Wink from Siberia

Contest

Just a few days ago on January 19th, 2013, the Siberian town of Novosibirsk (nominated five consecutive times as the worst city to live in Russia...) hosted the Miss Snow Universe beauty pageant. There were 20 beautiful contestants who bared the freezing cold temperatures in just a blue bikini and banner. The temperature during the time of the contest was about -21 degrees Celsius. 

The winner of the beauty pageant was Vladislava Verner from Tomsk. Though Verner complained after the pageant that she was feeling ill already. Verner will receive a modeling contract and represent Russia in the Miss World Tourism pageant. This new pageant will be held in Thailand, which is the total opposite of Russia in terms of climate and weather. 



Русские девушки ОЧЕНЬ красивые! Даже самые красивые в мире!

Baikal Ice Yacht Racing

6 mois de cabane au Baikal 

Assis devant la fenêtre le verre à la main, j'ai distillé les heures, laissant aux volutes de brume de décliner leurs nuances, pour finir pas ne plus penser à rien.

... besoin de liberté 




version courte 

One Way Yen ?

Ambushing the yen, China style

Our recommendations  at the beginning of this year  :

-Stay short YEN...this is a very crowded trade, but it still has legs. Short/medium term, at worst its the ideal funding currency, at best a great short - our long Rouble/short Yen trade is shooting the lights out. VERY HIGH CONVICTION.
-Stay long CNY - not at all crowded, will require much patience, but NDFs on Chinese Yuan (6X implicit leverage) should provide 15-25% per annum return with negligible risk. HIGH CONVICTION
-Stay small/moderate long EURO - or at least do not be short. The Euro does not want to tank despite all the advice it gets...MODERATE CONVICTION
-Stay long Nikkei. The weakening yen will help to reverse the long-term trend. Buy Nikkei Calls. HIGH/MODERATE CONVICTION.
-Long Chinese indices via Hong Kong ETFs HK 2828 or HK 2822. MODERATE CONVICTION.

-Bonds :
- Increase longs in Russian subordinated bank debt. Get it while it lasts - its the best mispricing I can find in EMD (the train is leaving the station as I write, but at YTM >7% (currently ~ 9.5%) they are a screaming buy HIGHEST POSSIBLE CONVICTION
-WINDIM - Stay long/increase. Other favourite trade, Wind has outperformed our wildest expectations - the 11.75s are now at 105, the sub-subs are at par. Still two-digit yields (barely) and will probably be called next year, but a good carry trade until then. HIGH CONVICTION

The ‘currency wars’ 

Just as the Japanese look to be finally weakening their stubborn yen and spur some inflation in a stagnant economy, there is a suggestion, just a suggestion mind, that a deliberate plan to scupper, or at least hinder, that plan might be afoot.

What if the Chinese decide to put some economic pressure on the Japanese over the Senkaku/Diaoyu islands issue that has been simmering away?

Tension between Asia’s largest and second-largest economies has been rising since the Japanese government infuriated Beijing in September by acquiring some of the islands from their private Japanese owner. And the FT reported on Friday that:

Japanese and Chinese fighter aircraft shadowed each other on Thursday in the vicinity of a group of the disputed Senkaku, or Diaoyu Islands, China’s Ministry of Defence said.

The action further escalated the territorial feud over the Japanese-held isl­ands in the East China Sea.

What if China decided to hit back a bit by putting pressure on the Japanese yen?

One Way Yen ?

The potential link between these political tensions and the performance of both the JPY [Japanese yen] and JGBs [Japanese government bonds] was made reasonably clear in September when Jin Baisong, from the Chinese Academy of International Trade, highlighted (in an article in China Daily) Japan’s reliance on funding from Beijing. He noted that China held short-term and long-term Japanese government bonds worth JPY 18 Trn by the end of 2011, an increase of 71% y/y. He argued: “Given these facts, Japan should reconsider its financial health. In other words, with Japan’s national debt at stake, the proverbial straw that can save the Japanese economy seems to be in the hands of China. And China can use it to find ways to impose sanctions on Japan in the most effective manner.” He added: “But instead of blindly boycotting Japanese goods, China should work out a comprehensive plan which should include imposition of sanctions and taking precautionary measures against any Japanese retaliation. China should also have several rounds of policies ready to undermine the Japanese economy at the least cost of Chinese enterprises.” [...]

It could be argued that such a policy would only reinforce the idea of an intense sell-off in the JPY. However, the problem for China in following such a policy would be that a weaker JPY is exactly what Tokyo is currently looking for. Given this it could therefore also be reasonably argued that a more effective way for Beijing to wage economic warfare at present would be to actually increase their purchases of JPY (and, of course, of JGBs) in order to undermine any chance of an export led recovery in Japan.

With tensions over the disputed Islands on the rise again (last week saw the Japanese government Japan summon the Chinese ambassador to protest four Chinese maritime surveillance ships that spent about 13 hours in waters near the islands), it’s entirely likely that debate on the different economic weapons available to China will re-emerge in the press of both nations in the near future. Signs of this debate were already becoming apparent on Friday when Prime Minister Shinzo Abe claimed Friday that China had deliberately targeted Japanese companies as part of a strategy to confront Japan over the territorial dispute.

The probability of China buying up yen and yen denominated assets to strengthen the currency might seem pretty low but it’s an interesting idea, particularly if splashy cash from the Bank of Japan makes its way into China’s reserves. Surely spinning them back into the yen would make sense? It’s not as if other countries aren’t taking action against the yen’s plunge.

And it’s not as if the Chinese aren’t full of jingo right now.

Just another cautionary note in this year of the supposed ‘one way yen’.

by David Keohane |

Gold Reserves Blow Up

"Monetary Sins of the Past" 

The biggest news of the week, and possibly the year : Germany prepares to repatriate its gold.

Update Jan 17 : 

Todays news is that courtesy of the supplied calendar of events in the Buba statement, it will take the Fed some seven years to procure Germany's 300 tons of gold. This is the same Fed that, in its own words, holds some "216 million troy ounces of gold" or some 6720 tons, in its vault 80 feet below ground level.

Putting the above in perspective, the amount of gold that Germany will have to wait 7 years for is shown in red. The amount of gold the Fed supposedly holds, is shown in yellow with a shade of tungsten. Why it will take the Fed 7 years to part with an amount of gold that is less than 5% of its total holdings is anyone's guess...

unless of course, the bulk of the gold in the column on the right has been rehypothecated numerous times to serve as collateral for countless counterparties, and it is no longer clear just who own what to anyone.

The Bundesbank has broken away from its "all is well" posturing exhibited as recently as three months ago, and in a dramatic reversal of its diplomatic position, has demanded repatriation of some of its NY Fed and all of its Paris-domiciled gold. 

We applaud this move, although we hope that the German people are allowed to witness, and verify, the arrival of the actual gold as opposed to simply empty crates. Of course, at the end of the day the actual delivery is irrelevant: what matters is this first shot across the bow of the current monetary system - one which juxtaposes sound money versus infinitely dilutable electronic fiat more than ever before - by a major conservative central bank, one in possession of the second largest official gold reserve, second only to the Fed itself. 

That said, we can only hope that the German request for gold repatriation is not met with the same enthusiastic response that France encountered when it too attempted to repatriate its gold held by London back in the 1930s, just before a whole lot of things in the global economy went horribly wrong...

Specifically, in 1965 The Economist interviewed Jacques Rueff, a French economist and advisor to the French Government. In the following exchange (caught on pages 84-85 of the pdf "Monetary Sins of the Past", which are required reading to anyone who thinks what is going on now is in any way new or different), the Economist blames France for exerting pressure on London during the 1930s, through the withdrawal of sterling balances held at 
the Bank of England. We thank Martin Sibileau for the reminder about this key exchange.

What is disclosed is enlightening and entertaining, and may well serve as the basis for what the response Buba may encounter today.

Jacques Rueff: In 1930 I was financial attache in the French Embassy in London, and in that capacity I was responsible for the deposits of the French Treasury with British banks. They were the direct result of eight years of the gold-exchange standard, because we had kept the pounds sterling in London, as my colleagues in New York had kept in the American market the dollars that had been pouring into the French Treasury from 1927 onward. Then, in 1931, the failure of the Austrian Creditanstalt caused successive waves of repatriations; and it was this collapse of the gold-exchange standard that, without any possible doubt, transformed the depression of 1929 into the Great Depression of 1931.

The Economist: While you are on this historical episode, what would your comments be on the very widespread view that it was to a substantial extent French pressure on London at that time, through the withdrawal of sterling balances, that was in part responsible for the general collapse later on?

Jacques Rueff: Let me tell you that, unhappily for the world, the French pressure did not exist, or was so mild that it had no effect. There is a very interesting document from this period, a letter from Sir Austen Chamberlain, who was then Foreign Secretary in London, to M. Poincaré, who was Prime Minister and Finance Minister in France; it must be of 1928. Sir Austen said, "We know that you are entitled to ask gold for your sterling, but in the frame of the close friendship between Britain and France we ask you, so as to avoid trouble for the City of London, not to do that." And we were, I must say, weak enough to comply with this request and not ask for gold. The fact that I had such important sterling deposits in London shows that we did not use this right to ask for gold. The adjustment, which would hardly have been felt if carried out on a day-to-day basis, was not made, and we had the fantastic boom of 1927, 1928, and 1929. This explains the depth of the collapse and of the depression, because the adjustment was so long delayed. We were too gentle in complying with official appeals not to convert our sterling balances into gold.

Fast forward to today, and we can't help but wonder if some 30 years from today, an advisor to the Bundesbank will not rewrite the above to something as follows:

BUBA Advisor: ...There is a very interesting document from this period, a letter from William Dudley, who was then Head Of The NY Fed, to Herr Weidmann, who was Head of the Bundesbank; it must be of 2013. Dudley said, "We know that you are entitled to ask gold for your sterling, but in the frame of the close friendship between the United States and Germany we ask you, so as to avoid trouble for the Wall Street, not to do that." And we were, I must say, weak enough to comply with this request and not ask for gold. The fact that I had such important sterling deposits in New York shows that we did not use this right to ask for gold. The adjustment, which would hardly have been felt if carried out on a day-to-day basis, was not made, and we had the fantastic boom of 2013, 2014, and 2015. This explains the depth of the collapse and of the depression, because the adjustment was so long delayed. We were too gentle in complying with official appeals not to convert our USD balances into gold.

We can only hope that the Bundesbank is not quite as "gentle" as Paris was some 80 years ago in complying with London's equally as gentle denial to comply with the French repatriation request. In fact, quite the opposite: we hope Bundesbank pulls all of its gold, as do all other nations because in the aftermath of the "collapse and depression" that will soon follow, he who defected first, will have defected best.

Everyone else will be left with paper promises of repayment by a broke and insolvent government which went as far as suggesting the minting of a trillion dollar coin to absolve it of its own particular monetary sins. Seriously.

h/t Martin Sibileau

Gold. The chart below should put it all into perspective.

and for those who may have forgotten it, here is what happens when one can create paper out of thin air: America's (not even the entire world's) derivative universe. Just a tad more.... diluted.

Courtesy of Demonocracy

The End Game

Inflationary Deflation: creating a new bubble in money 

Paul Mylchreest has released the December Thunder Road Report. The report is 75 MUST READ pages detailing the END GAME to the largest debt bubble in the history of the world: a massive cost-push hyperinflationary collapse of the US dollar. 

This is the biggest debt bubble in history. Each time DEFLATIONARY forces re-assert themselves, offsetting INFLATIONARY forces (monetary stimulus in some form) have to be correspondingly more aggressive to keep systemic failure at bay. The avoidance of a typical deflationary resolution of this Long Wave is incubating a coming wave of inflation.   This will not be the conventional demand pull inflation understood by most economists. 

The end game is an inflationary/currency crisis, dislocation across credit and derivatives markets, and the transition to a new monetary system, with a new reserve currency replacing the dollar.  This makes gold and silver the go-to assets for capital preservation. 

Mylchreest is a believer in the Kondratieff, or Long Wave economic theory. Wikipedia describes this as sinusoidal-like cycles in the modern capitalist world economy. Averaging fifty and ranging from approximately forty to sixty years, the cycles consist of alternating periods between high sectoral growth and periods of relatively slow growth- see our presentation "Point Break : Long term cycles"). Unlike the short-term business cycle, the long wave of this theory is not accepted by current mainstream economics. However the theory does support the ‘supercycle’ idea which gained a certain amount of mainstream acceptance during the recent commodities boom.

There is no way we can cover this 75 page report in detail – however there are a number of very interesting – indeed worrying –pieces of research : download here

Gold and silver the ‘go-to’ assets for capital preservation 

He looks at the way excessive monetary stimulus, coupled with low interest rates, creates financial bubbles and reckons that Central Banks are now creating the ultimate bubble – in Money – in an attempt to counter what he sees as the downward leg in most recent Long Wave cycle. He notes “first it was NASDAQ, then it was real estate and now it is money” (He describes the “Inflationary Deflation” paradox as referring to the rise in price of almost everything in conventional money and simultaneous fall in terms of gold.)

It's the debt, stupid 

“This”, Mylchreest notes referring to the QE policies being followed by most major governments and Central Banks “is the biggest debt bubble in history". Gold will ultimately counter the loss in currency values caused by the kind of excessive money printing which we are seeing now. Thus Mylchreest reckons that this will lead to an eventual victory for inflationary forces – over deflation – as currency crises erupt which makes physical gold (and silver hanging on its coattails) the best assets to hold in this scenario – but also perhaps that if deflation should win out over inflation, then gold is the best asset to hold in this scenario too.

He notes that some potential gold investors may feel they have missed the boat given the 11-12 year bull market in gold, but he reckons that in the end game the gold price will reflect the reciprocal of the purchasing power of existing currencies and that these are being debased at an ever-increasing rate. He reiterates something that has been noted by other commentators that there is evidence that, contrary again to some economic theory, gold is seeing increased demand as the price rises, rather than the reverse with ETF holdings at an all time high and Central Banks turning to being buyers rather than sellers. He also notes the view that China is actually at the forefront of gold purchasing despite it not reporting such changes in its official reserve figures.

The Fourth Great Inflation Phase

Among other themes is the view that we are now entering the fourth great inflation phase in history – and that the prior ones were brought on by factors which seem awfully familiar today: Excessive population growth putting increasing pressure on available resources; Governments – or rulers – running large deficits; and expansion of the money supply leading to currency debasement.

the word-cloud summarizes how important The Bernank sees the avoidance of 'deflation'.

What is perhaps most worrying is the way these great inflation phases ended. That of 1180-1317 ended with banking collapse and the Black Death with known world population sinking by 20%. The second great inflation of 1496 to 1650 ended with plague (again) and wars with consequent population reduction– coupled with a decline in silver supply, which was then the world’s money. The third of 1733-1814 ended rather less unpleasantly with the Great re-coinage of 1816 and Britain adopting the gold standard – i.e. going on to a hard money backing for what was then the world’s strongest economy.

Mylchreest reckons we are in the fourth great inflation –which started back in 1897 – but with no evidence that the world’s now dominant economy, the U.S, is likely to adopt sound money principles, although one supposes the position could be usurped by China which many believe to have more strong money ideals.

And this leads us, to a final section of the Mylchreest report which is looking at the likelihood (inevitability) of a new global reserve currency emerging to replace the US dollar. He reckons that China is taking the role of France, which effectively brought down the old Bretton Woods agreement through its distrust of the dollar leading it to converting its dollars to gold, which was unsustainable. Key Chinese figures have publicly been commenting on their dissatisfaction with U.S. monetary policy and the country is believed, as we noted above, to be buying large quantities of gold to help give its own currency a better negotiating position in possibly participating in the most likely future reserve currency which is surmised to likely be an expanded version of the IMF’s Special Drawing Rights.

Investment strategy

In a normal DEFLATIONARY Kondratieff Winter, asset allocation would be easy. Gold and government bonds would outperform, as they did in the Winter phases of previous long waves, while equities, commodities and real estate would underperform. 

Thanks to policy makers, this is not “normal” and deflation in conventional money is not on the agenda, so the purchasing power of currencies in the over-indebted, developed world must bear the brunt of this long wave resolution. 

I wish that equities were the best asset class in this scenario, but that is unlikely to be the case – the accolade belongs to monetary metals (gold & silver). However, I would put equities in third place behind the monetary metals and essential commodities (food & energy).

Lendemain de fête

Ded Moroz (père Noël) y Snegurochka (la fée de neiges )

  

Ils m'ont apporté le dernier IPad : c'est vraiment un monstre de technologie, un petit bijou facile à utiliser. 

J'ai décidé de l'emmener avec moi au Combinat Métallurgique de Magnitogorsk (MMK) où je devais me rendre pour vaquer à quelque occupation professionnelle. Sur site, je me suis directement rendu dans l'atelier numéro 5, et j'ai gentiment demandé à mon ami Igor de bien vouloir interrompre sa ligne de production pour quelques minutes. 

J'ai alors déposé l'IPad dans la presse à paquets AKROS HENSCHEL de 1000 tonnes et après pressage, sans effort apparent du robot teuton, l'épaisseur de la petite tablette a été réduite de façon drastique. Elle est maintenant à l'état de galette: quelques microns d'épaisseur pour une largeur de l'ordre d'une trentaine de centimètres. Corollaire intéressant, elle ne brille plus, et n'interrompt plus mes pensées ou mes séances de sophrologie.

Depuis lors, j'en ai fait une sorte d'oeuvre d'art, car j'ai inséré le tout entre deux plaques de verre auxquelles j'ai adjoint des pieds. Le résultat est une petite table de salon fort originale, sur laquelle j'ai déposé une bouteille de "Zelonaya Marka" et quelques verres. 

Cela ne m'a rien coûté du tout, car j'ai récupéré les plaques de verre sur un chantier, près d'une banque. C'est du verre blindé je crois. La récupération d'articles de tout genre, la nuit, sur les chantiers, est un sport très couru dans la région de Verkhoiansk, mais il faut faire attention. Le risque est de se retrouver nez à nez avec d'autres voleurs plus méchants que vous-même...

Une fois assis près de ma table ipadesque, et armé d'un petit verre rempli de vodka, je me suis mis à penser à des choses vraiment importantes...comme la langueur de cet hiver interminable qui nous ramène à l'essentiel.

Assis devant la fenêtre le verre à la main, j'ai distillé les heures, laissant aux volutes de brume de décliner leurs nuances, pour finir pas ne plus penser à rien.

Emerging Chronicle : Russia

A Decade Long Shift

Will we be talking about the fiscal cliff in 10 years? Sure, but in the same context as the dot-com bubble, or the stock market crash in 1987. We will have moved on. And all those predictions for 2013 will have been a blip on the screen.

So instead of guessing what's going to happen in 2013, let's talk about what the world will look like in 2023...

Here's my one prediction for 2013 that should carry through the next 10 years: 

Russia will rise again.

This is the start of a decade-long shift for Russia... and with thirsty emerging markets to its south, it could be a very profitable 10 years. And over the next 10 years, we are going to see even more changes

At Investlogic we are adapting to meet those changes. That's because our goal is to build long-term, stable wealth. Everyone wants the same thing: secure, sustainable wealth. We want consistent gains over a long period of time, without a lot of risk. I'll be honest with you... We're not going to get there by trading !

Center of Gravity shift

In 2023, emerging market middleweight cities will contribute more to global growth than the developed world and global mega-cities. Over the next 10 years, more than 230 million households will earn more than $20,000 in the developing world. That's up from only 80 million in 2007. In other words, an extra $3.1 trillion worth of consumption will hit the markets in developing economies.

But through a combination of consumption and investment, emerging markets could contribute nearly 50% of the world's GDP. And many of these markets are already pulling wealth from Western developed countries and shifting it East.

According to the McKinsey Global Institute (see research here), the world's economic center of gravity -- calculated by weighting national GDP by each nation's geographic center of gravity -- will be somewhere in southern Russia.

That makes Russia the key geographic hotspot connected to massive emerging market growth in the Far East.

And Russia will be no slouch when it comes to growth. Russia is at the beginning of a second energy boom, and this time around, the country will invest in necessary infrastructure to bring this industry into the 21st century.

in complement of our previous reports Russia : Why Russia could be a gusher for daring investors ... Siberia, Land Of Opportunity  Siberia on its w... Perm nanocoatings for St. Petersburg bridgesPerm’s... Russia’s Competitive Advantages Russian Siberia Update Chronique des Emergents Russian IT RUSSIA CALLING ! part 1 Top Russian Start-Ups Flight over Ural Doing Business in Russia

SouthEastern Shift

China and Russia share some 4,000 kilometers of common border, and their neighborly relationship has certainly had some ups and downs. But it’s clear to me that the opportunities for cooperation between these two nations have enormous potential mutual benefits, particularly in the trade of natural resources.

We first saw significant signs of Russian interest in Asia’s capital markets when the oligarch Oleg Deripaska floated his aluminum company onto the Hong Kong Stock Exchange in early 2010. In 2011, he obtained a US$5 billion memorandum of understanding with China’s Export Import Bank for resource developments in Siberia and Russia’s Far East region, including power generation plants, coal mines and other projects.

Recognizing the economic problems in Europe and Asia’s stronger relative growth rates over the past few years, Russia’s leaders have directed their focus eastward and to their vast territory stretching all the way to the Pacific Ocean. See our comment RUSSIA CALLING ! Part 2

In April 2012, the Russian government also passed legislation to form a US$17 billion Far East corporation, partly exempt from federal jurisdiction and reporting directly to the president. This new entity was given special powers to form new businesses and allocate resources to develop the area.

In addition, an US$8 billion space center is planned for the Amur Region just 60 miles from the Chinese border. This will replace the launch site in Kazakhstan which is now used primarily by the Russians and Americans to travel to the International Space Station. The Amur project will include seven launch pads with the first rocket launch planned for 2015.

Railroads and Oil Fields

These are just a few examples; the Russians have planned a number of other sizable Far East and China-related projects.  I think the extension of Russian railroad lines to China could turn out to have the most significant long-term beneficial impact resulting from cooperation between the countries. The Russians have signed joint venture agreements with Chinese railroad organizations to modernize the Russian rail corridor that links Europe with China.

I believe Russia’s rich oil and gas fields would be of great interest to the Chinese, as energy demand there is expected to continue to rise with a growing middle class. With five trillion cubic meters in proven natural gas reserves in Russia’s Far East, the possibilities for China are enormous. However, negotiations on the pricing of the gas are still ongoing. China has gas deals all over the world but the possibility of piping gas from Russia seems logically to make the most sense—if the price is right. 

In Siberia, the Bazhenov structure has enormous reserves of oil—larger than even the huge Bakken oil-bearing rock in North Dakota and Montana in the U.S.  The Bazhenov reserves cover 2.3 million square kilometers (the size of the U.S. state of Texas and the Gulf of Mexico combined) and it is 80 times larger than the Bakken (1), which is currently yielding more than 500,000 barrels per day (bpd). Russia’s national subsoil agency, Rosnedra, has estimated that the Bazhenov shale formation could yield 182 billion barrels in total—and that’s the low end of its estimates. 

The Russian Energy Ministry estimated that by 2020, the Bazhenov could be producing up to 2 million barrels per day with the help of fracking technology, where the oil-bearing rock is broken under high pressure water and chemicals to release the oil. Russia and Saudi Arabia have shifted between first and second place globally in terms of oil production over the past couple years, with Russia producing 10 million bpd in 2010, compared with Saudi Arabia’s 9 million.6 Development of the Bazhenov fields could raise the total substantially, with China likely being the prime market.

Conflict—and Cooperation

In another effort to emphasize Asian involvement, Russia succeeded the U.S. in the role of President of the Asia Pacific Economic Cooperation (APEC), the organization of 21 Pacific Rim nations. The 24th APEC Summit was held this year in Vladivostok near Russia’s borders with China and North Korea, the home port of the Russian Pacific Fleet as well as Russia’s largest port on the Pacific Ocean. 

The city received an enormous boost with some US$1 billion invested in a five-year infrastructure program including hotels, roads and other projects to improve the city and impress the APEC delegates.  At the summit, a number of cooperatives were also announced. For example, President Putin praised the Russian-Japanese project to build a liquefied natural gas (LNG) plant in Vladivostok for exports of natural gas to Japan. (In 2011, Japan consumed 83 million tons of LNG.) The US$7 billion Vladivostok plan will have a capacity of 10 million tons a year. Russia’s other LNG plan is on Sakhalin Island, producing 10.6 million tons per year.

From a geographic perspective, Russia and China’s common border along the Amur River is an area of past conflict but also one of potential cooperation. Russia’s side is under-populated but boasts arable land, timber and other resources while the Chinese side is densely populated with limited resources. In 1969, cross-border tensions nearly resulted in a full-scale war, but today the mood is quite different. Reports indicate that most Siberian and Far East officials are positive about the presence of Chinese in their regions since they are suffering from the departure of ethnic Russians from their areas, and the Chinese labor force can help cultivate the land.

Of course, even the friendliest of neighbors can disagree at times, but if neighbors like China and Russia can focus on projects to their mutual economic benefit, I think that’s an approach we might pursue in our own backyards. 

1. Source: Forbes, “Meet the Oil Shale Eighty Times Bigger Than the Bakken,” June 2012.

Into New Technologies

We're already seeing some interest in bringing new technologies onto Russian soil. From The New York Times:

Oil service companies are importing technologies like fracturing for what some energy analysts say will become a shale oil boom in Russia to rival what has happened in North America. ...

Several oil companies operating in Russia, including Ruspetro, have begun profitably extracting oil from shale rock and other difficult geological formations in Siberia, holding out hope that the type of advanced drilling techniques used in recent years in North America can be widely adopted there, too.

In another sign of the buzz around shale oil in Russia, Exxon Mobil is in a joint venture agreement with Rosneft, the state oil company, to drill test wells into a Siberian shale oil field. Statoil and Shell, also through joint ventures, are drilling or plan test wells in Russian shale beds. Lukoil has a pilot shale project.

Promisising High Tech Centers

But it is not only related to natural resources, it affects also high tech industries, as evidences of this evolution look at our report TOP 10 RUSSIAN INTERNET COMPANIES IN 2012 

Another example is Startup Sauna, a Northern European accelerator program that is starting to extend its reach deep into Russian territory as a way of unearthing talent. And even though Novosibirsk isn’t officially in Europe at all, Startup Sauna sees cities like it as a crucial breeding ground for future generations of world-changing startups.

That’s why the organization recently toured around the country, including not just the top-tier cities but also places like Novosibirsk, and the more central cities of Yekaterinburg and Kazan. Searching for great companies was interesting, although not exactly easy.

Startup Sauna’s blog has detailed a few of the companies that were invited to join the program, including Osklad (warehouse inventory software for business) and AppScale, which allows apps to tap into social network APIs more easily.

But a lot of the action came from companies from traditions outside software and the web. That included high-tech healthcare companies such as Maxygen, a vaunted Moscow startup focused on low-cost, rapid DNA testing; and Celoform, a sort of next generation bandage hailing from Yekaterinburg. Then there was St. Petersburg’s RosTechnoExport, which makes small autonomous helicopters that can be used by the oil industry.

“The more you move away from Moscow and St. Petersburg, the more technical it gets,” says "wingman" Ylimutka. “The high-tech stuff is what really makes Russia interesting. Part of it is probably because there is more of a military influence in these parts of Russia.”

Still, it wasn’t a parade of business ideas that span out of military technologies. Most of the companies we met were clones or versions of other services. It’s really difficult getting out of the Russian-centric mindset, and it’s still mostly me-too products. The West has Facebook; Russia has Vkontakte, for example..