The June 2004 raise in interest rates by the U.S. Federal Reserve acknowledges an economic trend we have known about for some time. Inflation is here.
This is why on June 28, 2004, I wrote about the new issue of a bond by Russian cell phone operator Vimpelcom. (See https://garyascott.com/archives/2004/06/28/1061/index.html)
We were so impressed that we decided to buy some and checked in with my advisor Teddy Christiansen to see what he thought.
His comments are below.
“The Vimpelcom bonds would not worry me if you put 1% of your portfolio. This would fit in fine in the strategy. The reason I do not suggest more is that democracy in Russia is very young and perhaps only 30% to 40% democracy compared to our countries. The economic situation is not very stable. Yes, production is going up. Russia is building strong currency reserves. They have high annual growth, and are gaining confidence from global investors.
“Yet many investors are disappointed. I am one of these, though I keep my investments there as I expect reform to continue. Some bad news is that YUKO OIL and the richest man in Russia, Mikhail Khodorkovskij, are both being tried in the Russian courts for tax avoidance. The Court just ruled that YUKO must pay US$3,400 million in taxes for just the year 2000. If this continues YUKO will go bankrupt – and if they had issued any bonds they will then be worthless.
“On one hand the YUKO trial is not bad. YUKO was most likely involved in political and business dealings that gave greater power to the new Russian Mafia. Mikhail Khodorkovskij is very likely related to this mafia, or he would not be the richest man in the country. So from this point of view it is not bad that Russia takes back these fortunes, much as the US government used taxation to rob mobsters in the 30s of their power.
“But the warning this trial gives is that not everything has a green light. Two weeks age there were rumors that Putin and the government were able to interfere with Russian Banks to take some money from them as well.
“This was a false rumor, but even so it pushed interest rates on Russian Bonds up from 7.5% to now nearly 10%.
“This is why this Vimpelcom bond offers such a high yield. I do not think that Vimpelcom is related to the mob as a newer company and as long as Putin is President I think the economy will move forward.
“We must cross our fingers that he will not be killed, because he offers reasonable stability at this time and no one knows what will come after him.
“Investors who are heavy invested in Russia and Eastern European markets are down at the moment because of Russia. This means it is a good time to buy, but only into a worldwide diversified portfolio. Russian investments add spice to a portfolio but should not exceed 5% of the total. Teddy.”
Thanks, Teddy…Invest in Russia? Who would have thought? But times change and this is exciting news that those who we once considered enemies are now worthy of investing in. Wouldn’t it be nice if we could do this next with our Muslim brothers!
There you have it. My banker recommended these bonds. My advisor agreed. I obtained a positive reply in the third step I take in making decisions on investments as well. Based on these three cornerstones, I bought these bonds at a price that yields my portfolio about 9.7% in U.S. dollars. For those of you who would like to correspond with Teddy Christiansen- firstname.lastname@example.org
Until next message may all your investing be good.