Today's video was made possible thanks to Masterworks.
STAGFLATION: I'm sure you hear this word all the time.
A dangerous cocktail of high inflation
coupled with unemployment and a slowdown in economic growth.
With inflation soaring to 7, 8, maybe even a WHOPPING 9%, the threat of stagflation is real.
And how can we protect our savings in the face of this unstoppable stagflation? Well,
there is no one simple answer, but diversification always seems to be
one of the most sensible options in terms of protection. And as J.P. Morgan recently
pointed out, alternative assets are here to stay in this diversification process.
And what better example of an alternative asset than the art market?
This is where Masterworks comes in. Masterworks gives everyone
access to a market that was previously inaccessible to the average person: art.
Here's how the process works:
Masterworks' analytics team studies thousands of pieces of data to find
financially attractive works with appreciation potential.
They then buy them for amounts ranging from $1 million to $30
million and securitize them by filing an offering circular through the SEC.
Finally, they hold the work for 3 to 10 years until it is sold.
But is art profitable? Well, this market has appreciated by a not
inconsiderable 14% in recent years. In fact from 1995 to 2021 it achieved better data
than the SP 500 including dividends. But be careful, it’s very important to remember:
nobody can predict the future, and past results do not assure future returns.
If you want to take a look at Masterworks for yourself,
here is a link that will allow you to skip the waiting list.
And, as always when it comes to investing: be very careful,
there is no such thing as a risk-free investment.
—-
Missiles that fall down randomly, fighter jets that cannot fire because they have no ammunition
and soldiers fed with expired food... you could be mistaken for believing that this is the plot of a
"Hot Shots" style comedy but, in reality, we are talking about the Russian invasion of Ukraine.
For years, we all thought that Russia had an enviable defense industry. Yes,
it's true, the Russian economy is nothing to write home about.
This is a country incapable of exporting high value-added products such as cars,
cell phones or software... but the defense industry was the jewel in Russia's crown.
To give you an idea, Russia has between 2.5 and 3 million people working in arms manufacturing. That
accounts for 20% of the country's industrial jobs. In other words: it seemed that armament was the
exception that proves the usual rule in Russia. The only industry that was really working.
This is what Putin showed us every year at military parades. Every 9 May, Russia
celebrates the victory in World War II or, as they say in Russian, the "Great Patriotic War''.
Moscow's Red Square fills with people to see their army's newest weaponry. Incredible
Sukhoi Su 34 fighter jets perform aerobatics, modern Armata tanks roll through the streets,
and the whole world shudders as Putin shows off his nuclear bombs in front of the Kremlin.
Yes, VisualPolitik fans, we all thought Russia had the military muscle to be
able to take over Ukraine in a matter of days. However: the real way to test a country's military
power is not in a parade but a war. And with the invasion of Ukraine we are seeing something
that has become the norm in the Russian economy. Something like an Expectation vs Reality meme.
N1(US assesses up to 60% failure rate for some Russian missiles, officials say - Reuters)
Yes, VisualPolitik viewers, after a month of the Ukraine invasion, we can say it clearly:
Russian armament falls far behind the expectations and hype they had created. And this is a surprise
because, since 2008, Putin's main priority has been the modernization of his army.
Remember that we are talking about a country that has been spending more than 5% of its
GDP on defense for some years. As a comparison, Germany has just announced that it is going to
spend 2% and it seems to us a historic measure. In other words: Russia has poured all its
resources into improving its weaponry. It is true that no one expected the Russian arsenal
to surpass that of the United States. But, compared to any other country, Russia appeared
to be in the military vanguard. However, we are seeing that
this armament is a real disaster. You could say: Russia has spent billions
of rubles in manufacturing weapons that have turned out to be... nothing more than rubble.
The question is: Why? What on earth has gone wrong with Russia's military industry?
Why, despite investing so much money, does Russia maintain such an obsolete arsenal?
Today we are going to answer these questions but first.... Would you like to receive exclusive
VisualPolitik merchandising? Products that are not for sale anywhere! Well..., now you can.
The only way to get our merchandising is to be part of our PATREON community.
If you support us on Patreon at tier 4 or above, you will not only get merchandising but you will
also receive our weekly political analysis newsletter as well as a lot of additional
content and topics that we can't cover in our VisualPolitik videos. If you want to
enjoy all this content, see you on Patreon. And now, let's take a look at some history.
1(CAPITALISM WITHOUT PRIVATE COMPANIES)
What is the most famous assault rifle in the world? Exactly! The AK-47,
better known as the KALASHNIKOV. As you probably all know, the Kalashnikov is of
Soviet manufacture. With such an icon of the defense industry, many of you would think that
the Soviet Union had a world-class arms industry. However... the reality was quite different.
Almost every weapon in the Soviet arsenal can be summed up in one meme:
there is a world of difference between "Expectation versus Reality”.
The Soviet military industry was full of unprofitable State enterprises,
obsolete factories and, above all, a great deal of corruption.
You see: in the United States, there is an alliance between government and
private companies. We have told you about it several times on VisualPolitik. There
is the example of the F-35: Washington needed to renew its fleet of fighter jets.
Well, broadly speaking, they held a tender in which several private companies submitted bids.
In this case, the main candidates were BOEING and LOCKHEED MARTIN. In the end,
Lockheed Martin won the competition and was awarded a contract worth millions of dollars.
Of course, this system has its problems. Private companies want
to maximize their profit. That explains the spiraling cost overruns on the F-35.
We are talking about more than $400 billion dollars that have come out
of the US taxpayer's pocket to swell the bottom line of a private company.
Of course, there are many aspects of this system that we can criticize. But, with all its problems,
this system has made American companies capable of developing the most advanced
weaponry in the world. It is the result of decades of competition between companies.
Soviet communism was based on the opposite idea: the entire economy depended on the State.
Defense was based on State monopolies. The results are there for all to see.
But I know what you are thinking, [Host]! The Soviet Union disappeared 30 years ago!
Russia has abandoned communism. And nobody in their right mind would say that Vladimir Putin
is a die-hard communist. And yes, you are right. For decades, Russia has been in a system that has
very little to do with the Bolshevik revolution. Even so: Russia has never embraced free market
capitalism. We have talked about this a thousand times on VisualPolitik,
although Russia abandoned communism decades ago, it still maintains a highly centralized economy.
The State still maintains a pivotal role in all industries: and that includes, obviously,
armaments. And yes, you are right. The question is, what is the problem:
is it really so important that weapons are manufactured by private companies?
How can a country's entire military arsenal be modernized without competition between
companies? Well, we are going to look at that right now.
2(SILOVIKI THINKING) I know what many of you are thinking:
if you want your companies to be competitive, the best thing to do is to privatize them so that
they can compete with each other, right? This is what free market economic logic would say.
But Putin's Russia has a very different logic. According to Vladimir Putin, the problem with
communism was not the centralized economy but an economy based on ideological principles.
In other words, if you want to improve the efficiency of the system,
it is enough to change the managers and put technocrats in charge.
Technocrats who have been forged in the bosom of the KGB and who have a pragmatic mentality,
totally free of the romanticism of communism or any other ideology.
This type of person has a name: "SILOVIKI". And so, just what was
Putin's formula for bringing his military industry into the 21st century? Very simple:
to put silovikis in all managerial positions. This is how ROSTEC was conceived in 2007,
a conglomerate of companies designed to be the great umbrella of Russian
defense. Under this umbrella are more than 700 armaments companies: all of them State-owned.
By grouping companies together, a lot of duplication can be eliminated. All following
purely technocratic criteria. And who is the CEO of ROSTEC? None other than SERGEY
CHEMEZOV, who was a colleague of Vladimir Putin himself when they were both in the
KGB offices in East Germany. In other words, a textbook SILOVIKI.
And you will ask, so has Rostec really managed to eliminate costs? Well, yes,
it has. To give you an idea, in 2008, all the companies under the ROSTEC umbrella
had a combined workforce of 788,000. In 2014, there were only 443,000 workers.
Since its founding, ROSTEC has not stopped absorbing all kinds of arms companies. It has even
allowed private capital to enter some of Russia's major arms companies. Let me give you an example:
the makers of the legendary AK-47. A massive 74% of JSC KALASHNIKOV CONCERN is in private hands.
However, ROSTEC's expansion has a problem. By acquiring more and more companies,
ROSTEC has ended up consolidating even more monopolies. For example: fighter jets.
The United States works with four major manufacturers: Boeing, Lockheed Martin,
Raytheon and Airbus (Yes, Airbus is European but it also has contracts with Washington).
In the case of Russia, practically all fighter jets are manufactured by the same company:
UAC which, of course, is under the umbrella of ROSTEC.
And you will say, is it really enough to put a siloviki at the head of a monopoly to make it more
competitive? Well, judge for yourselves. Another major Russian defense company is ALMAZ-ANTEY.
This company does not depend on ROSTEC but is directly owned by the Russian Ministry
of Finance. The CEO of this company is another textbook Siloviki. In this case we are talking
about VIKTOR IVANOV, another former KGB agent.
Almaz-Antey is the giant where NPO Novator,
the manufacturer of almost all Russian precision missiles, is located. Yes,
those very missiles that are proving to be so flawed in the invasion of Ukraine.
And the truth is that none of this is much of a surprise. To give you an idea,
in 2017, NPO Novator could only produce 60 KALIBR missiles in six months.
As you can imagine, these figures are ridiculous if we take into account that,
in just one month of war, Russia has launched more than 1,200 missiles.
But aren't there any private companies in the entire Russian defense complex? Well,
yes, there are. For example, do you remember the expired cans of food supplied to the
soldiers at the front? Well, pay attention. N2 (Navalny Unmasks a Cartel Allegedly Earning
Billions in Russian Defense Deals - The Moscow Times)
Guess which cartel we are talking about! That's right, it's a network of catering companies
owned by YEVGENY PRIGOZHIN, who, surprise, surprise! Is a personal friend of Putin.
This fine gentleman is a chef who owns restaurants and catering companies. As Alexei
Navalny reported, Prigozhin dodged all public tender systems to become the army's caterer.
Today, Navalny is in jail and Russian soldiers are receiving expired cans of food.
And the question many of you must be asking now is: Hang on,
you said that the missile factory was only capable of producing 60 precision units in six months.
But Russia has launched more than 1,200 missiles on the battlefield:
how is that possible, where did they get so many missiles from? Well, we are going
to explain that right now. 3 (THEORY VERSUS REALITY)
The question on every military analyst's mind at the moment is....
How is it possible that Russia has not been able to achieve air supremacy? That is,
how is it possible that Russia has not been able to destroy all of Ukraine's
anti-aircraft defenses, so that Russian fighters can bomb without any problems?
Think about it: Ukraine has only 134 fighter jets,
and they are all from the Soviet era. Russia has almost 1200 fighters,
300 of which are ready to attack Ukraine. We are talking, moreover, about modern fighter jets.
Remember that Russia has invested billions in modernizing its military,
and that includes the air force. There is, for example,
the SUKHOI SU-34. These fighters are bombers that came into use in 2008.
On paper, these fighter-bombers would rival the F-15E of the United States.
We could say that they are one of Russia's best fighters.
The problem is that they barely have enough precision ammunition to shoot. It may sound
ridiculous. But all the data indicates that Russia does not have enough precision munitions
for this war. It may come as a surprise to you, but precision missiles? They have a shelf life!
That’s right. Each one of those missiles fired by an aircraft has a life span of 10
to 15 years. That means, if you want to go to war,
your weapons factories had better be manufacturing at full capacity. However,
as we've already seen, Russian factories have a lot of problems with mass production.
Well, these late-model Sukhoi Su-34s... have been firing conventional ammunition. What
we might call "dumb bombs", that is they fall where they fall. That could explain
such terrible news stories as this. N3 (Three dead as maternity hospital
hit by Russian air strike - BBC) Think about it: attacking a maternity
hospital is not only an atrocity. It is also a tactical failure. The
objective of an attack is to destroy enemy defenses. Killing children in a hospital,
besides being savage, serves no strategic objective.
Put another way: this attack is not the fruit of an evil general who wants to kill children. It is
the result of not having precision missiles. But we're not just talking about poorly planned
attacks! Having few precision missiles poses another problem for aircraft:
it forces them to fly low. And, as you can imagine, if a fighter jet flies low, it becomes
an easy target for any anti-missile cannon. N4 (The Russian Air Force Is Losing Its
Best Jets Over Ukraine – Forbes) Exactly! Russia's best planes are
dropping like flies because they don't have adequate ammunition.
Something similar has happened with tanks: Russia has already lost more than 400 tanks in this war.
What’s more, we are seeing how even the logistics are being done with
civilian trucks. All this explains why the invasion of Ukraine has left
us with images as comical as this one. And I know what many of you are thinking:
Let's get this straight, [host]! Are you really saying that the Russians are stupid and have
gone to war without ammunition? Well, no: the problem is not that the Russians are stupid.
The problem is that a political system with bad incentives generates nothing
but failure. We have said it more than once on VisualPolitik, the Russian economy is
designed so that no business can get out from under the control of Putin and his elites.
In that sense, Russia is totally efficient. However, when it comes to innovation,
the Silovikis are incapable of generating results. So once again
we find that there is a world of difference between Siloviki expectation
and Reality. And the truth is that it is not the first time.
Do you remember the Russian vaccine against the coronavirus, the famous
Sputnik V? (((PRONOUNCE THE "V" AS "VEE")))) On paper, the vaccine worked. That is,
the design and the formula were correct. I don't know if you remember, but, at the time,
there was a worldwide debate about the effectiveness of the Russian vaccine.
Today, no one is talking about this vaccine anymore... and it
is not even approved by the WHO. In other words, it is very likely
that the Russian defense industry is full of cases like the Sputnik V vaccine. We are talking about
combat fighters that, on the drawing board, are technological prodigies but have no ammunition.
Late-model tanks that cannot be mass-produced because there are no factories available.
Precision missiles that are not as accurate as they appeared to be. And
so on and so forth of failed projects. For years, Putin's entourage has been
hiding the flaws. But now that we are seeing the effectiveness of these weapons on the battlefield,
we are seeing that all the assumptions we had about the Russian economy are true.
Now only one question remains... and I leave it for you to answer in the comments.
What about Russia's nuclear weaponry? We all know that Russia has the largest nuclear arsenal in the
world. Putin has even threatened to use it. The question is, does it really work?
What if many of those warheads are out of date? Are those intercontinental missiles really as
effective as the Kremlin claims? Of course! None of us want it put to the test, but...
What do you think? Is it more Russian hype? You can leave me your answer in the comments. As
always, don't forget that here on VisualPolitik, we release new videos every week so subscribe to
this channel and hit the little bell so you don't miss any of our updates. If you liked this video,
LIKE it and see you in the next one. Take care and see
you in the next video.