It is interesting to see in one and the same day Russia failing to sell its 9-year government bonds, while Portugal marking an enormous demand and record low interest rates. Russia is a country with a debt of less than 10% of GDP with balanced budget in most of previous years. At the same time Portugal is defaulted country with constant deficits and a debt of 130% of GDP. It had to be bailouted very soon.

   There is a principle that “market knows all”. So when investors prefer one investment to another so the first investment is better. Therefore Portugal with 130% debt is better than Russia with 10% debt.
   May be someone will point to the currency and say that Euro is better than Ruble so it is more secure to invest in Euro-assets. But in fact in last few years Russian fiscal and monetary policy was more conservative than the policy of EU and USA. As the currency stability is a function of government policy therefore Euro cannot be more attractive than Ruble. This does not mean you should invest in Rubles. Like any other fiat-currency it is also very risky and may lead to big losses in a short time. The thesis is about comparing one with other. You cannot run away from the Ruble and run towards the Euro. You can run towards the Gold or real estate for instance.
   So why Russia is bad and Portugal is good? Why heavily indebted borrower is preferred to a borrower with almost no debt? Obviously something is wrong with the markets. Obviously the market no longer knows all.
   I am looking for an investor that will lend Portugal money at 3,65% interest. This return must include the expected profit plus the risk premium on not getting your money back. Is that real?
   And is Putin with his wild capitalism policy and accelerating industrial rebuilding of Russia so bad and so risky? Is Putin – being obviously a winner in Ukraine crisis, the bad choice for investing?
   In past the investors believed the winners. Rothshild has made lots of money by knowing first who won the Waterloo battle. In the times of real money and real business investors thought rationally and invested in good and reliable assets. Today they are investing in extremely risky assets and even without asking the required return.
   Therefore these are not real investors. In fact that is the truth. The investor is only one and is using not his own money. In fact he is printing the money and having no any responsibility is investing in “politically right” assets.
   If you are not this issuer of money, it is may be better to invest in Russia. You can profit even by current emotional lowering of the asset prices there.

Dobri B.
April-23-2014