Q. Why don't Russian oligarchs use Microsoft products?
A. Because they're terrified of Windows.
As Putin's rivals learned last week, even private plane windows are not safe.
Yevgeny Prigozhin, a.k.a. "Putin's Chef," was not just a childhood friend of Vladimir Putin, one-time hot-dog vendor, caterer, and restaurateur to St. Petersburg elites. He was, more importantly, founder of the Internet Research Agency (an infamous Russian troll farm) and the global paramilitary organization known as the Wagner Group, which acted with plausible deniability on multiple continents as an arm of the Russian state.
Prigozhin was smart enough to avoid tall buildings (and their treacherous windows) in the eight weeks following his botched coup attempt on the Kremlin, in which a Wagner convoy rolled surprisingly close to Moscow before turning back.
But he wasn't smart enough to flee Russia for good — or to conceal his travel movements from a vengeful Putin, whom America's CIA director has previously dubbed "the apostle of payback."
Apostle of payback indeed: On Aug. 23, roughly 60 miles from Moscow around 6:00 p.m. local time, Prigozhin's private jet experienced a "rapid unscheduled disassembly" at 28,000 feet... with him and nine others on it.
Bystanders captured video of the plane, an Embraer Jet used by Prigozhin on the regular, spiraling toward the ground with a missing wing.
Confusion reigned at first over whether the plane had been shot down with a surface-to-air missile, sheared in two by anti-aircraft fire, or blown up by explosives planted inside the craft. Rumors flew that a bomb had been planted in a crate of expensive wine, a gift loaded onto the plane at the last minute.
Whatever the method, Prigozhin's life ended in a giant fireball. And the theatrics were spectacular, like a cross between a government-ordered assassination and a mafia hit — or something out of an action movie with a $200 million budget.
In our view, the Prigozhin assassination was unquestionably a message from Putin — not to Ukraine or the world, but to anyone in the Russian power structure who might dare challenge him.
It is theoretically possible Prigozhin's death came at the orders of someone other than Putin. (It certainly wasn't mechanical failure — jets do not accidentally lose a wing.)
But the run of coincidences is too strong for it to be someone other than Putin: The assassination came exactly two months after the failed Wagner coup (Aug. 23 versus June 23), and Sergei "General Armageddon" Surovikin, head of the Russian Air Force and a suspected Wagner sympathizer, was officially fired from his post on the same day.
In the immediate aftermath of the June 23 coup attempt, Putin looked confused and off-balance. His decision to negotiate with Prigozhin, rather than take him out, was taken as a sign of weakness.
But it turns out Putin was merely biding his time, and perhaps tying up loose ends in regard to the Wagner Group and its many lines of business in Africa (e.g., contractor relationships with dictators, ownership stakes in gold mines and diamond mines).
One of the biggest questions is why Prigozhin thought he was safe enough to move about in Russia as normal. (The Moscow-to-St. Petersburg flight route is one he had taken many times.)
Omar Little from "The Wire" said it best: "You come at the king, you best not miss."
A Sign of Weakness, Not Strength
While Putin has reestablished his position as alpha-dog, we would argue that volatility and uncertainty levels are rising — for Putin himself and Russia on the whole.
Take the ruble, for example, which has returned to a state of collapse after initially collapsing at the start of the Russia-Ukraine invasion in February 2022.
The below chart, showing the U.S. dollar/Russian ruble currency pair (USD/RUB), is inverted in the manner of dollar-yuan or dollar-yen. A rising value indicates dollar strength and ruble weakness: When dollar-ruble goes above 100, for example, it means the value of the ruble has fallen below one cent.
Why is the ruble collapsing again?
In part because harsh Western sanctions, which take time for their impact to be felt, are truly beginning to bite, and in part because Russia's economy is running low on export revenues even as war-related military spending eats up reserves.
With China in the grip of a deflationary shock and India headed for slowdown too, Russia's two biggest customers for off-the-books oil and gas are looking sated. That means overall demand for Russian oil and gas is declining, and Russia increasingly has little else to sell.
To try and halt the ruble's free fall, Russia's central bank pushed through a whopping 3.5% interest-rate hike on Aug. 15, taking Russia's benchmark interest rate to 12%. Such a punitively high rate may act like a tourniquet to stop the bleeding in currency terms... but it could also play a role in grinding Russia's stalled-out economy to a halt.
Then, too, if the crude oil price collapses toward $60 per barrel via the weight of global slowdown, Russia's economic problems could worsen dramatically.
Geopolitical strategist Peter Zeihan still sees a scenario where a glut of Russian crude — via nobody willing to take the oil off their hands — could lead to a forced "shut-in" of Siberian wells, which would mean a de facto permanent loss of production (as such wells could take years or even decades to reopen once shut, and Russia no longer has the technical expertise to do so itself now that Western oil and gas partners have fled).
All told, Putin may need all of the mafioso-style strength he can muster to keep rivals in check, because the dire situation for Russia's economy is looking more dire by the day.
Nor does this speak to the possibility of Ukraine achieving significant breakthroughs on the battlefield, or otherwise forcing Russia's military spending to escalate at a time when the coffers are running dry.
As we wrote on June 26, in the immediate aftermath of the failed Wagner coup, Prigozhin was a "cornered rat" who wound up feeling forced to challenge Putin for lack of a better option.
As once occurred in childhood, Putin has bested a cornered rat yet again, and is seen as the last man standing. But Prigozhin may not be his last challenger... and Russia's problems could soon engulf him.
Until next time,
Justice Clark Litle Chief Research Officer, TradeSmith
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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