the last quarter.  Sberbank is lightly followed as a US ADR. (1:4)  Sberbank is a state owned bank, (50% Russia owned "PLUS 1" and only a few percent of it's assets are in Ukraine. P/E sub 4. P/B .77. Grew by acquisition after the 2008 crash in Turkey and Europe. 10X the deposits of it's peers in Russia.

LUKOY:   Lukoil it is down about 20% in the last quarter. Russia holds a nice location as sanctions and unrest have cut off many of it's neighbor competitors for oil. Lukoil gets much of it's supply from Siberia, which other than natural resources is not a very desirable location! Lukoil trades well below current valuation, including about half book value and only 0.27 P/S. 

OGZPY:   Gazprom is down about 25%.  As a large NG player, it has been growing, but carries some risk as Europe had a warmer winter than us and supply could be high. Overall, sanctioning your NG supplier, however can lead to issues.  Putin has a large stake in OGZPY.   Despite a 0.35 P/B and strong Margins, valuation of Russian stocks is typically lower than others.

On Thursday, there was a bit of capitulation in the markets and especially Russian stocks. There was a buy signal this morning.  This could be a very temporary swing, however.

IF you were considering Yahoo and someone said that foreign countries were going to boycott it, would you consider 26% discount interest.  What if you wanted to buy BAC, and it dropped 40% because of a possible foreign boycott?  What are major owners of YNDX, SBRCY etc doing locally?

There are other interesting plays such as EPAM , down 25%, a growing software support company based in the US with a large percent of business in Central and Eastern Europe, the Ukraine situation may be preventing an increase in share price. Another growth stock, difficult to tel the true value.  

 Or MBT, a communication company.  MBT pays a large dividend in May, expected to be higher than last year.  Sometimes dividneds from foreign corporations require "extra" tax paperwork and isn't appreciated by some.  Similar down is communciations company VIP.

Will the sky fall?  I don't know....but I like the risk/reward long term, it's just the way I roll.  

If Crimea votes to suceed, clearly it won't be recongnized by other countries, but it's strange that the child wants to emancipate and the guns aren't there to force them to do it.   But then again we wouldn't allow Texas to suceed either... (I don't think), but we have an army.  At any rate, I won't be buying RUSS, and I will dollar cost average if my "buy signal" turns out to be a stray cloud.

Fear in Crimea....what till James Bond gets there! 

WARNING:  I'm not sure what the markets will do if the missing Malaysian plane gets returnd by the aliens. 

 Reminder, note disclosures.



14 Comments – Post Your Own

#1) On March 14, 2014 at 8:54 PM, awallejr (29.57) wrote:

Well I wish you luck but I'd rather play Russian roulette.  My MTL holdings are kind of screwed I suppose.  This can and probably will last for months at least.  Crimea is already in Russian hands. To be truly honest it should be.  The only reason why it was made part of the Ukraine was because of Kruschev.  But the Crimea is mostly Russian.  Russia has a strong stake in Sevastopol.  Just like we have with say the Panama Canal.

Ukraine was in their camp until the uprisings.  I don't blame Russia for trying to protect their interests.  The end result should be let Crimea go where they wish and keep the rest of the Ukraine free from military assault. If that occurs your investments might pan out. If Putin wants to take it to extremes, there is more pain for you.

Report this comment
#2) On March 14, 2014 at 11:23 PM, TSIF (99.98) wrote:

Thanks awallejr, I appreciate the counter/balance.  Unfortunately the CAPS forum doesn't provide the exchange of balanced dialogue and exchange of ideas as it use to.  Putin is a wild card and apparently has loftier ideas that this is playing into.

I might get stuck longer than I think, but I think 1-2 months will settle this down.  At any rate, I'm playing with my natural gas casino winnings and I think this is safer than doubling down on black and certainly safer than Russian Roulette, but it's not for investors.   

Report this comment
#3) On March 15, 2014 at 5:43 PM, VExplorer (29.07) wrote:

awallejr: ... To be truly honest it should be.  The only reason why it was made part of the Ukraine was because of Kruschev...

It was only border shift at that time. Ukraine lost to Russia some territories at East border in exchange (+/- the same area as Crimea) and expanded in West direction (Romania/Slovakia/Hungury territories in past. Shoul those contries start actions? Do you think any country will follow Uknainian path with Nukes after US/UK fail to keep their "guaranties"?

Report this comment
#4) On March 15, 2014 at 5:44 PM, VExplorer (29.07) wrote:

It was only border shift at that time. = It was NOT only border shift at that time.

Report this comment
#5) On March 16, 2014 at 11:57 AM, awallejr (29.57) wrote:

Russia has quite a bit invested in the Ukraine with businesses, loans, investments and a key naval base in the Crimea.  They only responded as a result of having a "friendly" Ukraine leader being basically kicked out by factions that are more pro West. This really wasn't a situation where Putin woke up one day and said 'lets expand our borders."  While I am not saying it is morally right, I am saying it is understandable.

I hope a diplomatic solution can be reached, but I can't think of one that involves the Russians leaving the Crimea at this point.

Report this comment
#6) On March 16, 2014 at 3:27 PM, anchak (99.91) wrote:

thanks for the perspective TSIF.....

 Im looking at this purely analytically currently - and dont  see an immediate entry point....



Report this comment
#7) On March 16, 2014 at 4:35 PM, TSIF (99.98) wrote:

Not sure there will be a defined entry point in a political situation.  Especially with the somewhat independent, (similar to Hong Kong), Crimea voting to suceed.

I do know what's happend the last five years each time LUKOY dropped near $50 and what happened each time SBRCY dropped below $10, but no two things are ever alike.

I can't call tops and bottoms, so dollar costing in is helpful, but risk/reward is certainly questionable, and even  more questionable is timeframe.

There are certainly safer places to be.  My calling NG down was probabably safer, and my 2-3 times a year calling oil down as I am now is definitely safer.  But tranching into both of them certainly helped.

Just batting around some high risk ideas. 




Report this comment
#8) On March 16, 2014 at 6:18 PM, TSIF (99.98) wrote:

What I would like to find is more like EPAM that does "part" of it's business in Ukraine or Russia, but is based elsewhere.  EPAM due to part of it's valuation being from "growth", is a little tricky. Some that had more stability in their reports, extract Ukraine/Russia, and there might be some bargains. Two to three years ago here on a caps blog, I'd be getting all kinds of ideas, some good, some "out there" and some radical, but not now adays.  There apparently aren't more than 10-15 people who read the blogs anymore unless you write one that links to a video, has no content, and suddenly you average 30 recs, but that seems a bit unusual.

Report this comment
#9) On March 17, 2014 at 8:02 PM, Mary953 (84.83) wrote:

TSIF,  Thanks for the analysis of companies.  While this is one of those areas that I will avoid under the "if you don't know anything about it, stay out" rule, I am certain that others will find this adds tremendously to their dd.

Awaller,  I went from neutral to liking the Ukranians when they got a good look at the presidential palace and decided to make it a national museum rather than loot, plunder, or destroy it.  I admire that mindset.  The Crimean penninsula has a long history (at least through several of the czars) of being the vacation spot for Russian elite.  This did not change when power changed hands.  I would like to see the country stay together, but cannot see a way that it will happen.  The military installation is too important to Putin and his mindset is not the concilliatory type.  

AC, nice to see you here.  

I can see a scenario where Putin was waiting for the end of the Olympics to go to the aid of the Ukranian leader.  When the Ukraine changed leadership before the end of the Olympics, he was left to scramble for whatever he could.  He could have just saved all that money on Olympic venues. 

Report this comment
#10) On March 17, 2014 at 10:24 PM, awallejr (29.57) wrote:

Mary the prior Ukrainian leadership was absolutely corrupt and simply stole from the Country.  He did deserve the "boot."  But I can understand Putin's thinking.  There really was a coup.  Personally I say good, but it still was a coup.  He lost a friend and scrambled to at least protect his major port at Sevastopol.  The US would have done the same if say Venezuela attacked Panama and threatened the canal.

The end result for peace will be recognizing the Crimea succession with guarantees that the rest of Ukraine's borders are respected. That really is all that can be accomplished short of war or tremendous economic hardship for Europe and Russia.

Report this comment
#11) On March 18, 2014 at 9:12 AM, TSIF (99.98) wrote:

Hi Mary, hope your note means you are doing better....have been thinking about you.

The blog itself isn't too "deep"...just Russian Stocks when Russia is "mis-behaving"...high risk.

Awallejr, I agree with your Ukraine assessment.  Some compare his support of hte Crimea with Texas suceeding "back" to Mexcio.  You can't compare the two.   Crimea was part of Russia not long ago, (much shorter than 150 years), it is autonomous like Hong Kong, and as you note Russia has a vested interest.  The rest of the world could care less if we or Europe had an internal tiff.

Ukraine has no army, and as long as shots don't fire, and Putin doesn't get more ambitious, (Possible based on his doctrine, but not likely), this will end eventually with Crimea back in Russia hands. It didn't help any that when the Leader went AWOL to Russia that his replacement banned Russian as a second language...wrong time, wrong place, wrong signal.

Report this comment
#12) On March 18, 2014 at 10:02 AM, Mary953 (84.83) wrote:

I am doing better - no surgery at least.  This was my first foray onto the computer in about a month and I set a timer.

As to the Crimea and Ukraine, imho, the best result is the following:  Russia takes back the Crimea, which they will do anyway.  Those who don't like it are free to take their stuff and move to the Ukraine (open border policy.) The Ukrainian troops also are allowed to return to their country taking all military equipment (unlikely.)  Putin retains control of his military base and its military equipment which, as you noted, Awallejr, is something that any nation with enough strength would do.  By taking Crimea,  Russia also keeps control of the Kerch Strait into the Sea of Azov.  This much is absolutely going to happen.  The US postures but does not do anything to push Europe into the kind of war where we get to act smug and they end up living with the difficulties of the war.

It was foolish of the Ukranian leaders to ban Russian as a second language.  At the vet, I sometimes watch tiny dogs try to challenge my 100+ pound dobes. (and yes, I do keep my pets under control and out of the way - doesn't help with some dogs.)  Eventually, if the small dogs persist, one of the dobes leans down and growls.  That is usually enough to back every dog in the place down.  It is so much easier to follow diplomatic solutions if you have not tried to act like the big dog when you are the relative size of the terrier. 

Report this comment
#13) On March 18, 2014 at 5:28 PM, TSIF (99.98) wrote:

Thought you thought my plays wasn't for you.  :)  You reexplained it much better than I did!!!

None Steroid (3X ETFs) plays on my list are up about 10% since Friday bank is up 13%...I don't count it until I bank it though and they rose faster than I would have expected.....

Ease in...keep those Dobs under control...some of the little mouthy dogs, (no offense meant to mouthy dog owners, but you know if you have one), would only be a bite for a dob and the owner would probably wonder why he was holding a limp leash.... fortunately dogs like dobs know they are king...they don't need to prove it...

Report this comment
#14) On March 19, 2014 at 5:16 PM, Mary953 (84.83) wrote:

My Russian Foreign Studies professor drilled into my head, "It starts with the Map.  In Russia, if you cannot map it, you cannot understand it."  He would have been pleased to know that I remember his golden rule 40 years later.

Report this comment

Featured Broker Partners