Millions of eyes now watch every move the president-elect makes. They also dissect every single tweet he posts.
Especially when it comes to Russia.
The latest flap? Explosive allegations from CNN that Russia had collected damaging information on Donald Trump’s personal and financial dealings … and that Russia is using it as leverage against him.
The report also claimed that Trump associates and Kremlin officials were sharing information during the lead-up to the November election — information potentially harmful to both political parties. But they only released information that would damage Hillary Clinton and Democrats.
That sent Trump a-tweetin’ with a series of comebacks about “fake news,” including:
The Kremlin responded, too. It called the allegations “pulp fiction” and suggested we should react to it with “a sense of humor.” Its spokesman went on to say it’s as unfounded as previous reports of Russian interference in U.S. elections.
When will we know the truth? Probably the same time we get a peek at Trump’s tax returns.
Meanwhile, we shouldn’t forget that President Obama cited Russia’s actions as interfering with the U.S. election process. And on Dec. 29, he issued an executive order expelling 35 Russian officials from the U.S., shutting down U.S.-based Russian compounds, and sanctioning Russian intelligence services.
Surprisingly, Putin said he would not retaliate. Perhaps this conveys Putin’s expectations of improved relations with the incoming Trump administration.
However, some of Trump’s proposed Cabinet members, such as Rex Tillerson (Secretary of State) and Gen. James “Mad Dog” Mattis (Secretary of Defense), say they want to take a tough approach on Russia.
Yet Trump has remained steadfast. He vowed to cooperate with the Kremlin and praised President Putin.
The Art of the Deal
The president-elect said at his first press conference since winning the November election,
“If Putin likes Donald Trump, I consider that an asset, not a liability, because we have a horrible relationship with Russia.”
What’s more, Tillerson has close ties to the Kremlin. He’s also a director of a Russian subsidiary of ExxonMobil (XOM) that is registered in the Bahamas.
That type of potential for friendlier relations, as well as rising oil prices, could explain why Russian stocks have done well over the past three months.
For instance …
Financial services giant Sberbank (SBRCY) surged 18.64%
Search engine Yandex (YNDX) jumped 13.58%
Rosneft Oil (OJSCY) climbed 15%
The iShares MSCI Russia Capped ETF (ERUS) has done well over the same period, too … up 17%.
ERUS has surged since the U.S. election, thanks to big gains in Russian oil, mining and financial stocks.
ERUS is meant to track the MSCI Russia 25/50 Index. Top holdings include:
Gazprom (GAZP) — up 24% in three months
PJSC Lukoil (LUKOY) — up 12%
Sberbank of Russia OJSC (SBER) — up 18%
GMK Norilskiy Nikel (NILSY) — up 7%
Will we see similar gains in the future? The Russian economy depends heavily on its oil and energy industry. So, rising oil prices could certainly help.
OPEC agreed in November to cut production at the start of the year to try to reduce a supply glut that has depressed prices for more than two years.
At the same time, Russia’s Energy Minister Alexander Novak said the country was starting to implement its own planned cuts, in conjunction with an agreement among non-OPEC producers.
Consequently, oil Brent crude oil futures are trading around $53 per barrel. That’s up from a low of $27.90 per barrel at the start of last year, which has helped boost Russian oil stocks.
Sum it up and you’ll see that there is the potential for Russian stocks and an ETF like ERUS to skyrocket during Trump’s tenure.
Moreover, there’s something else we can gain from a better relationship with Russia …
Insight into Their Flat-Tax System
Putin implemented a 13% flat tax in 2001, a revolution in tax policy that we have advocated for the U.S. in prior posts.
“If Putin likes Donald Trump, I consider that an asset …“ — President-elect Trump
It was an immediate success! Tax receipts in Russia jumped 28% the first year, and another 21% the next, after adjustment for inflation.
However, as spending commitments in the country are on the way up, there has been talk among economists of returning to a progressive system.
Putin denies it. He said,
“I wasn’t sure about it at the time but tax receipts then went up seven times. We’re sticking with it.”
When asked when he will meet with Trump, a Kremlin spokesman replied, “The sooner the better.”
On this, we can agree.
Trump has signaled that he will take a hands-on approach to trade policy, putting himself in the role of negotiator-in-chief. He even said if Russia helps fight terrorism and achieve other goals, he might end President Obama’s sanctions against Russia for its alleged meddling in our election.
So a meeting between the two superpower chiefs has the potential to lead to better trade negotiations and possibly a safer world.
Just as long as we’re not treated to a tweet showing Mr. Trump riding bare-chested on a horse with Mr. Putin, we would look forward to learning the outcome of this meeting!