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The new economic reality is making it clear that the U.S. dollar is no longer the world’s absolute reserve currency. And at the same time the euro is coming apart at the seams!
The flight out of fiat currencies and into tangible assets is rapidly accelerating. That’s why gold, silver, oil, and agriculture products for example are all rising in value.
The fact of the matter is that commodities are becoming the new reserve currency. So countries that have vast amounts of these resources are going to be the big winners in the global race for power.
Russia’s Dominance Soaring
The return of Russian influence and power has been guided primarily by Vladimir Putin who brought Russia back from its daunting economic collapse in 1998. Now the former communist nation is flush with cash, it has a new found pride and a rapidly growing global influence. Russia’s meteoric 15-year conversion from debt-ridden den of corruption to a cash-rich nation has been mainly due to oil riches, which account for 64 percent of its exports.
The road back to prosperity was not an easy one though …
When Putin came to power, production and oil exports were down by almost 50 percent, and crude oil prices had sunk to a low of $10-$12 a barrel on the world market. Because of this, Russia had serious trouble paying its bills, and as a result suffered a massive financial collapse.
On August 17, 1998, the government defaulted on its debt. And most of the country’s private banks closed their doors and locked their vaults.
Fast forward to 2005: Oil was trading at $70 a barrel and the once anemic ruble surged back, along with Putin’s increasingly large influence on world affairs, and that influence increased as oil prices rose.
Putin used his supreme power to capitalize on rising global demand for gas and oil. According to reports by Goldman Sachs,
“When Putin took over as prime minister in August 1999, the capitalized value of the nation’s publicly traded stocks amounted to just $74 billion, by 2006, the capitalized value exceeded $1 trillion.”
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| Don’t make the bear angry! |
Indeed, today Russia’s vast oil and gas reserves allow it to exercise great economic and political influence over world affairs.
At the same time as Russia’s global influence is rising, the U.S. influence is dwindling. The causes: The growing U.S. trade deficit, increasing dependence on imported fossil fuels, deepening public debt, and the rapid devaluation of the dollar.
Putin recently stated to a Russian youth group camp that,
“The U.S. is living beyond its means and shifting part of the weight of its problems onto the world economy, acting to some extent as a parasite on the global economy and its dollar monopoly position.”
Ironically, just after the downgrade of the U.S. debt by S&P, Russian Deputy Finance Minister Sergei Storchak was one of the leading voices saying that Russia doesn’t expect “any alternative whatsoever” to American sovereign debt in its holdings for the next five years.
Meanwhile the EU and the euro are hanging together by a thread, and much of Europe is highly dependent on energy from Russia.
The Russians linked their gas pipeline system to Western Europe in 1985, despite the Reagan administration’s failed attempts to stop it. So today Russia supplies gas to at least 40 percent of German households. The Baltic states including Estonia, where I live, and Finland purchase all their gas from Russia. The Russians truly have us over a barrel.
Russia can and has withheld oil and gas supplies to further its political objectives. The facts clearly show that the Soviet Union, and Russia after 1991, has frequently terminated the shipment of energy supplies when a customer opposed Soviet or Russian political or economic objectives …
Latvia in 1990, Lithuania in 1999 and 2006, and Estonia in 2007 had their petroleum deliveries cut off. Putin’s regime has also halted or reduced the flow of natural gas supplies to Ukraine, Belarus, Georgia, Moldova, and even Bosnia. Russia has the ability to turn off the spigot to Europe too, and it could happen.
How to Invest in
Russian Resources
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| ETFs offer individual investors an easy way to invest in Russia. |
RSX, the Market Vectors Russia ETF tracks the price of the DAX Global Russia Index, consisting of 48 securities publicly traded in Russia and has about $2.2 billion in assets. This ETF allocates approximately 33 percent to oil and oil exploration and production.
Another bit more riskier way is to use the CurrencyShares Russian Ruble Trust (NYSE:XRU). Often I prefer an ETF that doesn’t have “single country” focus. So an ETF such as iShares MSCI Emerging Markets Index (NYSE:EEM) is a good way to get exposure to Russia and other BRIC countries at the same time.
In addition to these great ways to play Russia’s rebirth, I like ETF options, which give you an added bonus: Limited risk.
They’re the tool I use to help my Master Trader members seek gains in any major asset class in the world — energy, stocks, precious metals, commodities, bonds and even foreign currencies — no matter what event or trend is happening in the world!
To learn more about ETF options and how you can become a Master Trader member, risk-free, click here.
Yours for resource profits,
Kevin Kerr
Kevin Kerr has successfully traded commodities professionally for the last 22+ years. His unparalleled expertise in commodity and resource futures, options, and equity trading, has made him a regular contributor to news outlets like CNBC, CNN, FOX News, CBS Evening News, Nightly Business Report and many others.
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Russia does have many resources as you mentioned plus a tremendous amount of diamonds, lumber etc. How they get along with China in the coming years should be interesting.