. . . and pretty soon you’re talking about real money.
A letter to the editor of the Moscow Times:
To the Editor,
I would like to give a foreigner’s perspective on the latest stock market crash. I had 12 million rubles of investment in Russia on August 1st. Now I have none.
[In a recent column you published called “Russia Will Recover,” the author Steven Dashevsky’s] main argument that the resilience of the Russian economy and corporate earnings will ultimately be recognized by investors is dead wrong. As long as the government remains controlled by the security services, Russian companies will continue to be discounted on their value, and they will be limited in their ability to raise money on the open market for expansion.
One vivid example of this: Mechel had to cancel its stock offering in August after Prime Minister Vladimir Putin publicly scolded — and threatened — the company and its owner. I have invested in the RTS for many years. I have also considered opening a brewery and restaurant in the country, but the lack of property rights has always stopped me.
Hopefully, the Russian people will see that they too can prosper like their neighbors. But before that can happen, the autocratic government has to be replaced by a more transparent democracy that respects property rights. Only when investors can be assured that the rubles they invest in a certain company will not be seized by the government will the stock market get past the price-to-earnings ratio of 10 and into a more attractive territory for investors.
Standard & Poor’s was clear when it issued its verdict Friday on the Russian financial crisis and investment climate. It cut the outlook on Russia’s credit rating to stable from positive, citing in part an “ambivalent official policy” toward shareholder property rights.
Even though Russian petroleum stocks rebounded on Wednesday from their shocking drop on Tuesday in the wake of an oil price spike, clawing back their losses to get even, as shown below the RTS industrial index took a devastating plunge of over 7%.
Bill Stewart lost 480,000 dollars on the Russian exchange. Now, I don’t feel so bad about my 401 k.
But Bill points out a more disturbing trend which is the lack of property rights. Couple that with the lack of the RULE OF LAW and you have a recipe for an economic disaster. I am not stating anything new. Please read The Road to Serfdom by Von Hayek (1944) if you would like empirical proof of this.