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CONFIRMED: Foreign investors flock back to Russia

As economy strengthens Russia overtakes India as top pick for foreign investors and equity funds

Alexander Mercouris

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This article was first published by RussiaFeed

Growing investor confidence in the Russia as its historically high inflation rate continues to fall, and as its economy leaves recession behind it, has received dramatic confirmation with the news that for the first time Russia has overtaken India as the preferred investment option of emerging market investors.

This confirmation comes from the most authoritative possible source, an article in the Financial Times, which in recent years has been intensely critical of Russia.

Russia has taken over from India as the largest overweight position for emerging market equity funds.

The move comes despite the imposition of ever-tighter sanctions on Moscow, still low oil prices and an economy now pulling out of bitter recession but still assailed by real, inflation-adjusted interest rates of 5.2 per cent.

In contrast, India has long been a darling of foreign investors licking their lips at the prospect of the world’s second-most populous country growing at a punchy rate, assisted by the reformist zeal of Prime Minister Narendra Modi.

“Russia is now the largest overweight position among emerging market managers for the first time since our records began in 2011, surpassing longstanding EM favourite India,” said Steven Holden, founder of Copley Fund Research, who compiled the data and confessed to “surprise” at Russia’s newfound popularity.

The average EM equity fund is now overweight Russia by 1.46 percentage points, surpassing the 1.4 percentage-point figure for India, where fund managers had an average overweight position of 4.4 per cent in early 2015, according to Copley’s numbers, as shown in the first chart.

The data are based on the holdings of 126 funds with combined assets of $300bn. Of these funds, 72.8 per cent are now overweight Russia, compared with only 60 per cent with an outsize position in India….

The article points out correctly that foreign investor interest in Russia starts from a very low base, and that Russia has overtaken India as much because of India’s recent loss of attractiveness as Russia’s rise in attractiveness.

However the article also makes it clear that the rise in investor interest in Russia is ultimately driven by Russia’s increasingly strong fundamentals

Mr Jain is among a group of investors with a genuine fervour for Russia now, which is striking given that he was “ultra bearish for 15 years”, while CIO of Switzerland’s Vontobel Asset Management, where he ran as much as $32bn. Yet now his GQG Partners Emerging Markets Equity fund has an exposure of 10.2 per cent to Russia, more than three times its index weight.

“I was publicly critical of investing in Russia. I have covered Russia for 25 years and this is the most I have had,” he said.

Nicholas Field, EM strategist at Schroders and co-manager of the group’s Global Emerging Market Opportunities fund, is another convert, with a punchier weighting of 14.2 per cent.

“A lot of the headlines one reads about Russia are about geopolitics and relations with the US and so on, but when you look at the economy you do see some things that are interesting to investors,” he said.

Mr Jain’s thesis is that the sanctions imposed on Russia by the US and EU, as well as the slide in oil prices, have been largely beneficial to foreign investors because they have forced Russian companies to delever and cut costs.

India is very expensive. It has gone from very cheap to one of the most expensive markets.  More specifically, he says Russian oil companies have been forced to develop complex drilling technology in-house, potentially helping them in the long term, while some domestic agricultural companies, such as cheesemakers, have benefited from reduced foreign competition amid Russian counter-sanctions on European food imports.

“Sanctions have been positive for the Russian corporate world. [Companies] were forced to get their act together and there was a massive cost-cutting effort,” said Mr Jain. “Because of this cost-cutting, operating profits are higher than people estimate. Corporate earnings have begun to recover after a long slump. You have to follow the corporate profits.”

He even sees positives in the travails of Otkritie and B&N Bank, two private banks that have been bailed out by the central bank and nationalised in recent weeks after running into financial difficulties.

About 4.2 per cent of Mr Jain’s fund is invested in Sberbank, Russia’s largest bank. He said: “The banking industry has seen massive consolidation. Now three banks control 70 per cent of the assets. “Sberbank is very well run, on six times earnings. How many banks make 20 per cent ROE [return on equity] in the middle of a recession? The position they have wouldn’t be allowed in many countries, and now there is tremendous credit growth and NPLs [non-performing loans] are coming off.”

Overall, he sees room for further top-line revenue growth, margin expansion and a market re-rating, given that Moscow currently trades on a price/earnings ratio of just 7.8 and has a chunky dividend yield of 4.7 per cent.

Readers of RussiaFeed and of The Duran will already be familiar with much of this.  By way of example, here is a recent article I wrote for The Duran on the subject of Russia’s advances in oil drilling technology (one of the subjects touched on in the Financial Times article by Rajiv Jain), whilst the rapid advance of Russian agriculture, in part as a consequence of Russia’s counter-sanctions (a subject also touched on by Rajiv Jain) was recently discussed by me on RussiaFeed here.

As for the growing strength of the Russian financial and banking system – historically the Achilles heel of Russia’s post-Soviet economy – I have discussed it many times and in many places (see for example here and here).

What is finally happening is that the international investment community – and the Financial Times – are finally catching up with the truth of all of this.

Given the enormous amount of negative “noise” from which Russia suffers and the Financial Times’s longstanding hostility to the country and its government, the article about international investors coming to Russia nonetheless and entirely unsurprisingly comes with a sting in its tail.  The growing interest in Russia is supposedly not because its long term economic prospects are good.  It is only because of Russia’s recovery from recession

Mr Field’s optimism is fuelled by the country’s economic recovery, which he expects to continue until at least the middle of 2018. “Demand has been suppressed so the recovery should continue for a while. Inflation has dropped to 3.3 per cent, which is pretty unheard of in Russia. In the next 12-24 months there is room for quite a few interest rate cuts and that can certainly boost the economy. The one thing that can upset that is another major move in the oil price,” said Mr Field.

Nevertheless, he is not a long-term bull. “We don’t think long-term structural trend growth is very high, so as much as people are buying into Russia now it’s not because it has a glorious 10 or 20 years ahead, it’s because it’s recovering.”

We are likely to hear numerous such comments over the next few months as Russia’s renewed economic growth becomes impossible to deny even by those who previously said it would never happen.

Such comments are actually meaningless.  In what sense is an economy’s successful recovery from recession a reason for doubting its future growth?

Putting that aside, the article itself provides abundant examples of the ‘structural reasons’ why strong growth in the future is likely.  To repeat again the comments which appear in the article from Rajiv Jain

…….Russian oil companies have been forced to develop complex drilling technology in-house, potentially helping them in the long term, while some domestic agricultural companies, such as cheesemakers, have benefited from reduced foreign competition amid Russian counter-sanctions on European food imports.

“Sanctions have been positive for the Russian corporate world. [Companies] were forced to get their act together and there was a massive cost-cutting effort,” said Mr Jain. “Because of this cost-cutting, operating profits are higher than people estimate. Corporate earnings have begun to recover after a long slump. You have to follow the corporate profits.”

He even sees positives in the travails of Otkritie and B&N Bank, two private banks that have been bailed out by the central bank and nationalised in recent weeks after running into financial difficulties.

About 4.2 per cent of Mr Jain’s fund is invested in Sberbank, Russia’s largest bank. He said: “The banking industry has seen massive consolidation. Now three banks control 70 per cent of the assets. “Sberbank is very well run, on six times earnings. How many banks make 20 per cent ROE [return on equity] in the middle of a recession? The position they have wouldn’t be allowed in many countries, and now there is tremendous credit growth and NPLs [non-performing loans] are coming off.”

What is cost-cutting, greater efficiency, development of new products and new technologies, high operating profits and (within the banking system) successful industry consolidation if not evidence of the economy successfully addressing its structural problems, thereby ensuring its successful long term growth in the future?  No doubt there is much more still to do, but why go on pretending that nothing is happening when it obviously is?

One of the perennial problems discussion of Russia’s economy faces is that its Western critics insist on having it both ways.  They are forced to concede that the Russian economy has successfully adapted to the harsh post-2014 economic conditions in which it found itself (low oil prices and Western sanctions) and is now recovering from a recession that most of them thought would break it, but at the same time they refuse to admit that this successful adaption of the Russian economy to these same harsh economic conditions in any way undermines their deeply critical even at times apocalyptic picture of it.

In reality an economy that could adapt so quickly and so successfully to the challenges it faced in 2014 cannot be the inefficient, corrupt, badly managed, ‘kleptocratic’ and underdeveloped ‘Zaire with snow’ economy imagined by its Western critics.

The article in the Financial Times shows that increasing numbers of fund managers, including some like Rajiv Jain and Nicholas Field who had previously bought into this dark picture, are starting to see the truth of this.

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Russia ranks HIGHER than Switzerland in these areas of doing business

Some curious things happened with several businesspeople who attended World Cup events in Russia.

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Russian President Vladimir Putin

One of them was a distinctly renewed interest in doing business inside the country, and another was the realization to what extent perceptions have been tainted by media and political rhetoric directed against any real or imagined nastiness attributed to Russia these days.

These past few weeks have been invaluable, at the very least by affording a clear picture of Russia through which almost all anxiety-ridden preconceptions were illuminated and dispelled. More disturbing was the fact that the several businesspeople I was dealing with were furious. They were livid for being played for fools, and felt victimized by the dismally untrue picture painted about Russia and Russians in their home countries, both by their own politicians and the press.

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Most felt that they have been personally sanctioned by their own countries, betrayed through lack of clear unbiased information enabling them to participate and profit from Russia opportunities these past three growth years in spite of “sanctions”.

The door to doing good business in Russia has been and is open, and has been opening wider year after year. That is not just “highly likely”, but fact. Consistently improving structures, means and methods to conduct business in Russia sustainably, transparently and profitably are now part of the country’s DNA. It is a process, which has been worked on in the west for more than a century, and one, which Russia has only started these past 18 years.

True, there are sanctions, counter-sanctions, and regulations governing them that must be studied carefully. However if you are not a bank or doing business with those persons deemed worthy of being blacklisted by some countries “sanctions list”, in reality there are no obstacles that cannot be positively addressed and legally overcome despite the choir of political nay-sayers.

READ MORE: Russia just dumped $80 BILLION in US debt

The days of quickly turning over Russia opportunities into short-term cash are rapidly fading, they are a throwback to the 1990’s. Today the major and open opportunities are in the areas for Foreign Direct Investments. The nature of FDI is long term to make regularly recurring sustainable returns on investment.

Long term, Russia always was and increasingly confirms that it is a vibrant and attractive market. There is a significant consumer market with spending power, a well-educated workforce, a wealth of resources and the list goes on. The economic obstacles encountered have largely been imposed from without, and not from the dynamics and energies of the Russian economy itself.

Eventually sanctions will end, although the timeline is anyone’s guess. Meanwhile business continues, and any long-term engagement within Russia by establishing a working presence will yield both short and long-term investment rewards. These will only be amplified when the sanctions regimes are removed. In any event, these aspects are long-term investment decisions and one of the criteria in any risk assessment.

For some added perspective, Russia is ranked by the Financial Times as the No.2 country in Europe in terms of capital investments into Europe. It has a 2017 market share of 9% (US$ 15.9 billion) and includes 203 business projects. This is 2% higher than 2016 and better that 2014/2015 when sanctions were imposed.

Another item of perspective is the Country Risk Premium. All investors consider this when calculating the scope for long-term return on investments. What may surprise some is that Russia is no longer ranked as a very high-risk country. For comparisons sake: The risk premium for Germany is zero (no extra risk), the risk premium for Italy is 2.19%, and for Russia, it is 2.54%. When compared to politically popular investment destinations like Ukraine the risk premium is 10.4%  – food for thought. Bottom line is that the risks of investing in Russia are a smidge higher than investing in Italy.

Russia is ranked 35 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The ranking of Russia improved to 35 in 2017 from 40 in 2016 and from 124 in 2010. It may also surprise some to learn that as concerns protecting the rights of minority investors, paying taxes, registering property and some other aspects of the World Bank comparisons, Russia comes out better than Switzerland (See: Rankings).

From operational standpoints, establishing an invested presence in Russia does not mean one must adopt Russian managerial methods or practices. The advantages for established foreign companies is that their management culture is readily applied and absorbed by a smart and willing workforce, enabling a seamless integration given the right training and tools.

The trend towards the ultimate globalization of business despite trade wars, tariffs, sanctions and counter-sanctions is clear. The internet of the planet, the blockchain and speed of information exchange makes it so whether we wish it or not. Personally, I hope that political globalization remains stillborn as geopolitics has a historical mandate to tinker with and play havoc with international trade.

Russia occupies a key strategic position between Europe and Asia. The “west” (US/Europe) have long had at times rather turbulent relationships with China. At the same time the Chinese are quite active investors in both the US and Europe, and western companies are often struggling to understand how to deal with China.

The answer to this conundrum is Russia: this is where East and West will ultimately come together with Russia playing a pivotal role in the relations between the west and China. At the end of the day, and taking the strategic long-term economic view, is what both Chinese and Western companies are investing in when they open their activities in Russia.

If long-term commitment and investment in Russia were simply a matter of transferring funds then I would not be bothering with this opinion article. Without a doubt, there are structural issues with investing in Russia. A still evolving and sometimes unclear rule of law, difficulties obtaining finance for investments directed towards Russia, the unique language and culture of business in the country. Nevertheless, companies that have an understanding and vision of global strategy will manage with these issues and have the means to mitigate them.

Money and other invested resources do not and should not play politics; any investment case when evaluated on objective financial criteria will reveal its fit, or lack of, within a company’s global strategic business objectives. The objective criteria for Russia over any long term horizon is both convincing and strong. This has been repeated by all of the businesspeople I have met with these past few weeks. Without doubt we shall see some new companies coming into the Russian market and objectively exploring the gains their playing fair business football here will yield.

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Assessing the Putin-Trump Helsinki summit: neither a breakthrough nor a damp squib but a possible start towards detente

The US and Russian Presidents took the first step towards ending the downward spiral in their countries’ relations but the obstacles ahead remain formidable.

Alexander Mercouris

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The US and Russian Presidents took the first step towards ending the downward spiral in their countries' relations but the obstacles ahead remain formidable.

The summit meeting between Donald Trump and Vladimir Putin has finally taken place in Helsinki to thunderous condemnation on the part of many in the West.

Some talk luridly of the beginning of the end of the West.  Others talk hysterically of treason.

Others see the summit as a damp squib, which will change nothing and which will leave the relationship between the US and Russia and between Russia and the West essentially unchanged, with the current state of hostility continuing indefinitely unabated.

In my opinion both views are wrong (the first obviously so) and both misunderstand, and in the case of the first wilfully misrepresent, what actually happened in Helsinki.

I discussed the background to the summit in an article I wrote a month ago for The Duran at a time when first reports that the summit was in the offing were beginning to circulate.

In that article I said that there was no possibility that Putin would make unilateral concessions to Trump over the status of Crimea or over the conflict in Ukraine and that the idea that he would agree to the US and Ukrainian proposal for a peacekeeping force to be deployed to the Donbass was certainly wrong and that that idea had already been categorically ruled out by the Russians.

I was also skeptical that there would be any sort of ‘grand bargain’ between the US and the Russians over Syria.

On the subject of Syria, in the weeks leading up to the summit there were some media reports suggesting that Donald Trump was coming under pressure from Israel, the Saudis and the United Arab Emirates to agree a deal at the summit with Putin whereby Russia would be granted sanctions relief and possibly even recognition of Crimea, US troops in Syria would be withdrawn, and in return the Russians would agree that Iranian forces would be expelled from Syria.

The Russians were clearly worried by these reports.  Not only did they go out of their way to deny them, but Putin and Lavrov held talks in Moscow on 12th July 2018 with Ali Akbar Velayati, Iranian Supreme Leader Ayatollah Khamenei’s Special Adviser on International Relations, in order to reassure the Iranians that they were not true.

As I explained in my lengthy discussion of Benjamin Netanyahu’s recent visit to Moscow on Victory Day, it would in fact be wholly contrary to established principles of Russian foreign policy for the Russians to agree to a ‘grand bargain’ like this.

From the Russian point of view relations between Iran and Syria are relations between two sovereign nations and are none of Russia’s business.

Not only is it not Russia’s business to interfere in whatever relations Iran and Syria have with each other, but Russia lacks the means to do so anyway, with any request from Moscow to Tehran and Damascus to sever or downgrade their relations certain to be refused, and with Russia having no means to force either country to comply with such a request save through steps which would put at risk its relations with both of these countries.

All Russia would achieve were it ever to make such a request would be to damage its relations with Iran and Syria and lose face, bringing down upon itself accusations of bad faith from the US, Saudi Arabia and Israel when it inevitably failed to follow through.

Here is what I said about how Putin would respond to a demand from Netanyahu to rein in the Iranians in Syria if it were made to him during Netanyahu’s Victory Day visit, and nothing which has happened since would have caused Putin to change his position

Contrary to what some people are saying, I think it is most unlikely that Putin would have given Netanyahu any assurances that Russia would act to rein in Iranian activities in Syria.

If Netanyahu asked Putin for such assurances (which I also think unlikely) Putin would almost certainly have told him what the Russians always say when faced with requests for such assurances: Iran and Syria are sovereign states and Russia cannot interfere in arrangements two sovereign states make with each other.

I suspect that the source of some of the stories about a ‘grand bargain’ between Putin and Trump involving the role of the Iranians in Syria is the regular discussions the Russians have with the Israelis, the Iranians and the Syrians whereby the Russians routinely pass on to the Iranians and the Syrians Israeli concerns about the presence of Iranian forces in Syria in particular locations as well as Israeli concerns about specific actions which the Iranians take.

A good example of these sort of discussions was an exchange between Putin and Netanyahu during Netanyahu’s most recent trip to Moscow on 11th July 2018.  The Kremlin’s website reports Netanyahu and Putin saying the following to each other

Benjamin Netanyahu: ……….Of course, our focus is on developments in Syria, the presence of Iran. This is not new to you. Several hours ago, an unmanned aerial vehicle entered the territory of Israel from Syria and was successfully brought down. I would like to emphasise that we will counter any and all attempts to violate our air or land borders.

Cooperation between us is an essential, key factor that can stabilise the entire region. So, I would like to thank you for the opportunity to meet with you and discuss these things.

Vladimir Putin: We are aware of your concerns. Let us discuss them in detail.

(bold italics added)

The Russians are not engaged here in discussions over some sort of ‘grand bargain’ to remove all Iranian troops from Syria, which as I have said they would see as counterproductive and impossible.  Rather they are engaged in the classic diplomatic exercise of conflict prevention: keeping the Israelis, the Iranians and the Syrians informed about each other’s moves and red lines in order to prevent an uncontrolled escalation of the conflict between them, which might risk an all-out war, which nobody wants, and which the Russians are doing their best to prevent.

Recent reports of an understanding between the Israelis, the Iranians and the Syrians supposedly brokered by the Russians whereby Iranian forces agreed not to participate in the Syrian army’s ongoing military operations in south west Syria close to the Israeli occupied Golan Heights are a case in point.

The Iranians and the Syrians  agreed to this, not because the Russians forced them to but because it is in their interest to.  The Syrian army does not need Iranian help to defeat the Jihadis in southwest Syria so keeping the Iranians away from the area allows the Syrians to clear the area of the Jihadis without risking a military confrontation with Israel.

Needless to say, just as the Russians were not prepared to make concessions on Crimea and Donbass or on Syria, so they were not prepared to back Donald Trump’s ongoing campaign against Iran.

Not only are the Russians deeply committed to the JCPOA (which they partly brokered) but they are also committed to improving their relations with Iran.   In addition, given that the ongoing US campaign against Iran is clearly intended to achieve regime change there, the Russians are bound to oppose it because they oppose regime change everywhere.

If the Russians were not prepared to make unilateral concessions to Trump on Crimea, Donbass, Syria or Iran, neither was Trump despite all the pre-summit scaremongering going to make unilateral concessions to Russians.

Stories that Trump would announce a cancellation of US military exercises in Europe or even a withdrawal of US troops from Europe had no basis in reality, and needless to say nothing like that happened.  Nor did Donald Trump recognise Crimea as Russian or announce that he would lift sanctions on Russia.

The question of the sanctions and of the recognition of Crimea as Russian requires a little discussion since there is a widespread view that Trump is prevented by the Countering American Adversaries Through Sanctions Act (CAATS) from either lifting the sanctions or from recognising Crimea as Russian

This is something of a misconception.  In reality, as I discussed last year at the time when CAATS was enacted, CAATS is unconstitutional, as Donald Trump himself carefully explained in his Signing Statement, because of the unconstitutional restrictions it places on the President’s ability to conduct foreign policy.

If and when Donald Trump decides that the time has come to lift the sanctions and to recognise Crimea as Russian, then all he has to do is apply to the US Supreme Court to have CAATS set aside.   His Signing Statement shows that he has had legal advice that it will do so.

That point has not yet been reached for political not legal reasons.  In the meantime it is an error to think of CAATS as the insuperable constraint on Donald Trump’s actions that many appear to believe it is.

Trump did not commit himself to lift the sanctions, and he did not recognise Crimea as Russian, not so much because of the legal constraints placed upon him by CAATS but because doing so would have put at risk his political position in the US in advance of November’s mid-term elections, and because – compulsive deal-maker that he is – he is hardly likely to take such radical steps anyway without first getting something back in return.

One of the fundamental problems caused by the hysterical campaign which is being waged against Donald Trump is that it causes even many of Donald Trump’s supporters to believe that he is more supportive of Russia’s positions on a variety of issues than he really is.  The result is that he is constantly suspected of being prepared to make unilateral concessions to the Russians when unilateral concessions are precisely the sort of things which as a self-professed master deal-maker he is known to most abhor.

Donald Trump is – as he repeatedly says – an America First nationalist, and his overriding priority is to make what he considers to be the best possible deal for the United States.  Unilateral concessions just don’t come into it and it is a fundamental error to think that they do.

Putin understands all this very well, as he made clear during his joint press conference with Trump in Helsinki.

VladimirPutin: Regarding whom you can believe and whom you can’t, you shouldn’t believe anyone. What makes you think President Trump trusts me and that I fully trust him? He defends the interests of the United States of America. I defend the interests of the Russian Federation. We do have converging interests, and we are seeking common ground. We have issues that we disagree on so far. We are seeking options to settle these differences and make our work more constructive.

Which brings me to the fundamental reason for the summit, and why it is also a mistake in my opinion to see it as an empty show or a damp squib.

Donald Trump sought the summit – it is clear that the initiative for the summit came from him – because as he has repeatedly said since before he was elected President, prior to the summit he did not know Putin well.

The number of times Trump has said this is in fact practically beyond count.  For example, he said it during a news conference in Miami on 27th June 2016

I don’t know who Putin is. He said one nice thing about me. … I never met Putin….

He also said it during the second Presidential debate on 9th October 2016

I don’t know Putin….

Trump has gone on to say the same thing again and again since.  He has also repeatedly said that only time would tell whether he and Putin would get on with each other and would be able to come to agreements with each other.

A fundamental prerequisite for any successful negotiation is for the two parties to the negotiation to know each other’s minds so that a modicum of trust and understanding – essential if any agreement is to be reached – can be established between them.

As a businessman Trump knows this very well.  He therefore needed to meet with Putin in a lengthy one-to-one encounter in order to get to know Putin properly so as to see whether Putin is in fact the sort of person he can negotiate and eventually do a deal with.

That is the reason why Trump insisted that his first meeting with Putin should take the form of a one-to-one encounter.

That by the way is absolutely standard practice in negotiations – both commercial negotiations and diplomatic negotiations – with leaders of negotiating teams often meeting privately in one-to-one meetings in order to get to know each other better to see whether a deal between them is even possible.  Once a proper relationship between them is established the full negotiating teams can be brought into the negotiations in what in diplomacy are called ‘plenary sessions’.  Needless to say it is during the plenary sessions – with each side’s experts present – that the details are discussed and ironed out.

Not only is this standard practice in negotiations – Putin does it all the time – but it is simply not true as some people are suggesting that there was no one else present in the room when Putin and Trump met with each other.

Both Putin and Trump obviously had interpreters present.  Trump doesn’t speak Russian and Putin speaks English badly.  The job of the interpreters – who are full time state officials – is not just to interpret what the leaders say to each other but also to prepare a written transcript (a “stenographic record”) of what they said.

Once this transcript is written up – something which normally takes no more than a few days – it is circulated to senior officials including in the US case to the US President’s two most important foreign policy advisers, Bolton and Pompeo.  By now it is highly likely that Bolton and Pompeo have already seen and read through the transcript, and that they therefore know exactly what Putin and Trump said to each other.

Since the one-to-one meeting was first and foremost a “get-to-know” you session, no binding agreements would have been reached during it, and neither Putin nor Trump – each in their own way an experienced negotiator – would ever have imagined that they would be.

In summary, the one-to-one meeting between Putin and Trump is not a sign of some secret understanding between them; far less is it a case of an “intelligence asset” meeting his “controller” as some are crazily suggesting.

On the contrary it is further proof of what each of them has repeatedly said at various times: before the summit they did not know each other well, so that the summit was called precisely in order to give each of them the opportunity to get to know the other better.

The essential point about the summit is that Putin and Trump did find that they could deal with each other and did discover areas of common concern which in time it might be possible for them to build on as they search for areas of agreement between them.  During their joint press conference Putin confirmed as much

We do have converging interests, and we are seeking common ground. We have issues that we disagree on so far. We are seeking options to settle these differences and make our work more constructive.

As for the points of possible convergence, Putin in his usual structured way set them out

I consider it important, as we discussed, to get the dialogue on strategic stability and the non-proliferation of weapons of mass destruction on track. We made a note with a number of concrete proposals on this matter available to our American colleagues.

We believe that continued joint efforts to fully work through the military-political and disarmament dossier is necessary. That includes the renewal of the Strategic Offensive Reductions Treaty, the dangerous situation surrounding the development of elements of the US global missile defence system, the implementation of the Treaty on the Elimination of Intermediate-Range and Shorter-Range Missiles, and the topic of deploying weapons in space.

We are in favour of continued cooperation in the sphere of combating terrorism and ensuring cybersecurity. Notably, our special services are working together quite successfully. The most recent example of that is the close operational interaction with a group of US security experts as part of the World Cup in Russia that ended yesterday. Contacts between the special services should be made systematic. I reminded the President of the United States about the proposal to reconstitute the anti-terror working group.

We covered regional crises extensively. Our positions do not coincide on all matters, but nonetheless there are many overlapping interests. We should be looking for common ground and working more closely, including at international forums.

Of course, we talked about regional crises, including Syria. With regard to Syria, restoring peace and harmony in that country could serve as an example of successful joint work.

Of course, Russia and the United States can take the lead in this matter and organise cooperation to overcome the humanitarian crisis and help refugees return to their hearths.

We have all the requisite elements for effective cooperation on Syria. Notably, Russian and American military have gained useful experience of interaction and coordination in the air and on land.

I would also like to note that after the terrorists are routed in southwest Syria, in the so-called “southern zone”, the situation in the Golan Heights should be brought into full conformity with the 1974 agreement on the disengagement of Israeli and Syrian forces.

This will make it possible to bring tranquillity to the Golan Heights and restore the ceasefire between the Syrian Arab Republic and the State of Israel. The President devoted special attention to this issue today…..

We paid special attention to the economy. Obviously, there is interest in cooperation in the business circles of both countries. The US delegation was one of the biggest at the St Petersburg International Economic Forum in May. It consisted of over 500 US entrepreneurs.

To develop trade and investment, President Trump and I agreed to establish a high-level group that would unite captains of Russian and American business. Business people better understand how to go about mutually beneficial cooperation. Let them consider what can be done and make recommendations

The emphasis – as I discussed in my article of a month ago – is on arms control, though Putin also seems to have gone out of his way to reassure Trump that the restoration of the Syrian government’s control over southwest Syria would not put in jeopardy Israel’s position in the Golan Heights.  In addition there also seems to have been a fair amount of discussion about future economic cooperation.

The result was an agreement between Putin and Trump to reopen channels of communication between their governments and to meet regularly with each other as they feel their way towards a rapprochement.

To be clear, that rapprochement will not mean and is not intended to mean that the US and Russia will cease to be adversaries and will become friends.

Instead what is being discussed are steps to bring to a stop the downward spiral in their relations, with each side obtaining a better understanding of the other side’s moves and red lines, so that hopefully geopolitical disasters like the 2014 Maidan coup can be avoided in future.

That would be a major advance over what has existed previously given that since the USSR collapsed in 1991 the US has refused to acknowledge that Russia has any right to any opinions at all, let alone to act independently or set out red lines.

Needless to say the more often Putin and Trump meet the more ‘normalised’ relations between the US and Russia become, with each meeting provoking less controversy than the previous one, with the whole process beyond a certain point becoming routine so that it attracts ever less attention and (hopefully) eventually becomes uncontroversial.

It is because the powerful forces in the US who scorn the idea of a ‘geopolitical ceasefire’ and want ever greater confrontation between the US and Russia do not want to see relations ‘normalised’ in this way that their reaction to the summit has been so hysterical.

As of the time of writing it is these people who in the media and on twitter are making the running.  However it may be a mistake to see in the volume of the noise they are making a true reflection of their influence.

Last February’s Nuclear Posture Review suggests that there is a very powerful constituency within the US and specifically within the Pentagon which might potentially support the sort of ‘geopolitical ceasefire’ with Russia that Donald Trump appears to be gradually working towards.

The Nuclear Posture Review shows that some sections of the US military understand how dangerously overstretched the US has become as it responds simultaneously to challenges from Russia in Europe and from China in the Pacific.  Both Putin and Trump mentioned during their news conference the extent to which their respective militaries are already in contact with each other and are working well together

Donald Trump: Well, our militaries do get along. In fact, our militaries actually have gotten along probably better than our political leaders for years, but our militaries do get along very well and they do coordinate in Syria and other places. Ok? Thank you.

Vladimir Putin:……..On the whole, I really agree with the President. Our military cooperation is going quite well. I hope that they will continue to be able to come to agreements just as they have been…..

That may be a sign that there is more understanding of what Donald Trump is trying to do – at least within the US defence establishment – than the hysteria the Helsinki summit has provoked might suggest.

Overall, provided it is clearly understood that what Putin and Trump are working towards is a detente style ‘geopolitical ceasefire’ and not ‘friendship’ – and certainly not an alliance –  it can be said that their summit in Helsinki was a good start and a success.

What happens next depends on whether the forces of realism and sanity in the US can prevail over those of megalomania and hysteria.  Given how entrenched the latter have become unfortunately no one can count on this.

However some sort of process which may in time lead to detente and an easing of tensions between the nuclear superpowers has begun.  Given the circumstances in which it has been launched that is more than might have been expected even a short time ago, and for that one should be grateful.

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US media losing its mind over Trump-Putin summit

The media’s mania over Trump’s Helsinki performance and the so-called Russia-gate scandal reached new depths on Monday

Joe Lauria

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The media’s mania over Trump’s Helsinki performance and the so-called Russia-gate scandal reached new depths on Monday

This article was first published by Consortium News and is republished with their permission.

The reaction of the U.S. establishment media and several political leaders to President Donald Trump’s press conference after his summit meeting with Russian President Vladimir Putin on Monday has been stunning.

Writing in The Atlantic, James Fallows said:

“There are exactly two possible explanations for the shameful performance the world witnessed on Monday, from a serving American president.

Either Donald Trump is flat-out an agent of Russian interests—maybe witting, maybe unwitting, from fear of blackmail, in hope of future deals, out of manly respect for Vladimir Putin, out of gratitude for Russia’s help during the election, out of pathetic inability to see beyond his 306 electoral votes. Whatever the exact mixture of motives might be, it doesn’t really matter.

Or he is so profoundly ignorant, insecure, and narcissistic that he did not  realize that, at every step, he was advancing the line that Putin hoped he would advance, and the line that the American intelligence, defense, and law-enforcement agencies most dreaded.

Conscious tool. Useful idiot. Those are the choices, though both are possibly true, so that the main question is the proportions … never before have I seen an American president consistently, repeatedly, publicly, and shockingly advance the interests of another country over those of his own government and people.”

As soon as the press conference ended CNN cut to its panel with these words from TV personality Anderson Cooper: “You have been watching perhaps one of the most disgraceful performances by an American president at a summit in front of a Russian leader, surely, that I’ve ever seen.”

David Gergen, who for years has gotten away with portraying himself on TV as an impartial political sage, then told CNN viewers:

“I’ve never heard an American President talk that way buy I think it is especially true that when he’s with someone like Putin, who is a thug, a world-class thug, that he sides with him again and again against his own country’s interests of his own institutions that he runs, that he’s in charge of the federal government , he’s in charge of these intelligence agencies, and he basically dismisses them and retreats into this, we’ve heard it before, but on the international stage to talk about Hillary Clinton’s computer server …”

“It’s embarrassing,” interjected Cooper.

“It’s embarrassing,” agreed Gergen.

Cooper: “Most disgraceful performance by a US president.”

White House correspondent Jim Acosta, ostensibly an objective reporter, then gave his opinion: “I think that sums it up nicely. This is the president of the United States essentially taking the word of the Russian president…over his own intelligence community. It was astonishing, just astonishing to be in the room with the U.S. president and the Russian president on this critical question of election interference, and to retreat back to these talking points about DNC servers and Hillary Clinton’s emails when he had a chance right there in front of the world to tell Vladimir Putin to stay the HELL out of American democracy, and he didn’t do it.”

In other words Trump should just shut up and not question a questionable indictment, which Acosta, like nearly all the media, treat as a conviction.

The Media’s Handlers

The media’s handlers were even worse than their assets. Former CIA director John Brennan tweeted: “Donald Trump’s press conference performance in Helsinki rises to & exceeds the threshold of ‘high crimes & misdemeanors,.’ It was nothing short of treasonous. Not only were Trump’s comments imbecilic, he is wholly in the pocket of Putin. Republican Patriots: Where are you???”

Here’s where the Republican Patriots are, Brennan: “That’s how a press conference sounds when an Asset stands next to his Handler,” former RNC Chairman Michael Steele tweeted.

Representative Liz Cheney, the daughter of the former vice president, said on Twitter: “As a member of the House Armed Services Committee, I am deeply troubled by President Trump’s defense of Putin against the intelligence agencies of the U.S. & his suggestion of moral equivalence between the U.S. and Russia. Russia poses a grave threat to our national security.”

All these were reactions to Trump expressing skepticism about the U.S. indictment on Friday of 12 Russian intelligence agents for allegedly interfering in the 2016 U.S. presidential election while he was standing next to Russian President Vladimir Putin at the press conference following their summit meeting in Helsinki.

“I will say this: I don’t see any reason why it would be” Russia, Trump said. “I have great confidence in my intelligence people, but I will tell you that President Putin was extremely strong and powerful in his denial today.”

The indictments, which are only unproven accusations, formally accused 12 members of the GRU, Russian military intelligence, of stealing Democratic Party emails in a hacking operation and giving the materials to WikiLeaks to publish in order to damage the candidacy of Trump’s opponent, Hillary Clinton. The indictments were announced on Friday, three days before the summit, with the clear intention of getting Trump to cancel it. He ignored cries from the media and Congress to do so.

Over the weekend Michael Smerconish on CNN actually said the indictments proved that Russia had committed a “terrorist attack” against the United States. This is in line with many pundits who are comparing this indictment, that will most likely never produce any evidence, to 9/11 and Pearl Harbor. The danger inherent in that thinking is clear.

Putin said the allegations are “utter nonsense, just like [Trump] recently mentioned.” He added: “The final conclusion in this kind of dispute can only be delivered by a trial, by the court. Not by the executive, by the law enforcement.” He could have added not by the media.

Trump reasonably questioned why the FBI never examined the computer servers of the Democratic National Committee to see whether there was a hack and who may have done it. Instead a private company, CrowdStrike, hired by the Democratic Party studied the server and within a day blamed Russia on very dubious grounds.

“Why haven’t they taken the server?” Trump asked. “Why was the FBI told to leave the office of the Democratic National Committee? I’ve been wondering that. I’ve been asking that for months and months and I’ve been tweeting it out and calling it out on social media. Where is the server? I want to know, where is the server and what is the server saying?”

But being a poor communicator, Trump then mentioned Clinton’s missing emails, allowing the media to conflate the two different servers, and be easily dismissed as Gergen did.

At the press conference, Putin offered to allow American investigators from the team of special counsel Robert Mueller, who put the indictment together, to travel to Russia and take part in interviews with the 12 accused Russian agents. He also offered to set up a joint cyber-security group to examine the evidence and asked that in return Russia be allowed to question persons of interest to Moscow in the United States.

“Let’s discuss the specific issues and not use the Russia and U.S. relationship as a loose change for this internal political struggle,” Putin said.

On CNN, Christiane Amanpour called Putin’s clear offer “obfuscation.”

Even if Trump agreed to this reasonable proposal it seems highly unlikely that his Justice Department will go along with it. Examination of whatever evidence they have to back up the indictment is not what the DOJ is after. As I wrote about the indictments in detail on Friday:

“The extremely remote possibility of convictions were not what Mueller was apparently after, but rather the public perception of Russia’s guilt resulting from fevered media coverage of what are after all only accusations, presented as though it is established fact. Once that impression is settled into the public consciousness, Mueller’s mission would appear to be accomplished.”

Still No ‘Collusion’

The summit begins. (Official White House Photo by Shealah Craighead)

The indictments did not include any members of Trump’s campaign team for “colluding” with the alleged Russian hacking effort, which has been a core allegation throughout the two years of the so-called Russia-gate scandal. Those allegations are routinely reported in U.S. media as established fact, though there is still no evidence of collusion.

Trump emphasised that point in the press conference. “There was no collusion at all,” he said forcefully. “Everybody knows it.”

On this point corporate media has been more deluded than normal as they clutch for straws to prove the collusion theory. As one example of many across the media with the same theme, a New York Times story on Friday, headlined, “Trump Invited the Russians to Hack Clinton. Were They Listening?,” said Russia may have absurdly responded to Trump’s call at 10:30 a.m. on July 27, 2016 to hack Clinton’s private email server because it was “on or about” that day that Russia allegedly first made an attempt to hack Clinton’s personal emails, according to the indictment, which makes no connection between the two events.

If Russia is indeed guilty of remotely hacking the emails it would have had no evident need of assistance from anyone on the Trump team, let alone a public call from Trump on national TV to commence the operation.

More importantly, as Twitter handle “Representative Press” pointed out: “Trump’s July 27, 2016 call to find the missing 30,000 emails could not be a ‘call to hack Clinton’s server’ because at that point it was no longer online. Long before Trump’s statement, Clinton had already turned over her email server to the U.S. Department of Justice.” Either the indictment was talking about different servers or it is being intentionally misleading when it says “on or about July 27, 2016, the Conspirators attempted after hours to spearphish for the first time email accounts at a domain hosted by a third party provider and used by Clinton’s personal office.”

This crucial fact alone, that Clinton had turned over the server in 2015 so that no hack was possible, makes it impossible that Trump’s TV call could be seen as collusion. Only a desperate person would see it otherwise.

But there is a simple explanation why establishment journalists are in unison in their dominant Russian narrative: it is career suicide to question it.

As Samuel Johnson said as far back as 1745: “The greatest part of mankind have no other reason for their opinions than that they are in fashion …since vanity and credulity cooperate in its favour.”

Importance of US-Russia Relations

Trump said the unproven allegation of collusion “as had a negative impact upon the relationship of the two largest nuclear powers in the world. We have 90 percent of nuclear power between the two countries. It’s ridiculous. It’s ridiculous what’s going on with the probe.”

The American president said the U.S. has been “foolish” not to attempt dialogue with Russia before, to cooperate on a range of issues.

“As president, I cannot make decisions on foreign policy in a futile effort to appease partisan critics or the media or Democrats who want to do nothing but resist and obstruct,” Trump said. “Constructive dialogue between the United States and Russia forwards the opportunity to open new pathways toward peace and stability in our world. I would rather take a political risk in pursuit of peace than to risk peace in pursuit of politics.”

This main reason for summits between Russian and American leaders was also ignored: to use diplomacy to reduce dangerous tensions. “I really think the world wants to see us get along,” Trump said. “We are the two great nuclear powers. We have 90 percent of the nuclear. And that’s not a good thing, it’s a bad thing.”

Preventing good relations between the two countries appears to be the heart of the matter for U.S. intelligence and their media assets. So Trump was vilified for even trying.

Ignoring the Rest of the Story

Obsessed as they are with the “interference” story, the media virtually ignored the other crucial issues that came up at the summit, such as the Middle East.

Trump sort of thanked Russia for its efforts to defeat ISIS. “When you look at all of the progress that’s been made in certain sections with the eradication of ISIS, about 98 percent, 99 percent there, and other things that have taken place that we have done and that, frankly, Russia has helped us with in certain respects,” he said.

Trump here is falsely taking credit, as he has before, for defeating ISIS with only some “help” from Russia. In Iraq the U.S. led the way against ISIS coordinating the Iraqi and Kurdish security forces. But in the separate war against ISIS in Syria, Russia, the Syrian Arab Army, Kurdish forces, Iranian troops and Hizbullah militias were almost entirely responsible for ISIS’ defeat.

A grand deal? (Photo: Sputnik)

Also on Syria, Trump appeared to endorse what is being reported as a deal between Russia and Israel in which Israel would accept Bashar al-Assad remaining as Syrian president, while Russia would work on Iran to get it to remove its forces away from the northern Golan Heights, which Israel illegally considers its border with Syria.

After a meeting in Moscow last week with Putin, Israel Prime Minister Benjamin Netanyahu said he accepted Assad remaining in power.

“President Putin also is helping Israel,” Trump said at the press conference. “We both spoke with Bibi Netanyahu. They would like to do certain things with respect to Syria, having to do with the safety of Israel. In that respect, we absolutely would like to work in order to help Israel. Israel will be working with us. So both countries would work jointly.”

Trump also said that the U.S. and Russian militaries were coordinating in Syria, but he did not go as far as saying that they had agreed to fight together there, which has been a longstanding proposal of Putin’s dating back to September 2015, just before Moscow intervened militarily in the country.

“Our militaries have gotten along probably better than our political leaders for years,” Trump said. “Our militaries do get along very well. They do coordinate in Syria and other places.”

Trump said Russia and the U.S. should cooperate in humanitarian assistance in Syria.

“If we can do something to help the people of Syria get back into some form of shelter and on a humanitarian basis…that’s what the word was, a humanitarian basis,” he said. “I think both of us would be very interested in doing that.”

Putin said he had agreed on Sunday with French President Emmanuel Macron on a joint effort with Europe to deliver humanitarian aid. “On our behalf, we will provide military cargo aircraft to deliver humanitarian cargo. Today, I brought up this issue with President Trump. I think there’s plenty of things to look into,” Putin said.

Joe Lauria is editor-in-chief of Consortium News and a former correspondent for The Wall Street Journal, Boston GlobeSunday Times of London and numerous other newspapers. He can be reached at [email protected] and followed on Twitter @unjoe .

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