grew up hating America. I lived in the Soviet Union and was a child of
the cold war. That hate went away in 1989, though, when the Berlin Wall
fell and the cold war ended. By the time I left Russia in 1991, the year
the Soviet Union collapsed, America was a country that Russians looked
up to and wanted to emulate.
years later, a new version of cold war is back, though we Americans
haven't realized it yet. But I am getting ahead of myself.
Russia invaded Crimea and staged its referendum, I thought Vladimir
Putin's foreign excursions were over. Taking back Crimea violated plenty
of international laws, but let's be honest. Though major powers like
the U.S. and Russia write the international laws, they are not really
expected to abide by those laws if they find them not to be in their
best interests. Those laws are for everyone else. I am not condoning
such behavior, but I can clearly see how Russians could justify taking
Crimea back - after all, it used to belong to Russia.
was perplexed by how the Russian people could possibly support and not
be outraged by Russia's invasion of Ukraine. But I live in Denver, and I
read mostly U.S. and European newspapers. I wanted to see what was
going on in Russia and Ukraine from the Russian perspective, so I went
on a seven-day news diet: I watched only Russian TV - Channel One
Russia, the state-owned broadcaster, which I hadn't seen in more than 20
years - and read Pravda, the Russian newspaper whose name means
"Truth." Here is what I learned:
Russia did not reclaim Crimea, once the new, illegitimate government
came to power in Ukraine, the Russian navy would have been kicked out
and the U.S. navy would have started using Crimean ports as navy bases.
are no Russian troops in Ukraine, nor were there ever any there. If any
Russian soldiers were found there (and there were), those soldiers were
on leave. They went to Ukraine to support their Russian brothers and
sisters who are being abused by Ukrainian nationalists. (They may have
borrowed a tank or two, or a highly specialized Russian-made missile
system that is capable of shooting down planes, but for some reason
those details are not mentioned much in the Russian media.) On November
12, NATO reported that Russian tanks had entered Ukraine. The Russian
government vehemently denied it, blaming NATO for being anti-Russian.
Airlines Flight MH17 was not downed by Russia or separatists. It was
shot down by an air-to-air missile fired by Ukraine or a NATO plane
engaged in military exercises in Ukraine at the time. The U.S. has the
satellite imagery but is afraid of the truth and chooses not to share it
with the world.
was destabilized by the U.S., which spent $5 billion on this project.
As proof, TV news showed a video of Senator John McCain giving a speech
to antigovernment protesters in Kiev's Maidan Square. It was followed by
a video of Vice President Joe Biden visiting Ukraine during the tumult.
I wasn't sure what his role was, but it was implied that he had
something to do with the unrest.
of Joe Biden, I learned that his son just joined the board of Ukraine's
largest natural gas company, which will benefit significantly from a
is a zoo of a country, deeply corrupt and overrun by Russian-haters and
neo-Nazis (Banderovtsi - Ukrainian nationalists who were responsible
for killing Russians and Jews during World War II).
for the recent parliamentary election in Ukraine included Darth Vader
(not kidding), as well as a gay ex-prostitute who claims to be a working
man's man but lives in a multimillion-dollar mansion.
have to confess, it is hard not to develop a lot of self-doubt about
your previously held views when you watch Russian TV for a week. But
then you have to remind yourself that Putin's Russia doesn't have a free
press. The free press that briefly existed after the Soviet Union
collapsed is gone - Putin killed it. The government controls most TV
channels, radio and newspapers. What Russians see on TV, read in print
and listen to on the radio is direct propaganda from the Kremlin.
I go further, let's visit the definition of propaganda with the help of
the Oxford English Dictionary: "The systematic dissemination of
information, especially in a biased or misleading way, in order to
promote a political cause or point of view."
always thought of the Internet as an unstoppable democratic force that
would always let the truth slip out through the cracks in even the most
determined wall of propaganda. I was wrong. After watching Russian TV,
you would not want to read the Western press, because you'd be convinced
it was lying. More important, Russian TV is so potent that you would
not even want to watch anything else, because you would be convinced
that you were in possession of indisputable facts.
propaganda works by forcing your right brain (the emotional one) to
overpower your left brain (the logical one), while clogging all your
logical filters. Here is an example: Russian TV shows footage of schools
in eastern Ukraine bombed by the Ukrainian army. Anyone's heart would
bleed, seeing these gruesome images. It is impossible not to feel hatred
toward people who would perpetrate such an atrocity on their own
population. It was explained to viewers that the Ukrainian army
continued its offensive despite a cease-fire agreement.
course if you watched Ukrainian TV, you would have seen similar images
of death and despair on the other side. In fact, if you read Ukrainian
newspapers, you will learn that the Ukrainian army is fighting a
well-armed army, not rebels with Molotovs and handguns, but an organized
force fully armed by the Russian army.
viewers were not shown was that the cease-fire had been broken before
the fighting resumed. The fact that Putin helped to instigate this war
was never mentioned. Facts are not something Russian TV is concerned
about. As emotional images and a lot of disinformation pump up your
right brain, it overpowers the left, which capitulates and stops
questioning the information presented.
I also learned is that you don't have to lie to lie. Let me give you an
example. I could not figure out how the Russian media came up with the
$5 billion that "America spent destabilizing Ukraine." But then I found
a video of
a U.S. undersecretary of State giving an 8.5-minute speech; at the
7.5-minute mark, she said, "Since Ukrainian independence in 1991 … [the
U.S. has] invested more than $5 billion to help Ukraine." The $5 billion
figure was correct. However, it was not given to Ukraine in three
months to destabilize a democratically elected, corrupt pro-Russian
government but over the course of 23 years. Yes, you don't have to lie
to lie; you just have to omit important facts - something Russian TV is
very good at.
example of a right-brain attack on the left brain is "the rise of
neo-Nazism in Ukraine." Most lies are built around kernels of truth, and
this one is no different. Ukraine was home to the Banderovtsi,
Ukrainian nationalists who were responsible for killing tens of
thousands of Jews and Russians during World War II.
justified the invasion of Crimea by claiming that he was protecting the
Russian population from neo-Nazis. Russian TV creates the impression
that the whole of Ukraine is overrun by Nazis. As my father puts it,
"Ukrainians who lived side by side with Russians did not just become
there may be some neo-Nazis in Ukraine, the current government is
liberal and pro-Western. Svoboda - the party whose members are known for
their neo-Nazi and anti-Semitic rhetoric - did not get even 5 percent
of the votes in the October election, the minimum needed to gain a
significant presence in parliament. Meanwhile the TV goes on showing
images of Nazis killing Russians and Jews during World War II and
drawing parallels between Nazi Germany and Ukraine today.
also makes things more difficult in Russia is that, unlike Americans,
who by default don't trust their politicians - yes, even their
presidents - Russians still have the czarist mentality that idolizes its
leaders. Stalin was able to cultivate this to an enormous degree - most
Russians thought of him as a father figure. My father was 20 when
Stalin died in 1953, and he told me that he, like everyone around him,
keep thinking about what Lord Acton said: "Power corrupts, and absolute
power corrupts absolutely." The Putin we scorn today was not always
like this; he did a lot of good things during his first term. The two
that stand out the most are getting rid of the organized crime that was
killing Russia and instituting a pro-business flat tax system. The
amount of power Russians give their presidents, however, will, with
time, change the blood flow to anyone's head. Come to think of it, even
Mother Teresa would not have stood a chance in Russia.
few weeks ago Putin turned 62, and thousands of people took to the
streets to celebrate his birthday. (Most Americans, including this one,
don't even know the month of Barack Obama's birthday.)
my misspent youth, I took a marketing class at the University of
Colorado. I remember very little from that class except this: For your
message to be remembered, a consumer has to hear it at least six times.
Putin's propaganda folks must have taken the same class, because Russian
citizens get to hear how great their president is at least six times a
Americans look at Putin and see an evil KGB guy who roams around the
country without a shirt on. Russians are shown a very different picture.
They see a hard-working president who cares deeply about them. Every
news program dedicates at least one fifth of its airtime to showcasing
Putin's greatness, not in your face but in subtle ways. A typical clip
would have him meeting with a cabinet minister. The minister would give
his report, and Putin, looking very serious indeed, would lecture the
minister on what needed to be done. Putin is always candid, direct and
tough with his ministers.
listened to a few of Putin's speeches, and I have to admit that his
oratory skills are excellent, of a J.F.K. or Reagan caliber. He doesn't
give a speech; he talks. His language is accessible and full of zingers.
He is very calm and logical.
look at the Putin presidency and ask themselves a very pragmatic
question: Am I better off now, with him, than I was before he came into
power? For most the answer is yes. What most Russians don't see is that
oil prices over the past 14 years went from $14 to more than $100 a
barrel. They are completely responsible for the revival of Russia's
one-trick petrochemical economy. In other words, they should consider
why their economy has done better the past decade, and why it may not do
as well going forward. Unless Putin was the one who jump-started
China's insatiable demand for oil and other commodities that drove
prices higher, he has had very little to do with Russia's recent
place prosperity in quotes because if you take oil and gas riches away
from Russia (lower prices can do that with ease), it is in a worse place
today than it was 14 years ago. High oil prices have ruined Russia.
They have driven its currency up, making its other products less
competitive in international markets. Also, capital gravitates toward
higher returns; thus oil has sucked capital from other industries,
hollowing out the economy. After the Soviet Union collapsed, Russia had a
chance to broaden its economy; it had one of the most educated
workforces in the world. Sadly, it squandered that opportunity. Name one
noncommodity product that is exported from Russia. There aren't many; I
can think only of vodka and military equipment.
most Russians don't look at things that way. For most of them, their
lives are better now: No more lines for toilet paper, and the stores are
full of food. Their personal liberties (such as freedom of speech and
freedom of the press) have been taken away from them, but many have so
much trust in their president that they don't mind, whereas others are
we see three factors that influence oil prices and are working against
Russia: Supply is going up with U.S. shale drilling; demand growth will
likely decline if the Chinese economy continues to cool; and the dollar
is getting stronger, not because the U.S. doing great but just because
the rest of the world is doing worse. If oil prices continue to decline,
this will expose the true state of the Russian economy.
I visited Russia in 2008, I sensed an anti-American sentiment. NATO -
which in Russia is perceived as a predominantly American entity - had
expanded too close to Russian borders. Georgia tried to join NATO, but
Russia put a quick end to that. Russians felt they extended a friendly
hand to the U.S. after 9/11, but in response America was arraying
missiles around its borders. (The U.S. says they are defensive, not
offensive; Russians don't see the distinction. They are probably right.)
true colors of this new cold war came to light recently. In August
2008, according to Henry Paulson, the U.S. Treasury secretary at the
time, "top level" Russian officials approached the Chinese during the
Olympics in Beijing and proposed "that together they might sell big
chunks of their GSE [Fannie Mae and Freddie Mac] holdings to force the
U.S. to use its emergency authorities to prop up these companies."
incident took place just weeks before the collapse of Lehman Brothers.
The U.S. economy was inches from revisiting the Stone Age. The proposed
Russian-Chinese maneuver could have made such an outcome more likely.
The Federal Reserve would have had to step in and buy Fannie's and
Freddie's debt, and the dollar would have taken a dive, worsening the
plunge in the U.S. economy. Our friend Putin wanted to bring the U.S.
economy down without firing a single shot, just as he annexed Crimea
anti-American sentiment is much greater in Russia. European sanctions
are seen as entirely unjustified. Here is why: Crimea had a "democratic
referendum," and the Ukrainian conflict is believed to be not of
Russia's doing but rather an American attempt to destabilize Russia and
bring Ukraine into NATO. In his annual speech at the Valdai conference
last month, Putin said America had pushed an unwilling Europe into
imposing sanctions on Russia. America is perceived as an imperialistic
bully that, because of its economic and military power, puts its own
self-interest above everyone else's, and international law.
uses anti-Americanism as a shiny object to detract attention from the
weak Russian economy and other internal problems. In the short run,
sanctions provide a convenient excuse for the weakening Russian economy
and declining ruble. They have boosted Putin's popularity (at least so
far). As the Russian economy gets worse, anti-American sentiment will
new version of the cold war has little in common with the one I grew up
in. There are no ideological differences, and there is no arms race (at
least not yet, and let's be honest: Today neither country can afford
one, especially Russia). At the core of it, we don't like what Russia is
doing to its neighbors, and Russia doesn't like what we do to the rest
of the (non-EU) world.
criticisms of U.S. foreign policy voiced by Putin in his latest Valdai
speech are shared by many Americans: The U.S. is culpable in the
unresolved, open-ended Afghanistan adventure; the Iraq War; the
almost-bombing of Syria, which may have destabilized the region further;
and the creation of the Islamic State, which is in large part a
by-product of all of the above. Yet Putin's abominable Ukrainian
excursion and the thousands of lives lost were never mentioned.
there is also something less tangible that is influencing Russia's
behavior: a bruised ego. During the good old Soviet Union days, Russia
was a superpower. It mattered. When it spoke, the world listened. The
Russian people had a great sense of pride in their Rodina (Mother
Russia). Today, if Russia did not have nuclear weapons, we'd pay much
less attention to it than we do. Pick a developing country without oil
whose president you can name. (Okay, we Americans can't name the
president of almost any other country, but you get the point.)
and Putin's popularity will both rise as the Russian economy weakens.
For instance, Putin took his own people hostage when he imposed
sanctions on imports of European food. The impact on Europe will not be
significant (the Russian economy is not very large in comparison to the
European Union), but Russia is very dependent on these imports. In the
U.S. consumers spend about 13 percent of their earnings on food, but in
Russia that number is almost three times larger. Therefore, food
inflation hurts Russians much more. Yet as food inflation spiked, so did
Putin's popularity and anti-Americanism. Even declining oil prices will
be explained as a anti-Russian manipulation by the U.S.
the only thing Russia has going for it today is its nuclear weapons.
Russia has started to remind us of its military recently. According to
NATO, the alliance "has conducted over 100 intercepts of Russian
aircraft in 2014 to date, which is about three times more than were
conducted in 2013."
article needs a conclusion, but this one doesn't have one. I am not
sure what this new cold war means for the world. Will Russia start
invading other neighboring countries? Will it test NATO resolve by
invading Baltic countries that are part of NATO? I don't know. Economic
instability will eventually lead to political crises. We have plenty of
economic instability going on around the world.
leave you with this thought: On March 7, 1936, the German army violated
the Treaty of Versailles and entered into the Rhineland. Here is what
Hitler later said:
forty-eight hours after the march into the Rhineland were the most
nerve-racking in my life. If the French had then marched into the
Rhineland, we would have had to withdraw with our tails between our
legs, for the military resources at our disposal would have been wholly
inadequate for even a moderate resistance."
Those two days determined what Germany would do next - build out its army and start World War II.
Putin with Hitler, as one of my Russian friends put it, is "absolutely
abominable" because it diminishes Hitler's atrocities and overstates by a
mile what Putin has accomplished to date. Yet it feels as if we are at a
Putin-of-1936 moment. Will he turn into a Putin of 1939 and invade
other countries? I don't know. But the events of the past nine months
have shown Putin's willingness to defy international law and seize the
advantage on the ground, betting - correctly so far - that the West
won't call his bluff.
Garry Kasparov put it, while the West is playing chess, responding
tactically to each turn of events, Putin is playing high-stakes poker.
We ignore Putin at our own peril.
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Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in
Denver, Colo. He is the author of The Little Book of Sideways Markets
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