Russia Update: How To Monitor Geopolitical Tension via Financial Markets

After publishing our double barreled piece we had a - regrettably tardy - thought:

What if, rather than joining the crowd on becoming amateur military strategists, we instead just stuck to our core expertise of analyzing and educating on financial markets?

What a concept!

Below please find an additional method for following the high stakes crisis on Ukraine's border and, also, a different analytical arrow for your financial markets quiver.

It might be better than following the talking heads on TV as best demonstrated by this amazing thread:


As always, reach out to with any thoughts or questions.


Russia is an interesting place. For understandable reasons it is not very popular with Western investors.

A short list of its issues might go something like:

Russia has corruption problems, governance problems, Putin problems, state interference problems as well as numerous structural challenges like: a shrinking population, a low trust society, an overreliance on raw materials and a complete erosion of the rule of law.

It is anything but a free and open market, in other words.

A little less noticed however is something we argued in the autumn as it pertains to Gazprom:

There is a bizarre paradox where, despite being tightly controlled by a heavily corrupt and avaricious state and economic system, large state controlled Russian companies are more committed than their Western competitors in delivering along certain metrics for their shareholders.

In other words, Russian corruption and the weak state make Russian companies more, not less dependable, from a certain lens.

More reliable and, yes, more lucrative.


Two reasons:

  1. Russia, the economy, has lots of heavily state owned companies.

  2. Russia, the state (and its smooth functioning), is heavily dependent on income from those very same enterprises.

More practically speaking: the reality is that Russian companies pay hefty dividends and must, in fact, continue to do so.

In fact, since 2016 Russia brought in a legal requirement that stated that 8 strategically important state owned companies must pay 50% of their profits as dividends.

Underlining the importance of this law, the Russian state updated this law again this past year.


Well, as we pointed out with Gazprom, there is a sort of bizarre logic to this situation.

This logic can be summarized as: when in doubt, take the money.

In a highly corrupt system with heavy state ownership and an even greater economic reliance on a few select industries to fund the budget (and welfare state items like pensions) it is likely wise to force those institutions to pay out as much as possible rather than trust them to safely invest in future productivity.

Or to use another adage, a bird in the hand etc....


Well, you have a greater chance of actually seeing the money if you force the company's executives to regularly and publicly issue a large dividend to its shareholders (which include the state).

It might not only be unwise but even laughable to expect the company to simply responsibly and productively re-invest the capital in their core business. The money would very likely disappear into Swiss bank accounts, Southern France estates and many other divertissements that only occur to the corrupt and venal.

So, instead, you accept the corrupt nature of your society and system and make it work for you.

You mandate a very hefty annual payout and then occasionally tighten the law to try and close loopholes to minimize the graft or outright stealing.

Where does this leave us? Why do we care?

Well, there are two things to realize right now:

  1. Thanks to the Putin brinkmanship vis a vis Ukraine, Russian shares are very, very cheap.

  2. As a result there are serious bargains available. Especially ones that have large amount of state support (and ownership) and pay out incredibly high dividends.

See here:

Gazprom, a stock we have spoken about before, is very representative. The oil major has 40% growth, a 17% expected dividend, and a P/E of 3.

The dividend could easily be far higher if oil prices stay high, or the stock drops further.

As you can see above, Gazprom isn't alone.

In fact, the same could be said for a lot of the Russian stock market (see below), which is heavily dominated by resource companies that are ideally suited to an era where inflation is high and commodities are doing exceptionally well.

Now, we are not recommending you bargain hunt in Russian state-owned assets right now, or even going forward.

We are going to repeat that: do not buy Russian shares.

They could very likely go down by another 50% and there could even be new sanctions that make it impossible if not illegal for Western based investors.

What you can do, however, is monitor Russian shares.


  1. Well, because, once again they are a great barometer for the question of whether Russia will (or will not invade) Ukraine.

  2. And they are equally a great metric of what Russian investors and, especially, the Russian elite think about that critical probability.

The Russian elite can be relied upon to be both in the know and very greedy.

As a result, if you want to understand the probability of invasion: watch the Russian index or even just a handful of large, large dividend paying state owned companies like Gazprom.

If Putin decides to invade they will continue to sharply sell off. Conversely, however, if he decides not to, that decision will likely circulate in politically connected circles of the incredibly corrupt Russian elite who can be relied on to do what incredibly corrupt people do.....

In other words, they will buy and buy hoping to snag some very valuable and very stable Russian state backed assets on the cheap.

A 40-50% dividend is nothing to sniff at even for the Russian ultra rich kleptocratic class. After all, they likely have their eye on another yacht or Polar Bear NFT or racehorse or whatever.

Those things don't pay for themselves!

So, watch Russian assets as a proxy for the probability of invasion and also for the spectacle of watching some very rich and very reliably awful individuals, doing what they do best!


Have questions? Care to find out more? Feel free to reach out at or join our Slack community to meet more like-minded individuals and see what we are talking about today. All are welcome.


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