An exercise in buying 17% Russian bonds

If you’re still doing that fiat thing, if you still haven’t embraced Bitcoin with both arms and hugged it so tight that a SHA256 hash popped out, your options are pretty limited.

The housing market is a mess,i the domestic bond markets are a wasteland, resources/metals are getting beat up, and the stock market is, as ever, a crapshoot boobytrapped by fees on taxes on fees on taxes. So where do you go? Where do you find yield in fiat?

Well, there are always the old money avenues: commercial real estate, jewelry, and art. But those have high barriers to entry, require specialised knowledge, and the markets for them aren’t known for their liquidity, making purchasing and selling a challenge.ii So what else is there?

Well… have you considered foreign bonds? More specifically, have you considered Russian Federation bonds? You need only look at their relative debt level to see the appeal:

The Russian federal government’s debt-to-GDP level is a paltry 13% compared to the US’ 101%, Germany’s 77%, and Canada’s 89%.

Given the aforementioned debt levels, could Putin’s debt really be riskier than Canada Savings Bonds or US Treasury Bills? Really. Who seems shakier at this point, Putin or the Harpbama twins?iii Who will still be ruling the roost in another decade?

With his understanding of economics, religion, capitalism, diplomacy, and his peoples’ dispositions, Putin is poised to stretch out his legacy well beyond his already impressive 15-year reign. He seems like he could keep rocking for another decade or more.

So, sensibly enough, in the more solid and more active should you invest your fiat. And that’s given equivalent interest rates. If higher interest rates are being offered by one party, implying that the underlying asset is riskier, you should also be willing to bear more uncertainty as to repayment. But is Putin really less likely to pay his creditors? While you aren’t likely to swallow such codswallop, there apparently exist, if the markets and press are to be believed, magical businessmen who do. As MP notes:

Explain the logic of this, if you can. So somewhere exists this magical business man, we are told, who judges that the best thing to do is sell a currency whose bonds are yielding 17%, in favour of a “better return” to be sought in a currency whose bonds are yielding nothing. In what world is this sensible ?

The only world in which this is sensible is one where even intelligent retail investors have no part. There’s no way on God’s green earth that you or I would buy a 1% USG bond over a 17% Russian bond.

I mean, in what world other than the current one, where the AML/KYC nonsense has managed to reduce the independence of everyone to nothing, so that basically the entire “business world” consists of a bunch of Washington agents ? Sure, if you exist to do what Washington tells you, then you will sell 17% to buy 0%. Because “it offers better returns”, in the sense that you can cook your books any which way with the help of the Fed’s magical genie lamp – and then hide under the masquerade of US justice to avoid any sort of consequences once your “customers” realise you’ve bankrupt them.

So that’s pretty much that. If you or I, that is, independent actors capable of responding to signals according to their direction and intensity, were buying bonds, based on existing debt levels, the ability to balance future budgets, and the trendlines of economic expansion and contraction, Russia should be able to offer significantly lower interest rates than the US or Canada.

But enough preamble, how does one go about actually acquiring what is clearly a better bond?

Option 1: Exchange-traded funds

While not composed entirely of Russian bonds, there are low-fee ETFs available that are heavily weighted towards Putin’s high-interest debt, such as the Vanguard Emerging Markets Government Bond ETF (VWOB) or the iShares JPMorgan USD Emerging Markets Bond Fund (EMB).

Option 2: Broker

Unlike the enlightened and civilised era of Bitcoin investment, if you want to purchase a foreign bond, you need a counterparty to get you in the door. Brokers may have minimum investment requirements of $5,000 – $100,000 dollars and fees of goodness only knows. Basically, contact your local broker, cross your fingers that they even have the necessary licences and connections, and go from there.

After a few hours of research, that’s pretty much what I came up with. There’s no clear, published way for a retail investor to buy Russian bonds directly. Still, if you’re doing that fiat thing, the juice of 17% is probably worth the squeeze of calling your broker.

Really, it couldn’t be riskier than pirate bonds.

Or, for that matter, USG bonds.

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  1. Particularly in that housing stock inflates not only unpredictably, but in North America, rapidly. Or, as we saw recently in Detroit, it deflates rapidly. It turns out that urban sprawl doesn’t just confine you to a car, isolating you from your city and forcing you to be sessile instead of active, it also reduces the value of your soon-to-be-leapfrogged suburban property. Land downtown, on the ocean or on the river particularly, is much harder to dilute. Also, the housing market is a sitting duck for the taxman, not to mention mortgage rate increases.
  2. And you thought buying Bitcoin was too hard for the common kangaroo. So, pray tell, where are the Silicon Valley start-ups trying to make commercial real estate more accessible?
  3. Isn’t it cute how they’re both trying to “sanction” Russia over the Crimea conflict? As if they were both teenagers who grew up in Micronesia in the 1970’s and 1980’s. Look mom, I can suicide too!