12/17/2014
By Charles Payne, CEO & Principal Analyst

What is happening in Russia could be karma, after the way they have bullied themselves around; first in Georgia and most recently in Ukraine. That being said, a wounded Putin is probably more dangerous than one barking about old borders and the west.

On that note, some are wondering if this is like the Russian Flu, the crisis in 1998 that saw a series of political issues and global economic woes push the country into a debt default- even after a financial package from the International Monetary Fund (IMF).

This time, Russia's debt is relatively low and they have large foreign assets, including $108 billion in US Treasuries. However, instead of an economic contagion, the question is should the west worry about military retaliation? It will not happen now, but Putin has begun an aggressive campaign to modernize Russia's military capabilities by focusing on combat readiness.

The move has the approval of the Russians, (even 44% are okay with the buildup at the expense of a hit to the economy, versus 41% who oppose).

By 2020:

• 1,000,000      Active soldiers
• 2,300            New tanks
• 1,200            New helicopters and fighter jets
• 50                 New surface ships
• 28                 New submarines
• 400               New intercontinental ballistic missiles

I will say, however, Putin seemed to have blinked, allowing the central bank to go to a 17% benchmark rate; he has never been shy of overplaying his military cards.

The 1998 Russia Debt Crisis was actually aided by a series of events that included massive changes in government, a bailout, and interest rate hikes; (try 150%).  This was all in vain, as Russia plunged into a debt default.

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Charles Payne
Wall Street Strategies

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