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Episode 156: Pain, Punishment, and Putin

How sanctions are affecting Russia’s Oligarchs

SHOW NOTES

This episode, I look at the financial sanctions we’ve placed on Russia and the effect this is having on the country, the Russian people, and Russia’s billionaire Oligarchs.

The financial sanctions placed against Russia are supposed to put pressure on the Russian Government and the Russian Oligarchs.

But how much are sanctions really affecting these billionaires, and how much are they affecting the common Russian citizen?

This episode, I look at how financial sanctions work, the problems they have, and the effect they are having on Russia and its Oligarchs…

“If you have lots of money you can pay people in powerful positions to keep your secrets.” – Ben Jones

“There are about 120 Russian billionaires, and it’s believed they have more money outside of Russia than all of the other Russian people put together.” Ben Jones

Time Stamps:
00:40 – Why Europe and the US used financial sanctions on Russia.
01:38 – The vital resources Russia imports that they can no longer access.
03:05 – What caused the value of the Ruble to drop so drastically.
05:20 – The death of the Russian stock market.
06:09 – How much Russian stocks are worth.
06:30 – How much the sanctions are hurting the Oligarchs.
08:12 – The Oligarch superyachts that are being confiscated.
09:30 – How many Russian billionaires there are and where their wealth is.
10:15 – The challenge of confiscating high-value items.
11:00 – The different companies that have left Russia since its invasion.
12:08 – The effect of companies leaving Russia and the problem with Russia seizing assets.

Connect with Ben Jones:

 

TRANSCRIPT

Welcome back to more Money with Mak & G. I’m so glad you’re here. Mak & G were a bit under the weather last week. So, I took over the helm, like a ship’s captain, or maybe a yacht and drove. Last week we did an initial discussion on Ukraine and Russia and found it fascinating. A bit about history, natural resources, size, population, and the Oligarchs. Some interesting comparisons and tidbits of information I didn’t know.

However, we just scratched the surface of what’s happening to the economy, which is all about money. Ok, we know that Europe and the US didn’t want to get involved DIRECTLY in the war. So, they want to put a little pain on Putin as punishment for his plan to take over the power of Ukrain. That was fun.

This is all about hitting Putin and his Oligarchs in their pocketbooks, so they’ll rethink the invasion into Ukraine. But, we know that other people will get caught up in the pain because it’s VERY hard to be super focused and only hit a couple of people. So, let’s be very general. The US and Europe would say something like “don’t do business with Russia”. That means don’t sell them anything or buy anything from them. Does that hurt? Well, it depends. If they don’t need anybody else, it won’t hurt much at all. If they don’t need to sell anything to anybody, that doesn’t hurt either. But, they DO need other people…

Let’s talk a little bit about business from OUTSIDE Russia. Like many countries, they don’t produce everything, like all their medicine. Funny enough the US imports more medicine than any other country. But, if you’re in Russia and need medicine, you have to buy it from other countries. However, if you’re not allowed to do business with Russia, that means they can’t even get the medicine they need. Plus, you can’t make it, because that can very difficult if you’ve never done it before. So, that’s a huge deal as Russians seem to have already started to buy and stockpile them. That means buying a lot of it now, so you’ll have it in the future when needed. There are already shortages of many drugs prices are soaring.

Russia also isn’t very big on making technology. Technology is a word that covers a lot. We think of computers, but it means using science to solve a problem. Computers are huge for running smartphones, weapon systems, running the internet, trains, cars, medical equipment and so much more. The computer chip is the brains and now they can’t get those anymore, and since they don’t make them, they’re out of luck. So the replacement of any computers is going to hurt. That could limit access to medical equipment, fewer trains will run, fewer cars will be available, and MUCH MUCH MORE when computers break.

Let’s say there are some countries that can supply Russia with what they need, because their friends. There’s still a huge problem. Let’s talk about Supply and Demand. I don’t like getting technical about this concept, but LOVE how it helps to explain money. For normal products, if demand goes up on the same supply, people are willing to pay more. When nobody knew about Ed Sheeran, there was no demand and you could probably see him for free at a bar. But, demand is huge for the guy now, and a ticket to his concert now averages over $150. Ok, what do you think happened to Russia’s money, called the Ruble? Does anybody want their money, since nobody should be doing business with them?

NO!!! So, the demand tanks, which means it’s worth a lot less. Weird to think about how money is worth less, but if you’re Russian and you need to buy something from another country, it takes a lot more. The rate moves daily, but it has seen a drop of over 40%. If a video game cost 10,000 rubles, now you’ll have to pay over 16,000. Weird math, but true. If that’s not painful enough the cost of things made inside the country is more expensive, due to a word I hate, called INFLATION. We’ve seen that in the US. So, you get slammed by your money which is worth less outside and inside the country too!!! OMG!!

So, if you know the sanctions will bring a huge change, and you can buy a tv today for 30,000 rubles and it will cost 48,000 in the future when things bomb, what do you do? You run directly to the bank to get as much money out of the ATM and spend it immediately. That’s what happened. Long lines at the ATM.

Remember how investors don’t like UNCERTAINTY? Most large countries have a stock market, and Russia has one. There’s a clip on Twitter from March 3rd where a Russian Investment expert, Alexander Butmanov, has a drink to toast the death of the Russian stock market. The female commentator had a look of disbelief. Needless to say, the clip went viral. He says he’s going back to dressing up like Santa Claus to earn money. The market was shut down for almost a month and it literally opened last week with trading on 33 stocks out of several hundred normally. But, if you were a foreign owner, you were not allowed to sell your stocks. What?? Who would want to do that?? Plus, you couldn’t bet on stock prices going down. It’s called short-selling. Let’s just say t’s not very healthy right now. Here’s something interesting. If you take all the stocks that trade in Russia, they’re worth about the same as Walmart.

Remember the Oligarchs? These are supposed to be those in power. But, they’re really the guys who benefitted when communism and got really rich when the government had to “privatize” things. Putin gave away the huge money contracts to his friends. Are the sanctions hurting them? They’re supposed to put pressure on Russia and the Oligarchs. The idea is if they got hurt, they’d talk some sense into Putin. But, it’s not really happening. First Mr. Putin warned the Oligarchs to protect their money. So, these guys have most of it in other countries. It’s not in Rubles, NOPE. It’s not in the Russian stock market, NOPE. They’ve invested in all kinds of things from art, jewelry, yachts, and real estate. Supposedly, they’ve bought lots of real estate in New York and London. I’ve read stories that some suspected apartment buildings in New York are owned by these Oligarchs, and they’re just sitting…. empty.

The keyword here is “suspected”. If you have lots of money, you can pay people in powerful positions to keep your secrets. You can create complicated business relationships so nobody will know who owns what. Who me, own that. Are you crazy? Ha, yep I own it. It’s a big game. You may think that we’re confiscating lots of these assets. Some of these guys aren’t very secret. Roman Abramovich bought a soccer team named Chelsea. There are also Krasnodar, Bournemouth, Vies Arnhem, Cercle Brugge teams which are funded or owned by rich Russians. It’s like owning the Chicago Bears, New England Patriots, or the Dallas Cowboy. It’s a big deal, and soccer is called football, right.

They’ve confiscated some of their holdings. They’ve found out where some of these guys have yachts, and if a country is a friend and wants to help, they’ll confiscate the yacht. A yacht owned by an oligarch called the “Dilbar”, which is a mere 512 feet is owned by Alisher Usmanov which is being repaired in a Germany shipyard. It holds 110 crew members, has 2 helopads for helicopters that want to land on it,. It’s the 4th longest in the world, and weighs the most of any yacht in the world. It’s supposedly worth $600 million. Yes, $600 MILLION. The Germans are our friends, so they “confiscated” it.

Many of the yachts started to move to the Maldives as soon as the oligarchs knew about the sanctions. Some got stopped, others didn’t. As you can imagine, the Maldives is a place where they don’t seem to want to help out as much as Germany, so it’s harder to confiscate their boats there. Planes were also moving around too. On Bombadier jet got confiscated in Germany to an Oligarch worth about $1.7 billion. The element of surprise is important, and we did give them a bit of time before we started to go after things. But, you can’t move a yacht that hasn’t been fully fixed, that’s just sitting in a boatyard, right.

What about real estate. Some have been put up for sale. But, it only works if the US knows who owns them. Bank accounts have also been confiscated. The last time we did this against Russians for taking over Crimea, it appears we went after 250 people, about 500 companies, 7 vessels, and 3 aircraft. And, it doesn’t appear it was too successful. Supposedly there are about 120 Russian Billionaires. And, it’s believed they have more money OUTSIDE of Russia than all of the other Russian people put together. So, maybe they’re not being hurt too badly. But, you say their stuff is being confiscated. Good point.

I’m no expert, but it appears it is simply being held. The oligarch is still the owner, but it can be transferred to anyone or used. It can’t be taken and sold until the owner is charged with a specific crime and then the asset has to be specifically tied to the crime. These guys are masters at hiding things, so this could take years to prove, and doesn’t mean it will actually happen. A new potential US law called “Yachts for Ukraine” is to use any proceeds from the confiscation of yachts to help the Ukrainian people. Nice.

A quick note on banking. Since businesses, including banks, aren’t supposed to work with Russia, the normal way money is moved around has been crippled a bit for Russians. That means credit cards, and getting money from ATMs is harder to get and move around, but it may not be that difficult. If there are Russians, who were outside of the country when the invasion happened when the system stopped working, many were stranded. They couldn’t get back to Russia, as they didn’t have money, credit cards, or flights weren’t be allowed to fly to Russia. Some estimate about 150,000 people got hit.

Ok, so what’s happening INSIDE Russia? Russians have been cut off from some huge US brands, as well as many other non-US ones. But, no Apple, Netflix and you can’t use your Visa or Mastercard. Have you ever heard of McDonald’s? Of course, you have. They left the country as well as Levi’s jeans. Those two companies were two of the first US companies to come into the country after the Iron Curtain came down. That was a time when Russia kept out the rest of the world after World War I.

So, companies are leaving, which means fewer jobs and less access to stuff Russians may want and need. But, say you have a manufacturing building and you leave the country. You would think you can sell your property to someone else. But, the Russian government has announced plans to seize the assets. That means they’ll take them if you aren’t Russian. If you leave in protest during the war, they take your stuff. What do you think happens in the future?

I hope you’re thinking that businesses will be MUCH more hesitant to come back, if ever. That’s very true. If they lose lots of money due to seizures, they may never come back. It happened in Venezuela when the government seized oil rigs. These oil rigs are how oil is taken from the ground. If you’re unaware, Venezuela has been struggling for some time and they continue to deal with a severe crisis. IT’s different. But, seizing assets caused a major issue when the country needed help. However, companies didn’t want to come back, and the situation has gotten much worse in part from the seizures.

Ok, what does this all mean? It means that things in Russia appear to be much more difficult than before the war. It will set back their economy for some time. The common people will be hurt. There are fewer companies, which means there are fewer jobs. When there is less activity, the overall production of goods is lower and there’s less to go around. It will make things tougher on a lot of people, but probably not for the Oligarchs in the long term. With rising pricing, and the falling value of the Ruble access to items is really reduced. People are afraid, and the punishment which was to pinch Putin puts others in a precarious position. Only time will tell. Thanks for being here, and we’ll see you next week for more Money with Mak & G. BYE!!

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