Transcription
Everyone loves a winner. That's true in high school and on the world stage. But what happens when the star quarterback gains 50 pounds, gets cut from the team, and gets really into anime? Well, the answer is his friends start to bail on him.
Well, Vladimir Putin seems to be suffering from the same problem as the strong, capable Russian empire that everyone wanted to be friends with is suddenly getting snubbed right and left. But the market has even worse in store for Putin. Stick around to the end and we'll talk about all of it.
Okay, so this seems like a pretty innocuous story. Kazakhstan's president, uh, Tokayev, has urged Putin to freeze the Ukraine war. And these are literally comments that he said to Vladimir Putin's face. During the 22nd Russia-Kazakhstan International Regional Cooperation Forum on July 25th, the Kazakh president urged Vladimir Putin to freeze the war in Ukraine and return to the "Istanbul 2.0" negotiation format. Tokayev compared the conflict unfavorably to historically rooted tension between Azerbaijan and Armenia, stating that the war in Ukraine must be stopped because its continuation serves the interests of Russia's adversaries. He also referenced the August 2025 meeting in Anchorage and praised Putin's political flexibility.
Now, nobody's really sure what the Istanbul 2.0 framework means. Uh, but what I thought was, this is less about the actual comments themselves, right? Here are a couple of quotes. "Maybe this conflict should already be frozen and we should return to the Istanbul 2.0 formula, as significant results were achieved there." He continues, "Naturally, under the guarantees of great powers, including Russia, to move further along towards a long-awaited peace." Uh, he also said, "The conflict, the nature of the conflict is not entirely clear to many, including Kazakhstan." He also, uh, contrasted it with the Azerbaijan-Armenia conflict, which he described as having clear historical roots, and that the current war is much harder to understand. He continued, "All this needs to be stopped. The opposite plays into the hands of the opponents of the Russian Federation." [snorts]
And I think this is really interesting, this point particularly, which is that "I don't understand why this is happening." Where he says, "Listen, Azerbaijan and Armenia, Azeris and Armenians are in conflict. They are distinct ethnicities that have long bloody histories." And he said, "Listen, this conflict doesn't have historical roots that even me, as the president of a Central Asian power, has cannot understand." And this is really, really a huge FU to Putin. Because remember, for Vladimir Putin, particularly within the Russian-speaking world, one of his core propaganda points is that this is the righting of a deep historical wrong, a transparent one. Remember, Alexander Dugin has said explicitly that Russia is the rightful dominant power. They have a right to dominate Ukraine. That it is, that Ukrainians are actually just Russians who've gotten some crazy ideas about statehood in their brains. All of this is something that Putin has propagandized to his people. And so, in an official, staged, managed event, in front of the cameras, a president, not just a president of a European country where you would expect Vladimir Putin to get some criticism, but a president of a country within the CIS, within Russia's sphere of influence, is telling him to his face, "Hey man, all that stuff you said about the historical roots to this conflict, it's all, it's all BS."
Remember when Vladimir Putin sat down with Tucker Carlson? For about 90 minutes of the interview, 45 was spent just on the historical roots of the conflict. And that is how significant this is to Putin and how significant it is to his propaganda efforts. I can't emphasize this enough. He told it to him to his face. And like, Vladimir Putin's a dangerous guy. I don't know if you knew that about him, but he's killed a lot of people. And he definitely, definitely can kill the president of Kazakhstan if he wanted. And so, yeah, he's trying to like glaze him a little bit, but to sit there and be like, "Hey man, you don't know jack about history," is a pretty big FU. And to tell him, "Listen, you're making a mistake." I mean, that's also crazy to sit there and tell one of the most fragile egos in the world, "Hey man, you are really [ __ ] this thing up." That's brazen. And again, in public, in front of cameras. Like, that is, for most countries, that is a red alert, right?
But that's not the only example of key Russian allies sort of cutting and running. China has actually politely declined to supply equipment for Russia's North Sea Fleet route. This is really interesting because Russia is so, Russia, in order to project power into the Arctic, which is really important to Russia, uh, particularly along the North Sea, which has some key oil and shipping routes, Russia needs icebreakers. And icebreakers, guys, are not easy to build. In fact, the United States of America, with our massive, massive defense budget, I think we have zero icebreakers. So, obviously, when Russia needs them up and running, it goes to China. And the fact that China has said, "Listen, man, we're not going to help you." That is a pretty big FU here. And it's interesting because the North Sea route is not something that is necessarily all that important to China. And it is again along Russia's Arctic coast, uh, cutting the travel time between Europe and Asia by 40% and bypassing the Suez, which is pretty interesting. And the fact that even though this represents an opportunity to sort of bypass the Suez and improve travel times between Europe and Asia, you've got, uh, Russia, China being like, "We're not going to help you do this. What are we stupid?"
And this is kind of interesting, right? Because China said, "Listen, we can't do it because of this, the current sanctions pressure." Well, too many of our key shipbuilding industries are going to get hit with sanctions if we provide your military with the capability to build icebreakers. Now, this is interesting for a couple of reasons. Notably, because a bunch of other Chinese factories provide Russia with way more dangerous dual-use military gear than this. But what is the real takeaway here is, I think there's a theme. There's a message. And the message is that Vladimir Putin is a loser, just like that high school quarterback. Right? If you go from being the star quarterback of your high school team to being unable to complete a pass to save your life, you're not just going to lose friends, but you're actually going to lose prestige. You're going to lose the deference that people give you. And it's not because they're not realists, right? It's not because they don't like you. It's because they can't get something from you. Because remember, if you want to understand international politics, understand it as simply self-interested people. These people, the president of Kazakhstan, Xi Jinping, President Trump, they all have conceptions of what is self-interest. What is best for them, right? So, for someone like Vladimir Putin, controlling territory is an incredibly important metric for self-interest. Controlling territory and dominating people in a direct sense is a representation of self-interest. For President Trump, self-interest is represented mostly by his own personal enrichment and, to a lesser extent, the his ability to project power onto people he perceives as enemies. Right?
But when you understand this, this is the frame by which interest is conceived, you end up realizing that all these countries, though from different frames, are realizing, coming to the same revelation. The president of Kazakhstan, who again is Russia's neighbor, is seeing something very, very different than he did at the start of the war. And Kazakhstan has sort of been kind of mealy-mouthed. It's tried to sort of play both sides of this conflict. It gave Ukraine a little bit of aid. It didn't condemn the Russian invasion, but it also didn't recognize the breakaway territories as independent states, which is not really that big a problem now because they're technically part of Russia, which Kazakhstan does kind of recognize. But large Russian companies kind of operate within Kazakhstan. They're kind of back and forth. But these are countries with significant military cooperation and, most importantly, guys, a lot of ethnic Russians in the northern part of Kazakhstan.
But the Kazakhstani president realizes that by pushing back against Russia, he is moving from being in the orbit of Vladimir Putin to scoring points and opportunities with the orbit of countries that are pro-Ukraine. And this is really, really interesting. This is a really, really interesting conception of self-interest because despite the fact that there is extensive military cooperation between Kazakhstan and Russia and almost no military cooperation between Kazakhstan and other countries, you are seeing Kazakhstan, like, move in a different direction. In this direction of, "Hey, I think we actually stand to gain a lot more by being open to the West." And it's not, and more importantly, it's not that scary to tell off Vladimir Putin. That's the other thing. Because remember, we talked about Vladimir Putin's ability to literally kill people, and that's true. But it's also scary if you're a country, particularly a country that has a lot of dependency ties on Russia. You say, "Listen, it's really scary to lose the access to Russian markets." Remember, Kazakhstani oil gets sold to Russia. Kazakhstani, um, workers often work in Russia and send remittances home. These are important tools and lever points that Russia could use to damage Kazakhstan.
But in the Kazakh president's calculus, he says, "You know what? Russia is so economically weak, I don't think there's much of a future." And I don't think Russia is going to pull any of those levers. They need, Russia is dependent on Kazakhstan in ways that are, that Kazakhstan is not dependent on Russia. And Kazakhstan stands to gain more by actually becoming more combative to Russia. And there's, there's two things that this could result in. One, he could be using it to negotiate better terms. He could say, "Listen, man, the West, they're really friendly to us. We're really supportive of Ukraine. We start to sound like your enemies. You know, it would be a shame if Russia lost another satellite state like Kazakhstan. You should probably improve your trade deals, uh, pay more for our oil, um, major companies put their infrastructure in Kazakhstan, something." Or else he says, "Kazakhstan is just going to go to the West."
Or he could literally be like, "Russia is a loser. The Russian state can't do these things. The Russian state can't engage in military cooperation with us because they're too militarily tied up." He could say, "They can't give us robust economic assistance because the Russian public can't get robust economic assistance, or because we know your budget. Your budget is transparent. We know you don't have the money for this." And so he says, "Listen, you know who does help out Ukrainian allies? You know who does stand and make a lot of money? Is it, is it countries who band together in support of Ukraine? Certainly, Kazakhstan would way rather sell its oil, its gas, its agricultural products. Would way rather sell those to the West than to, you know, then to Russia. Again, nobody wants a single buyer."
And China, I think, is seeing similar calculus take place. Again, for someone like Xi, he says, "Listen, he literally says it. It's not like speculative. He says, 'Listen, the West, it's really important to keep good relations with the West and access to Western markets because the Russian market is looking invalueless to us economically. Your country is in terrible shape.'" And we'll take a look at how in a second. But he says, "Listen, why would I risk getting sanctioned by these rich countries where I can set that will buy a lot of my stuff in exchange for assisting a broke loser, right? Why would [snorts] you know, why would the cheerleader captain go to prom with that loser who used to be the quarterback when it means that all her friends would stop talking to her when she could go with, I don't know, the running back and still have all her friends talk to her? She goes, 'It's a no-brainer, Khan.'"
So now, before we talk about just how rough it is, if you were the Russian economy, you would need some kind of energy boost, right? And you know, maybe that quarterback gained 50 pounds because he was drinking too many of these energy drinks, tons of sugar, 90 mil, you know, 90, maybe 100 milligrams caffeine if you're lucky, right? Well, what he needs is an alternative, something to give him that same surge of energy without all that sugar and not dropping five bucks a pop because then you can afford to take your cheerleader girlfriend on nicer dates, right? It all works out. That's why we made Strike Gum. Strike Gum is veteran owned, made in the USA. Each piece of gum contains as much caffeine as this, but it has zero sugar, so it's not going to screw up your diet. And let's be honest, this isn't for the high school kids, but it is used by athletes, uh, by streamers. In fact, so actually probably more people have chewed Strike Gum and watched anime than have ever won a high school football game, which I'm fine with, actually. I love Cowboy Bebop, and football causes brain damage. So go to strikegum.com, get yours today, pick it up, and of course, you can get it on Amazon.
So remember, we talked last week about the fact that Russia got another FU from the international community because the Russian government debt, no one is buying it, right? Russia's government bonds, known as OFZs. Russia said, "Listen, we'll sell debt at 15, 16%, but no more than that." Right? I think 16.5% is the most. Well, the market, international financial markets, including those in China and probably Kazakhstan, said, "Listen, we're not going to pay you more. We need, we need more interest. You are a risky borrower. You are as subprime as subprime gets." They said, "If you want us to loan you money, you are going to have to pay 17, 18, 19%." Nobody really knows. And Russia needs more money than ever because what normally funds their government, oil revenues, well, something keeps blowing them up. Someone keeps sending these drones and blowing up Russian oil refineries. Poor guys.
And so already, Russia got a factual, concrete FU from all these international financiers. But what can Russia do about it? Nothing. All the only tool they could use is to take their toys and go home. They literally can't afford to pay this. And I, I'm going to show you this. This is from TradingView. Uh, but I'm just going to read you TradingView's statement about the Russian bond market. Now, you may now, I'm going to point out that the according chart, the Russian bond market has been dropping considerably, but it is almost certainly dropping because Russia has said, "We will not be selling anything above, we will not allow this to crest 17%." So they've said, so probably the people buying this now are like Russian banks, right?
"Quote, this is from Trading Economics. Quote, the yield on Russia's 10-year rose past 16%, its highest level since February 2025, driven by heavy domestic issuance. This is they've been swiping the credit card a lot and budget uncertainty. We have no idea if they're going to be able to pay. Cut off from international financing by sanctions, the Kremlin relies on expensive local debt to fund its wartime economy. Over the next decade, debt service interest is projected to consume 15% of GDP. Understand this GDP, guys, not 15% of the budget. 15% of all Russian economic activity is going to be paying debt. Defense spending this year is expected to surge by 5 million rubles, 40% above the initial budget. Consequently, the budget deficit widens to six trillion rubles. In the first five months of the year, exceeding the full 2026 target by 60% despite reaching the state debt ceiling. Their parliament, their Duma, rushed through legislation allowing 2 to 3 trillion rubles in borrowing. Meanwhile, the Bank of Russia recently cut its benchmark interest rate to 14.5%, warning that structural primary budget deficits lasting until 2029 could necessitate tighter monetary policy later on."
Literally, even do you know how bad it is when the Russian Central Bank is like, "We are cooked, guys, but we're not allowed to do anything about it." They're like, "We're going to be totally cooked later, but for some reason, someone isn't letting us cut rates now."
As you can imagine, we talked last week or two weeks ago about the Russian stock market, and as you can see here, this is the six-month chart. The Russian stock market has been in literal freefall. Okay. In from March, it was at 28, 2900 rubles for this is their S&P 500, right? 2,900 rubles. It dropped to a low when they canceled the bond sale of 1,900 rubles. Okay? It lost 40% of its value. Guys, this is, this is a 2008-style collapse. That is what we are seeing. This is a government in debt that it cannot service. I mean, 15% of, I mean, you have to understand, 15 cents of every dollar of economic activity that Russia produces will have to go to debt payments. Every loaf of bread that's sold for a dollar, 15 cents will have to go to debt payments, somehow, through some kind of taxation scheme. That's assuming the Russian government, the Russian economy can even grow in those circumstances. It may not be able to. Again, Russian savings completely wiped out. This is, by the way, not inflation-adjusted. Remember, Russia has this year probably 6 to 7% inflation. Previous years it's had up to 19. But we're looking at again, a massive decline in the value of Russian companies. They're basically essentially transitioning to worthlessness. I mean, you can see here's the 5-year chart. I mean, it looks even worse. In October 2021, pre-invasion, it was 4, 4200. So, we're looking at a 50% decline or greater in Russian stock market values. I mean, unreal, unreal numbers. This is truly 2008-level of events. This is probably worse.
Um, you're going to see a Russia that is, it's hard to even conceptualize how economically bad these numbers are, how economically bad the future of Russia is. The incentive for a coup, a full government reimagining is pretty significant because sometimes if you have these kind of coup-type events, a government will say, "Listen, we're, we're actually not the Russian Federation. We're a different government entirely. Those bonds were issued by the Russian Federation, not by the Russian Republic." And they say, "And now that we're a real republic, or now that we're this new thing, we start with a clean slate." Maybe they reissue the ruble. I mean, we're talking the only options are tectonic societal change or complete destruction. Not this year, right? It's not going to be, this isn't something that's going to crush the country this year. Remember, the entire 2008 financial crisis, it was not one day. There was a, there was a worse day, but it was a year-long defeat and it was a decade-long return. That is what this is probably going to look like. This is going to be year 12 to 18 months of pressure cooking all these parts of the Russian economy, and then even if Putin can somehow walk himself away from this, it's not clear that the Russian economy will be able to sustain itself.
Anyway, thanks to Chris, Charles, Kevin, Brent, Andreas, Jim, John, CBC, Leon, Gabriel, Al Brennan, Alfred, Peter, as well as all the tenant here folks. And, uh, by the way, if you haven't subscribed, do so. Cheers.