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I think two major developments will happen within the next 1-2 weeks in regard to the "war premium" in FXPO price:

1) Russia will file for the piece while trying to keep its territorial gains. Russian officials repeatedly stated their war objective was downgraded to capturing Donetsk and Lugansk areas. They will not be fully successful with that, but they will use all available diplomatic means to keep what they already got. Evidence is that Russian military forces are starting to fortify their positions, i.e. switching to the defensive mode. The diplomatic narrative will be "We need to stop the bloodshed", "We need to prevent the inflationary and food crisis", "Let's force the obstinate Ukhrainians to cease fire". Getting a new "Minsk-3" treaty is the only chance for Putin, as the Ukrainians will become better equipped and have more man-power by the end of July.

2) Black Sea ports will be unblocked. Recently, the Kremlin proposed lifting the blockage in exchange for sanctions relief. Sanction relief is not going to happen. However, Russians will be forced to unblock the sea anyway, diplomatically or else. Preventing Ukraine grain export is a serious problem, which can result in a hunger crisis in developing countries. Pressure on Russia will mount. https://www.reuters.com/world/exclusive-us-aims-arm-ukraine-with-advanced-anti-ship-missiles-fight-russian-2022-05-19/ On Friday, the Ukrainian Ministry of Internal Affairs tweeted the US "is preparing a plan to destroy the Black Sea fleet". The US quickly denied, but the hint is clear.

As I said before, the current war premium in FXPO price is completely unwarranted.

There is no need to wait until 2027. Most likely, Russia will see a regime change before the end of 2022, with an installation of a European-friendly regime.

I would rather put the blame on Putin, but I am not sure if his team has the balls to do so at the moment.

Make no mistake, there is nothing unsanctioned or random on Russian TV. Khodarenok said what he said because he was ordered and authorized to do so. Russian propaganda starts to frame the defeat. "We lost because the entire world is against us." "We lost to the NATO, not to the *** Ukraine". "Our diplomats and generals are incompetent traitors". "The great leader will save the nation, despite all the difficulties. We need to unite!" Take popcorn and buy more FXPO, haha.

Pokerchips

"These difficulties will be met with, even where the great body of the citizens has not become wholly corrupted; but where the corruption is complete, freedom, as shall presently be shown, is not merely fleeting but impossible." Niccolo Machiavelli, Discourses on the First Decade of Titus Livius

Fingers crossed for the Ukraine!

POWER The facts are these:

1) Ukraine gets lend-lease and 40 billions in military aid, which exceeds the annual military budget of the Russian Federation.
2) Kuleba announced the Ukhrainian army will grow to 1 million (from 250k). They could do it earlier (from the anecdotal evidence and my Ukrainian friends there were queues to the military enlistment offices), but they did not have weapons and ammunition. Now they do.
3) Mobilization attempt in Russia will probably lead to the revolution. Even if successful, there are no weapons there. All the Russian army could do is add a lot of infantry with automatic guns, which is useless in modern war.

I hope for peace too. This war does not make any sense at this point.

alex1978uk Speaking about China, they will be happy to grab Siberia when Russia enters chaos and disintegration. China does not need a weak ally, and it will join the winner. Recently, Chinese officials announced China respects the territorial integrity of the Ukraine. Putin is left alone.

Putin might be suicidal (he was not before, but who knows, people get senile and mental with age). However, people around him are certainly not. Russian nuclear rhetoric has been toned down recently, after the US and NATO made it clear that Putin and the Russian government will be immediately targeted if the nuclear weapons are applied. There are missiles that can penetrate any bunker. Using nukes is a one-way ticket, and everyone from the Russian side is realizing that. Even if Putin gives such an order, it will not be followed through.

My personal feeling is that Putin's days in power are numbered. I do not know how it will happen, but he managed to **** off everyone, both in the Russian elite and in the outside world. Self-preservation will prevail.

The main price driver is the Russian-Ukhrainian conflict. My thesis is that the current FXPO price does not reflect the actual status quo. Let's look at it closely.

At this point, the military experts have realized that the Ukraine is winning the war. Russian advancement is stopped. The Ukhrainians cannot start counter-offensive until they get heavy weapons and trained personnel. This will arrive to the front line in June. Time works against the Russian army now, they are running out of missiles and ammunition, while the Ukhrainians get better equipped each day. What does it mean for FXPO?

1) There is zero chance FXPO assets are captured and expropriated by the Russians at this point;

2) There is zero chance that FXPO assets are expropriated or overtaxed by the Ukrainians - they applied for the entry to the European Union, after all. They will respect private property and the law.

3) There is zero chance that the FXPO site is targeted by long-distance ballistic missiles (as some speculated in this chat) - there is no military or economic sense in doing so, as I explained elsewhere.

4) Russians are not in position any longer to bomb railway infrastructure FXPO is using (and this was not efficient in the first place, as the Ukhrainians repaired it faster than it was bombed) - so FXPO railway delivery logistics is not at any risk.

5) The only problem is that the Russains are still in control of the Black Sea ports - but this is only temporary.

In conclusion, the substantial current "war premium" in FXPO price is not warranted, and the market is likely to realize that in the next 1-2 weeks. I am happy to get the most of these shares at P/E close to 1. We will not see it again.

I'll be grateful if you criticize the thesis above, thanks.

From a military perspective, there is no point spending precious rockets on this mine. It would be just a short-term economic damage (with the missile costs higher than the damage) with no military significance.

Too busy, loading more. :) I find it very funny. P/E is close to 1, Ukraine is close to launch offensive with all that American weapons arriving, and kick the Russians out of the country or force them into submission. Iron ore futures are still much higher than last November. This looks like an opportunity of lifetime to me. What am I missing?

Anyway, there is now zero chance that Russian troops will get to the FXPO locations. They could bomb it out of spite, but I am pretty sure they would use their remaining ballistic missiles for worthier strategic targets. Either it is not likely Russians will bomb railway targets.

@Mayweather You are right, the formal piece treat may never be signed (like it has never been signed between Japan and Russia since WW2), but I expect a ceasefire in the next 2-4 weeks. And I expect the hot war not to resume for the next 3-5 years. Main reason is that Putin is in a fairly untenable situation right now. He lost the war, and perhaps he already realized that the planned offensive in Donbass has zero chance to succeed. (It is currently postponed for two weeks due to the mud terrain, while Ukrainians are getting heavier weapons and mobilizing more troops). If Putin waits long enough, he risks to lose all the Donbass and Crimea. So Putin is looking for piece while thinking how he could save face internally. On the Ukrainian side, there is a lot of division. Far right forces want to fight until the end (i.e. until Donbass and Crimea are taken back). Luckily, Zelensky's office is more moderate/centrist, and my optimism was raised when Zelensky's adviser made a slip suggesting they will be content if Russian forces retreat to status quo ante on 23/Feb. Putin has no other choice, and the referendum on this in Ukraine is likely to yield approval. Putin still has a room for maneuver in claiming victory by destroying nationalistic forces and "forcing" the Ukraine not to join NATO (which Zelensky acknowledged). He can also send 20-30 generals and gov officials to prison as traitors and scapegoats.

Even if this scenario does not materialize (Putin being irrational), there will be gradual exhaustion and ceasefire de facto. There are no more resources from the Russian side to continue this war. The Russian economy is likely to crash completely in mid-summer if sanctions are not lifted. (The US gave Zelensky authority to lift Russian sanctions as negotiation leverage).

What's the second biggest driver (principal component math people would say) for FXPO, after the Russian-Ukraine war outcome? Iron ore price? From the one side, the Fed has to crash the markets to tame inflation. From the other side, that will take time, and Feds might not be successful right away, so we could still see commodity prices going to the Moon in between. What would be your price target after the piece treaty is signed?

It seems that HSBC Investdirect stopped accepting buying orders for POLY and POG. One can still sell there. FXPO orders are accepted, so it is probably Russian-related. Do you have the same experience with other brokers?

"I would imagine they sell their gold in US$ to China and India - not Renminbi or Rupees" - China and Russia already reached an agreement to avoid USD in their bilateral trade relationship.

jezzahold, I think there is indeed a return for Russia, not to the pre-1989 world though, but to 1937-38 when Stalin executed 20 millions of his own people. That is the only way for Putin to keep his power, after losing the battle for Ukraine and facing internal dissent. Changes will happen gradually, but the direction is clear. Not being a Jeremiad here, just do not like gambling. Happy to reconsider if it goes the other way.

jezzahold, that Duma's decision is just the first step. Other steps will follow logically and inevitably. Let's think a bit about it.

No one in his/her right mind will invest in Russia in the next few years. So, what's the point for the Russian government/parliament/etc. to keep playing by the rules and pretend to make the country attractive for foreign investments? Why would they allow to move any profits from any Russian enterprise to Cyprus or any other country abroad while these profits are badly needed home?

My vision is that in the next 1-2 months any enterprise on Russian soil will be obliged to pay profits to Russian shareholders, or will get nationalized. Maybe there will be exception for "friendly" countries, like India or China.

If you owe a Russian mine selling gold to, say, China, you will be obliged to sell the proceedings (yuan) to the Russian central bank against rouble.

We will see how this plays out and what form it takes. I am not an expert in Russian legislation, but I trust common sense.

Happy to be proven wrong.
Have a nice weekend.

600LT, I had similar thinking to yours until I read the bloomberg article below and learned about Bucha (and now Kramatorsk). Yes, POLY is a good business, but how would you profit from that if, for all intents and purposes, the Russian part of the company pays dividends only to the Russian residents, i.e. nationalized? On the other hand, after Bucha, there is no way "to normalize" things back like it happened in 2014. Let's be honest about this, if no miracle happens (Putin dies?), Russian assets are lost.

https://www.bloomberg.com/news/articles/2022-04-06/russian-lawmakers-to-ban-stock-listings-on-foreign-exchanges

Trading on foreign exchanges will have to stop 10 days after its official publication. Russian companies will lose their ability to remit profits abroad.

https://www.bloomberg.com/news/articles/2022-04-06/russian-lawmakers-to-ban-stock-listings-on-foreign-exchanges

Kiss Russian assets goodbye. Next step is to ban non-residents having Russian stocks. But anyway, what would one do with roubles in Gasprombank account? :)

I hope it will turn.