How to Profit From the Folly of Donald Trump's Best Friend Vladimir Putin - TheStreet

In this year's circus-like U.S. presidential election, one of the most curious sideshows has been the budding "bromance" between Russian president Vladimir Putin and GOP nominee Donald Trump.

Both exhibit authoritarian temperaments and appear to share business interests. Both ABC News and Newsweekhave conducted in-depth examinations of Trump's political and financial ties to Russia. Meanwhile, Putin stands accused of meddling in the election on Trump's behalf, by dispatching computer hackers to breach Democratic party computers.

That's why we think the stage is set for Russia's spectacular fall. Russia is like a Potemkin village that's mostly facade with hollow substance, while Putin's macho posturing masks the inherent weaknesses of his misrule. Below, we show you how to profit from the day of reckoning. The best way to make money is to be a contrarian and see the story behind the story. And the Russian story right now is rotten to the core.

Make no mistake: Russia is a corrupt petrostate. Fossil fuels represent more than two-thirds of the country's exports and manufactured goods barely one-fifth. When oil prices started to collapse from their highs of $110 a barrel in mid-2014, so did Russia's oil-dependent economy.

Russian household income data from August showed an 8% year-over-year drop, despite a steady rise in prices that has brought inflation in the country to double digits. Rates of suicide and alcoholism are sky high.

Russia's Economy Ministry early this year predicted that the nation's gross domestic product would shrink by at least 0.8% in 2016. The recent rise in oil prices has mitigated the pessimism somewhat, but the outlook remains dour with expectations that Russia in 2017 faces stagnation at best.

Under Putin's watch, Russia never undertook the tough job of diversifying its economy and exports. Instead, he has turned Russia into a kleptocracy in which political connections matter more than business competence. 

A former KGB colonel, Putin lamented the break-up of the Soviet Union. A good number of his political critics have wound up dead. Hence the irony of American politicians who praise Putin's supposedly strong "leadership" while at the same time decrying the far more successful (and democratic) President Obama as a dictator. Putin is intent on returning Russia to an aggressive, expansionist foreign policy, which is not a recipe for domestic economic stability.

To make ends meet, the Russian government has been forced to dig into its "rainy day fund," while Russia-based banks simultaneously grapple with souring loans and ugly balance sheets.

Russia's fortunes are tied to oil, and that's the country's Achilles' heel. Oil prices are off their historic lows, but the energy sector rebound remains a nervous one, with the looming threat of weak demand sending oil prices to extreme lows again.

If history is any guide, this energy script will probably bring an unhappy ending to scores of unsuspecting investors. And don't forget about other global catalysts -- a terrorist attack, more bad news from China, a wave of energy sector debt defaults -- that could undermine energy demand and send prices tumbling.

That all sounds like a risk, and it is to most energy investors. But today's global volatility is the moneymaking "sweet spot" for the trade recommended below.

About 50% of Russia's federal budget is derived from taxes on oil and gas. Over the past two years, the government has had to make budget cuts and raise taxes. The country's main stock market index, the dollar-denominated RTS Index ("RTS" stands for "Russia Trading System"), is scarcely above its post-2008 crisis low. Over the past five years, the RTSI has declined 52%, compared with a 91% gain for the S&P 500.

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American and European energy exploration and production companies with major footprints in Russia, notably BP, Exxon Mobil, Royal Dutch Shell and Total, have been curtailing their activities in Russia. Now's the time to bet against Putin's tottering empire, ahead of what's shaping up to be an electoral loss for his friend Donald Trump.

The safest and easiest way is to sell short the SPDR S&P Russia ETF (RBL) , an exchange-traded fund that seeks daily investment results that correspond to the total-return performance of the S&P Russia Capped BMI Index.

With net assets of $23.60 million, the SPDR S&P Russia ETF holds major Russian enterprises such as Sberbank of Russia, Gazprom, Magnit and Rosneft Oil.

Rising oil prices this year have boosted the fund, giving it a year-to-date return of 29%, shown in the chart below.

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The SPDR S&P Russia ETF is especially vulnerable to oil prices and geopolitical turmoil, as reflected by its poor longer-term performance. Its average annual total return for the past five years is -3.3%, according to Morningstar. For five years, it's -10%. This ETF appears ripe for a big decline. The chart below shows the ETF's performance over the past five years.

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Oil prices need to reach about $50 a barrel for energy companies to break even. However, despite crude oil's "recovery" this year, oil prices continue to hover closer to $40. The turbulent energy markets will probably cause more anguish and losses to scores of unsuspecting investors. If you bet against the politically unstable and economically fragile petrostate of Russia, you can reap profits while naïve investors lose their shirts.


It's not just Russia:a blistering financial storm is about to hit our shores, too. When it hits, weak companies and their investors will be washed away. You need to put yourself on solid ground. And that doesn't just mean changing your investment allocations or loading up on cash. I'll show you how to protect yourself and prosper when you click here.

John Persinos is an editorial manager and investment analyst at Investing Daily. At the time of publication, he owned none of the stocks mentioned. Persinos appears as a regular commentator on the financial television show "Small Cap Nation." Follow him on Twitter.