Glorious Victories of Russian Arms

There is nothing so subject to the inconstancy of fortune as war.

~Miguel de Cervantes

On Saturday, I went to the Donskoy Monastery. Prince Dmitri Donskoy encamped here across the river from a huge Tartar army bent on sacking Moscow. In the morning, he discovered that the Tartars had broken camp during the night and slipped away. To this day, no one knows why. Dmitri was pretty grateful regardless of the reason, and ordered a monastery built on the spot. To the continual credit of whatever force he attributed the victory to – the Tartars never again came that close to Moscow. That’s what I call Mojo.

The monastery has always had a strong connection with the military. In fact, on the grounds today are several remnants of the armored division that the church donated to the war effort in WWII. Mighty noble move, helping out the soviet regime that was pretty intent on crushing religion in Russia.

That’s Donskoy’s other claim to fame – final resting place of the Patriarch Tikhon. Tikhon was head of the Russian Orthodox Church during the Bolshevik Revolution – a particularly bad time to be a Christian leader. He was hounded out of Moscow to the Monastery, where the Bolsheviks seized him during a bloody siege. Long story short – he joined a long line of martyrs for the faith. There’s a wonderful fresco of his story in the gatehouse tunnel entering the monastery.

Anyway, it’s a beautiful place in that partially dilapidated, ramshackle Russian way. There’s a cemetery surrounding the cathedral that’s a jumble of impressive headstones commemorating impressive personages. Despite my mid-Saturday visit on a sunny, warm day I was the only non-Russian anywhere near Donskoy. No tour buses, no chattering tourists wandering through the church. Kind of refreshing, really, given the summer tourist season.

On my way back to the Metro, I passed through a little street market where I noticed a booth selling knives. My kitchen is only sparingly fitted out, which means all I have is a paring knife. The vendor was a kindly older woman. She explained that the knives were from Brazil. But she assured me that they were made by Germans who lived in Brazil. Now, knife-making would seem to me to be a relatively low-tech endeavor that pretty much any post-stone age society would have the means to master. But apparently, just being from Brazil wasn’t enough to vouchsafe the quality of such a product. It also had to be made by those exacting craftsmen the Germans.

Well, I wasn’t really sure she had just said “Germans”. So, in what came across as a skeptical tone of voice, I asked “Germans?” She replied “Yes, Germans. Anyway, I’ll give you a 10 ruble discount on every knife you buy.” Cool. Finally my weak language skills worked to my advantage.

The next day, similarly warm and sunny, I headed to Victory Park – a large complex jointly mourning and celebrating WWII. There’s a large square, a huge obelisk, and a statue of St. George slaying a dragon made of Nazi symbols.

The centerpiece is an enormous, luxurious museum. There’s an exhaustive display of memorabilia of all aspects of the war. There are impressive dioramas of all the major battles of the war. But most incredible are some of the memorial aspects of this building. A darkened hallway with 24 spot lit glass cases. In each, there are tomes of the names of the dead from given regions in the Soviet Union. Each case has a tally printed on it. I couldn’t keep up with the math – I had to read an exhibit that explained that they had stopped counting somewhere around 25 million names. They’re pretty sure its more. At the end of that hall is a hushed, darkened room containing a pieta like statue of the Mother Land mourning her fallen sons.

Even more impressive is the Hall of Glory – a huge vaulted room with the names of all the “Heroes of the Soviet Union” – analogous to our Medal of Honor - inscribed on the wall. In the center is a massive sculpture of a warrior with his helmet and olive branches in one hand, the other pointed to the heavens. Its impressive – and the sight of Russia’s most solemn military ceremonies. A real temple to the suffering of the people.

I sat at a café outside and had a beer. I also had “sooHARiki”, a traditional snack with beer. The word means “dry ones”. Essentially, they’re croutons. Well, not essentially – that’s exactly what they are. Except with russian-style flavors – I had caviar flavored croutons with my beer. Ahhh, lunch.

What Part of “TWEEEET” Don’t You Understand?

Laughter is the shortest distance between two people.

~Victor Borges

I saw a great scene on the street today; one of those rare instants in city life where everyone, despite their schedules and preoccupations and agendas, is briefly united in laughter.

My apartment is right near Nikitsky Gates Square. It is historic and kind of pretty, but not much of a square, really; more like a large intersection of several busy streets. Last evening it got crowded with traffic. A 700 series BMW full of “new Russians” was stuck in the intersection and blocking two lanes of crossing traffic. The traffic cop posted there began blowing his whistle. No reaction from the lady driving the car. She was too busy chatting happily with her 4 passengers.

The cop whistled a couple more times, each time more insistently. Still no reaction as traffic piled up, unable to get past the stranded BMW. Finally, the cop walked over to the car and tapped on the window. Surprised, the driver rolled down the glass. Without a word, the cop put the whistle back in his mouth, leaned in the window and blew with all his might his angriest and longest tweet yet. He still didn’t say a word, and abruptly gestured for the BMW to move. The people in the car were in hysterics. All the pedestrians laughed and applauded the cop. Drivers in surrounding cars laughed and honked their horns.

Traffic patterns resumed quickly, and so did the pattern of life in Moscow.

Na Zdorovie – To Your Health

Here's to alcohol; the cause of - and solution to - all life's problems

~Homer Simpson

You can't be a real country unless you have a beer and an airline - it helps if you have some kind of a football team, or some nuclear weapons, but at the very least you need a BEER.

~Frank Zappa

Beer is quickly becoming something like a national obsession here. In a land where alcoholism is called the “Russian Disease”, that’s not a statement to be taken lightly.

Russia is the 5th largest market for beer in the world. Per capita consumption of ~50 liters per year earns it second place in Europe. Overall, market growth is expected to decelerate to 8% - 9% a year going forward, after torrid expansion throughout the 1990’s.

To illustrate that growth, take a look at per capita consumption trends. In the land of vodka, beer was a very substandard choice of beverage during soviet times. Russian beer was simply awful – I can attest to that personally through my experience in Kaliningrad in 1995. Per capita consumption in 1996 was a bit less than 15 liters. But changing trends, and much better brewing techniques, have changed the landscape for beer drinkers for the better. Much better – domestic beer is quite good. By 2007, per capita consumption is expected to be somewhere between 55 and 60 liters per person.

At the same time, however, Russia’s position as the top vodka consuming nation remains unchallenged. While beer consumption was exploding, per capita consumption of vodka has remained stable at about 10 liters per year. Oh, and by the way; Russia’s population is actually shrinking. It’s a bit of a public health crisis, frankly. And you can see it on the streets - even in the squeaky clean center of Moscow.

Beer is ubiquitous. It’s for sale in kiosks on every corner at any time of day or night. And its dirt cheap; in fact, at about 20 rubles a bottle ($0.65!!), it’s much cheaper than all other beverage choices - including Coca-Cola and bottled water. Moreover, it’s perfectly legal to consume beer anywhere you please – with the notable exception of the Metro. In fact, the garden bordering the Kremlin is a very popular place to lounge around with lots of beers.

Every morning, my commute takes me through Pushkin Square to the Metro stop. I walk through a park surrounded by kiosks and beer gardens (outdoor bars with seating under tents). What’s a pleasant park with a fountain is transformed at some point during the course of the night into an absolute mess. When I walk through in the morning, city workers are sweeping up broken glass and fishing bottles out of the fountain. Drunks, with their perpetual mysterious injuries and puffy, moon-shaped faces, are groggily waking up on park benches or washing up in the fountain. What’s even more shocking is that there are plenty of people – fresh from their homes – drinking beer and sitting on benches at a safe distance from the previous nights leftover drunks. At 8 am. It’s not unusual at all to see a decently dressed person obviously on his/her way to work or school, casually strolling down the street with a beer in hand. Not unusual? It’s downright common.

Moscow city government efforts to stem the public drinking problem are met with furious protest by the population. A proposal for an overall ban collapsed under public pressure last year, and similar ideas to limit areas of public drinking have provoked outrage this year.

In a way, you could call the 10 year boom in beer consumption the most successful political movement since Stalin’s first 5-year plan. After all, Russia fielded a political party called “The Beer Lovers’ Party” that not only met strict party registration requirements – but managed to win representation in the legislative body in 1996. The major plank of the party was to promote beer drinking as a tool for building national consensus. Its slogan was “May there always be something to drink and to eat.”

The Beer Lover’s Party is defunct now, I think. But the national beer blast they sponsored is still going strong.

Izmailovsky and Kolomenskoe – or How I Goofed Off for Two Whole Days and Called it a Cultural Experience

Mend when thou canst, be better at thy leisure.

~Shakespeare (King Lear)

On Saturday, I headed to the Pushkin apartment-museum, a recreation of the place where Alexander Pushkin, Russia’s national poet, lived with his wife for nearly a year in 1831. The building was restored to its original appearance in the 1980’s based on historical knowledge of what apartments looked like at that point in time – there’s no contemporary description of the place. As a result, there isn’t much there that has a personal connection to Pushkin – it’s more about Moscow and its intellectual circle during that era. My favorite was a small room about his relationship with his wife – over whom he later fought a duel and was killed. There’s a particularly touching letter to a friend describing how Pushkin felt the first time he saw her; how his head spun as a result of her astounding beauty. It gives a good impression of her beauty, as well as the beauty of his language.

The apartment building adjacent to that housed Andrey Bely about 100 years later. Bely, a native Muscovite, wrote a novel called Petersburg that is his most famous work. I’ve read it – but I’ve got to admit I wasn’t very familiar with his other work. Regardless, Bely had an interesting project where he drew a colorful chart of his ups and downs – an annotated lifeline that looks like a multicolored electrocardiogram. It was interesting to see what he valued enough to put on the line, and what the resulting color and amplitude were during those times.

Then, I hopped on the Metro to get to Izmailovsky, the largest and most famous open-air market in Moscow for antiques and arts and crafts. I had vague plans to perhaps meet there with colleagues. Unfortunately, I ran up against the changing reality of the Metro. You see, the Metro used to have two stops next to each other called Izmailovsky. The first one has the market right near it. The second is on the edge of Izmailovsky forest, Europe’s largest park. The problem was that the first stop was renamed Partisanskaya. As the train left that station I had a sinking sensation that I should have gotten out there. Instead I got out at the park stop and decided to hoof it back to Izmailovsky. Well, Europe’s largest park is also probably Europe’s most confusing, and I got seriously disoriented in the woods. I emerged from the forest, somehow, further away from my intended destination. After a couple of hours of trekking, I made it to the market and went exploring.

Izmailovsky Market is a sprawling collection of stalls selling all manner of antiques, Russian handicrafts, and Soviet memorabilia; everything from antique icons to fur hats to army medals. It’s a major stop on the tourist agenda, and the sharp-eyed merchants had me pegged as soon as I crossed the gate – each and every one of them greeted me in English as I walked past their booths. It was a little discouraging given my desperate attempts to fit in here. I resolved to return in the fall (i.e. not tourist season) and try to trick all the merchants into believing I’m Russian.

On Sunday, I headed out to Kolomenskoe, a former royal estate on what was once the outskirts of Moscow. It’s on the Metro line, and really easy to get to – especially since my long and bitterly learned Izmailovsky experience taught me to do a little more research on transit prior to leaving the house. The grounds of the estate are beautiful – an apple orchard, a beautiful cathedral, some relocated wooden cabins from the far north of the country – all bordering the Moskva River. The estate slopes down to the river, and provides beautiful panoramas of Moscow. After walking around for a good long time I took a little siesta on the lawn. Actually, I fell asleep with a book on my chest. That was some serious relaxing. But, since I did it in the shade of a 16th century church (built to celebrate the birth of Ivan the Terrible – before he was terrible), I rationalized it as a cultural excursion. I woke up and had a beer and shashlik, the Russian version of shish kebab. Which we all know is just a derivative of souvlaki.

After my experience of being pegged as an American all day on Saturday, it was refreshing to go to Kolomenskoe; there are very few, if any, tourists at Kolomenskoe and the place is populated entirely with Muscovites relaxing the best way they know – strolling, picnicking in the orchard, swimming in the river, relaxing on the lawn, eating shashlik, etc.

Russians have a strong connection with the outdoors. No matter how many generations of a family have lived in Moscow, they feel as if they’ve only just left the countryside. As a result, the forests and parks of Moscow are crowded with people on weekends and evenings.

Of course, small apartments probably contribute to that behavior.

Office Space

Work is the curse of the drinking classes.

~Oscar Wilde

My workspace at Alfa Capital is on the desk for the investment staff; a long table with 5 workstations and 2 Bloomberg terminals perpendicular to the windows looking out over an internal courtyard. The area is very modern (flat screens), and pleasant (good furniture) and quite bright thanks to the windows. All this is presided over by a large, framed photo of Vladimir Putin. The president in mid-sentence, in a blue suit and blue tie, in front of a Russian flag, left hand raised as if in explanation of a point he has just made.

The previous occupant of my space is on maternity leave, and no one really knows when and if she will return. She seems to have left behind quite a bit of personal material, like vacation photos, and quite a bit more junk in the desk drawers; official looking paperwork and typical office detritus. Unfortunately, most of this flotsam is bound to the jetsam with some type of sticky brown liquid – so I’ve learned to stay clear of the drawers after an initial foray to find a pen.

My fellow workers on the desk are an interesting group of characters. Kostya sits next to me, and has a stream of all the pretty girls in the office coming to ostensibly ask him business related questions – which he handles with all the aplomb of someone accustomed to such attention. Andrey, who sits opposite Kostya, is a very keen observer, but quiet - and typically stays quiet for most of the day. Next to him, near the window, is Alexander – or Sasha. He’s the fixed income manager, and he’s enough of a character to make up for anyone else’s silence in any given day.

Like any good hotshot on a trading desk, Sasha has his little quirks – shouting on the phone in an exaggerated manner, etc. But most of all, he’s a master of English four-letter words as well as his native Russian “maht.” Maht is the Russian phrase that encompasses all the aspects of nasty, unpleasant slang that one simply wouldn’t use in mixed company or in polite society. It’s more than four-letter words; it’s a whole secondary language of expressions and terms and idiomatic constructions.

So Sasha, polyglot that he is, swears liberally in all languages available to him. He even mixes them together. A favorite tactic of his is to speak Russian on the phone but leave all the swearing in English. And by virtue of his switching back and forth between the two I feel that I will soon have a better appreciation and vocabulary in this earthy side of Russian. He is the Rosetta Stone as written by George Carlin.

I’m only just starting to get the hang of Russian office etiquette. For example, there’s the formality of greeting and bidding farewell to your colleagues. Upon entering or leaving the office, one must make the rounds and shake everyone’s hand and make personal contact - every morning and certainly every night. This is usually accompanied by some polite well-wishing to your “Dear Colleagues”. It’s kind of nice compared to most US offices where people slowly, and quietly, drift out alone without a word to anyone else – maybe a wave through an office window if someone notices your exit. I've decided to adopt this frequent handshaking into my own pattern of behavior.

Communication Breakdown

Communication breakdown,

It's always the same.

I'm having a nervous breakdown,

Drive me insane.

-Led Zeppelin

The long-running saga of my telecommunications travails continues. My apartment phone is still not hooked up, so we're looking for alternative solutions to DSL to get some internet access.

It all started somewhat inauspiciously. Rachel’s phone rang in class today, and the name displayed was “Lev”, one of the office staff who handles all physical plant issues for us. She answered, but the caller asked for me. She handed me the phone, and I greeted Lev. Only it wasn’t Lev. It was Kirill. Telling me that a man named Igor would meet me at my place at 3pm to install the internet.

Igor came by at 4pm and asked me a battery of questions. Where would I like the internet installed and where do I usually use my computer? The answer to both questions is the living room. Ahh, he said – that’s impossible – you’ll have to place the internet jack in the kitchen.

It’s becoming clear that a standard tactic here is to ask someone’s preference and then reject their suggestion as crazy. While all the time that other person had his own, secret preference. I tried to set up a meeting at 10 am, for example. The response was that we’ll never get everything done if we start so late. Ok, I countered, How about 8 am? That’s ridiculous, of course. Well, 9am? That’s more like it.

Anyway, Igor maintained that, unfortunately, it’s too beautiful an apartment to indiscriminately drill holes in the masonry to install wires. Indiscriminate drilling, apparently, is their standard practice. Instead, we’ll have to run a cable over the roof, drill through the kitchen wall and place the jack under the window next to the radiator. That sounded indiscriminate enough. Of course, no one was prepared to start drilling through walls – so Igor walked around and hypothesized about ideal installations. Hmmm, he said, stroking his chin. Come in through the roof in the hallway, drill through the hallway wall into the closet in my apartment and install a wireless router. I think he saw my Ipod, laptop, and PDA and was trying to impress me. Or wring another $150 out of me. Either one.

The bad news from Igor is that they couldn’t possibly come any earlier than the end of next week. Which is installation-guy code for “at least 2 weeks from now”.

That’s unfortunate, because I sort of wore out my welcome at the nearest internet café. I walked in the other night – one of several nights in a row. The same attendant I’ve dealt with on each visit stood up as I entered, looked me right in the eye and placed a sign on the desk; Technical Break. I stood around cooling my heels for a few minutes, and decided it would be better to wait in the pleasant Moscow evening air than in what, in effect, is the basement of a casino.

As I walked outside, I noticed the attendant lighting a fresh cigarette off the embers of a previous one. So much for a technical break. After the second cigarette, I followed him back inside (at a discreet distance) and when he was comfortably seated at his desk - having slowly taken down the sign, put away his cigarettes, and carefully readjusted his monitor - he looked up at me with a completely blank expression and asked, “What can I do for you?”.

I guess I didn’t react with as much studied indifference as I should have.

So, 2 factors in this little story nag me:

1. I'm still trying to piece together why Kirill used Lev's phone to call Rachel in order to tell me that Igor would be coming over.
2. Is the effort to find a non-telephone delivered internet solution a sign of total capitulation on the possibility of getting an actual phone in a reasonable period of time?

Bizness Lunch

Two of my new colleagues took me out for lunch today to an Italian restaurant near the office. I learned quite a bit about the Russian equity markets, asset management, and my new firm.

The whole universe of publicly traded stocks here numbers somewhere south of 200 companies. We talked about the degree of concentration in the market, and its implications for liquidity. The majority of these stocks trade only rarely and some of the smallest of the small caps only trade once a week – if at all. The bid/ask spreads are huge, until a clearing price somehow emerges. In fact, liquidity is such an issue that it forces funds to hold rather large cash positions lest redemptions force some irrational selling to raise money. Alfa Capital’s newest fund, for example, has a stipulation to counter that problem – redemptions will be honored 3 months after the initial request to cash out.

I talked with my colleagues, Pavel and Kostya, a lot about how this market differs from what I’ve experienced in the US – a large, liquid market with lots of information available equally to all participants. I’ve had similar discussions in NY about what type of efficient stock market we have, if at all. Compared to here, I’ve got to say that the NYSE/NASDAQ looks like an advanced alien life form of perfectly rational beings.

That being said, the index here is up some 12% in 4 days. Oil prices are certainly a boon, but broader news in the economy and market is providing other types of tailwinds. In the telecom space, recent news on long-awaited privatization plans has spurred action, and industrial production and consumer spending figures are boosting other sectors. Positive revisions to government surplus estimates, as well as the initial estimates and nature of next year’s spending packages, are providing hope that current petro-dollars are going to be reinvested intelligently back into the macro economy.

They told me a bit about what research is like in the environment of politician/manager/owners that want publicly raised capital but don’t want to deal with any investors. Here’s a great story. Our CIO went to Bashkortostan, a regional republic in Russia, to investigate some investment idea and an upcoming privatization. He was there to do his due diligence on whether the assets the company said it had actually existed – a rather raw level of research to begin with. Well, the president of the republic – a major shareholder in the concern – heard that an American investor had shown up to poke around a little. He called the management of the company and told them that under no uncertain terms were they to talk to him. The CIO’s previously arranged meetings and field trips all dissolved that day. (By the way, today it was announced that all those oil assets have been sold at a discount to the country's largest telecom company. It's widely believed that the telecom is acting as a financial intermediary for the Kremlin, and will eventually sell the oil assets to the state-owned oil giants.)

Pavel and Kostya maintain that the lack of information makes traditional research activities rather pointless. They are quite adamant about not needing to make financial models, in particular. According to them, profitable action in the market here is driven by information and rumors about who is accumulating, and what that person plans to do. I’ll take their word for it – they understand this environment far better than I will anytime soon. However, I tried to illustrate for them the reasons why it’s important to have financial models and the deeper understanding of a company that building a model creates. After all, with such a small market the funds are going to end up owning the same stocks over and over – and that can only be exacerbated by their current high levels of turnover. They kind of didn’t buy my argument.

Anyway, we had a pleasant lunch – Pavel and Kostya are both really nice guys and have sort of stepped into the role of looking out for me. Pavel is from St. Petersburg, and did his MPA at SUNY-Albany before coming to Moscow and getting into finance. Moscow and St. Petersburg are kind of like NY and LA – the stuff of frequent comparison and jokes. I asked him which things one city says about the other are actually true. He thought a little and said that Moscovites consider people from St. Petersburg to be a bit slow. He agreed – but attributed it to forethought. In St. Petersburg, they think Moscow is all useless hustle and bustle. Indeed, he said, people in Moscow people rarely tend to think out an action before immediately doing it. As an example, he pointed out the terrible traffic and horrendous driving evident on any street in Moscow.

Kostya is a native Muscovite. His parents worked in the foreign ministry, though, and he spent a bit of his childhood and a lot of his school holidays visiting his folks at their postings. Unfortunately, he noted, they were all in Africa (which he bordered on calling “crap countries” a la Borat) so he didn’t think it was much of a positive experience.

Oswego – A Beacon the World Over?

So far, I’ve met three people in Russia who have been to Oswego.

At dinner 2 weeks ago, a friend of a friend noted that he had been to Syracuse when I used it as a point of reference. When I told him that I was actually from Oswego, his face lit up. He works in Aluminum, and as a side trip from an official trade delegation he had visited the Alcan plant in Oswego and met the mayor and other representatives of the town.

Then, I was talking with my boss at work. He had driven through Oswego at Christmas time and noted that a couple of his wife’s friends had gone to school there.

Another colleague at work said that of course he knew where Oswego was. He did his graduate work at SUNY Albany and traveled all over the state.

Just when you think it’s a small world – it gets even smaller.

High Stakes Poker

I had the Fellows over for poker night on Friday. We played for kopeks. There are 100 kopeks to the Ruble, and about 30 rubles to the US Dollar. Lest we forgot ourselves and the betting get too heated, we instituted a 10 kopek limit.

That is to say, that we played for money in increments of $0.0003, or 3/100ths of a cent. With an upper limit of $0.003, or 3/10ths of a cent.

We spent about 300 rubles (or $10) on beer. When compared to the high-stakes wagering, I guess that sort of lays bare the real purpose of the evening.

I don’t know why, but poker got me thinking about capital flows and foreign direct investment. Maybe because at one point my huge pile of shiny kopeks got me to thinking about what I was going to do with all my winnings. Never mind that the entirely of my bankroll wasn’t enough to buy a bag of the pretzels we were munching on – even in Russia the kopek is largely worthless - I was spinning the wheels of international high finance all the same.

(dollars in billions, 1st half 2005 v. 1st half 2004)

FDI $9.3 v. $4.5

Capital Inflows $26.4 v. $14.1

Capital Outflows $32 v. $25.4

Here’s the positive. Despite YUKOS and all those scares about re-nationalization of the economy, foreign direct investment still managed to post a healthy 100% gain y-o-y. And capital inflows (from the private sector) surged 87%. Capital outflows, meanwhile posted a much lower growth rate indicating that more money stayed in the domestic economy.

Here’s the negative. The impressive rise in FDI puts Russia on the international list of nations somewhere around Vietnam. Private sector capital inflows are paltry for a country with 140 million people, and are still eclipsed by capital outflows. There’s little confidence in sending money to Russia, or keeping it there once it gets made.

I guess that's Russia in general right now; shaky but getting better all the time. Oil prices are certainly dealing the country some strong hands. But all good gamblers should be ready to leave the table at any time as soon as their luck turns - for me, that means taking all my kopeks and sending them to Cyprus.

Concentration is the Name of the Game

In an effort to get to know the Russian markets, I’ve been doing a good bit of research during my first few days at work. At first, I was daunted by the prospect of trying to learn a whole new universe, but it’s becoming clear that all you need to do is get a grip on the top 10% of things – or even less. In Russia, that seems to be nearly the whole story.

There are 50 components of the RTS Index, one of the main stock market indices in Russia. The top 4 names account for 58.3% of the total $285 billion capitalization of the market. The top 3 oil companies account for 31% of the index. And this all excludes Gazprom, the state-controlled behemoth – excluded from indices because of the limits on foreign ownership.

But concentration in the economy doesn’t stop there. In 2004, the 23 largest businesses in Russia accounted for 57% of all industrial production. It gets even wilder when exploring who owns and controls these assets. One estimate is that 44 families and industrial/financial groups own or control over 80% of the country’s GDP. No surprise, then, that Moscow’s population of 30 billionaires puts it at the top of the list of cities in the world where billionaires live.

Of course, for a more balanced picture let’s look at the other end of the spectrum. Despite the surfeit of billionaires who no doubt drag up the averages, at year end 2004 the average Russian income was about $310 dollars a month. The average Russian also identified a salary of $1500 a month as “having it made.” At the same time, about 21 million Russians earn less than $86 a month.

Concentration is a powerful theme, and it extends into the political sphere as well. There are 89 Federal Districts in the Russian Federation, each with a governor and regional government. In a new move, the Kremlin has carved out 7 super districts, each with an appointed administrator to coordinate activities between the Federal Districts. Sure. That’s why 5 of the 7 new “administrators” are former Security organ agents, and why about 70% of the staff of this new layer of government is from the security services.

The public’s perception of politics also falls prey to the same phenomenon. When a May 2005 opinion poll asked “Which politicians do you have confidence in?” the answers came back in like this:
Putin 40%
No one 28%
Zhirinovsky 10%
Zyuganov 10%

And the poll allowed you to vote for more than one politician.

With this much power and money concentrated in so few hands, it should make the next election to succeed Putin a very interesting one indeed.

The Real Russian Economy

In a developing economy, one expects a certain amount of graft, bribery, and corruption in the transit of daily life. In Russia, an organization called INDEM estimates that all those came to the tune of $310 billion last year.

Now, you can believe that number or not. On the one hand, it seems a bit ridiculous - $310 billion is about 45% of GDP in 2004. On the other hand, huge amounts of economic activity just aren’t captured in official statistics. In either case, it’s some sort of staggering number – and represents a huge transfer payment from the private to the public sector in lieu of cash taxes.

I have two stories to illustrate the point, but first a little background. As resident foreigners, we have to register our passports with the government periodically. They keep the passport for a few days, and give it back with official stamps. In the meantime, you have a slip of paper to show that they have your documents. It gets a little complicated, however, in that the police routinely stop people on the street to look at their registrations. If your papers aren’t in order, well…

My colleague Jim was headed home one night after a business dinner that turned into late drinks. The police asked for his papers on the street, and then hauled him down to the station. Everyone was polite and happy to see him. When he questioned why he was being held, the captain indicated that he was illegally in the country – that is, his registration had expired moments before at midnight.

Jim had to pull out all the stops and started spinning a yarn about how he was a consultant to the owners of Alfa Bank. The coup de grace was when he insisted on the correct spelling of the captain’s name – so he could relay the information to Putin when he met him next week. The captain suddenly had no problems with the recently expired registration, and handed Jim back over to the arresting officers. He still wasn’t being released, though, and proposed a bottle of vodka to bury the hatchet. They accepted, drove him to the liquor store, and after the handoff of a $15 bottle of vodka - let him continue on his way home.

My colleague Jeff was coming home in the early evening after a trip to the grocery store. Two policemen crossed the street and asked for his documents - which were at the registration office. The policemen weren’t going to let something like that pass, no matter how normal or legal it may be. Now, Jeff’s normal tactic is to hide his cash behind his passport in its case – lest a greedy policeman see the cash horde and clean him out. Well, since the passport was gone there was a 1000 ruble note in clear view. So the cops quickly stated that 1000 rubles – about $35 – was about enough to make the problem go away. Even in the sticky fingered world of Russian bribes, that’s a fortune for a routine stop on the street. But poor Jeff had just returned from one of the most expensive grocery stores in Moscow and was carrying a bag emblazoned with a Finnish logo and, in effect, his socio-economic status. While he protested the size of the “fine”, the second policeman took his groceries, looked inside, and said to the other cop, “Here’s dinner.” The other cop handed back the passport case and the two of them walked off with all of Jeff’s groceries.

So the problem is that many such state employees aren’t paid anywhere near a decent salary. Taxes are artificially low as a result, but these same people have to eat – so they resort to using their positions to gather what they need. You can call it a bribe – a “vzyatka” - or what ever you like, but back home I guess we prefer paying taxes directly and providing public sector employees with living wages.

First Day – or Why the Fat Guy Told His Teacher to Go to Hell.

Headed off to classes today swaddled in a suit with my tie in my pocket. Moscow isn’t particularly hot, but it tends to get a little steamy in the summer. The Russian word for it is “BLAZHnost”, which I find to be aurally descriptive and informative in the same vein as words like smash and barf. The walk to work was OK, but the real killer was at school. Our classroom was moved to the 6th floor – at the same time the elevators are being repaired.

Repaired may not be the right word when it involves a rusty, dirty jumble of twisted metal in the first floor elevator lobby. It also involves lots of banging with mallets, with a good deal of malice. Imagine a scene where an elevator has done something bad to someone and we all want to get our revenge on it, to work out our frustration on this machine we rely on that has so unfairly taken advantage of our dependence. Then you can picture what this heap looks like.

At the end of class, during which we discussed my impending employment by Alfa Capital, Tatiana Grigorievna offered me her best wishes; “Ne pookh, ne pera.” It literally means “neither down, nor a feather” and is something that people would say to hunters on their way out to the field. That is, “I hope you come home with neither down nor feathers on you. I hope you will be unsuccessful.” The traditional response to that is “ka CHYORTu” - which literally translates as “go to hell.” So when people wish you no luck at all, they actually mean well. And when you want to thank them for their sentiment, you tell them to go to hell. Idiomatic expressions are tough in any language, but in Russian they have the added complication of meaning the exact opposite of what you actually say.

Good student that I am - immersed in the language and the culture - I smiled and politely told her to go to hell.

At the office, I had a great conversation with Chuck Tennes, the CIO of the company. We went through my credentials, what I would like to do, what he has planned for the next couple of months. We formulated a plan, and decided to start on it the next day at 3 pm with a meeting.

In the meantime, I got logged into the system at my new desk. A stack of things to read was waiting for me; Investment publications, economic reports, market outlook pieces, surveys of Russian equities, etc. It amounted to a good stable of introductory material for a novice in the Russian market like me. I tucked into it, and didn’t raise my head until 7pm when I noticed that most of the office had gone home.

One of the more surprising facts of the day was that my suits fit much better. According to the scale at the gym, I’ve lost nearly 10 kilos – 22lbs!? - in the first 6 weeks of living in Moscow. There are several possible reasons:

1. I walk very long distances daily, and especially on excursions.
2. I don’t really like the food here.
3. I go to the gym.
4. The food I do like is served in small portions.
5. I live on the 6th floor, and have resolved to take the stairs not more than 50% of the time, and to climb the stairs not more than 33% of the time.
6. If I eventually start gaining weight, I’ll change the stipulations on amounts in #5 above from “not more than” to “not less than.”

Kuskovo – or How My Tour Book Led Me Astray.

I woke up early on Sunday. I guess I have to wake up early on Sundays. The alternative is to sleep till 9:30 and be awakened by the church bells across from my balcony. This is no ordinary church bell, tolling softly on a low baritone note, melancholy and mournful. Its several guys in the belfry banging on all manner of different pitched bells with what sounds like monkey wrenches. It is the most god-awful racket. And it goes on and on.

Anyway, I got out of the house at just about that time and headed off to Pushkin Square for the metro stop. Not before, however, I tested the restorative powers of freshly made Russian blini. There’s a kiosk there called Teremok where they make the blini on a hotplate right in the window. Owing to the hour, I had ham and cheese with a dollop of sour cream. And I washed it down with kvas. Awesome.

Hopped onto the metro and rode to the next to last stop on the violet line, to Ryiazansky Prospect. I was headed out to Kuskovo, a former estate of a noble family. When I exited the metro, I realized that I had absolutely no idea how to get to the estate. My tour book made the assumption, which it clearly stated, that no one in his/her right mind would attempt this trip except as part of an organized tour. A country estate, of course, was well off the edge of all my Moscow maps – which also make the assumption that, as an English speaking person, you would be insane to venture outside the city center alone.

So I started asking around. Apparently, the desire to answer a question even if you don’t know the answer is an international, human reaction in the face of admitting your ignorance. And this is despite the fact that in Russian, the polite phraseology of a question is in the negative – that is “You don’t know the way to Kuskovo, do you?” – because it doesn’t put undue pressure on the other person to know something.

The first guy told me to head down the street I was on. It started to become pretty clear that I wasn’t going in an appropriate direction – alongside a 6 lane highway with a somewhat industrial landscape. I asked a babushka waiting for a bus and she turned me around and sent me back in the direction I had just come from. Then, a woman planting flowers at a war monument tried to send me back to the metro to go to the last stop and take a couple of different buses. She came running after me and admitted that she had just given me directions to a place called Mishikino, not Kuskovo, and that I indeed was on the right track. Look for the church steeple, she said, and it’s right next to that.

Church steeples in general look a lot closer than they really are. It’s amazing how long you can walk while they stubbornly retain their position in the distance. I finally got to the church and went a good distance past. Now I’m getting into a forested area. While encouraging in some ways, the forest was a bit disconcerting in that help was going to become a lot more rare to chance upon.

Another babushka sitting and waiting for a bus. She confirmed that I was going in the right direction. When I asked about the distance and whether it was walking distance, she smiled and said that it would be no problem for a young person like me.

I don’t know how young she thought I was, but it was another half hour to the estate.

Well, it was worth it. Kuskovo was built by the Sheremetyev family in the 1700’s as their country estate. It shows its age in some places; like many Russian monuments it’s a little rundown around the edges. But it must have been something in its day. The estate sprawls all over with a huge man made lake, a palace, pavilions, formal gardens, forests, etc. Except it lacks one important thing - there are no bedrooms. The Sheremetyevs used this place during the day only. For all 200 years that they owned it. So it’s an even more egregiously opulent possession when you consider that.

After a good long walk around, I headed back to the road through the forest. Intermittently, there are clearings where people play different games. One area is all chess tables. The most fun was an area with about 20 cement ping-pong tables. Shirtless old men were playing for keeps. There wasn’t any laughter or banter; just a chorus of paddles "tocking" and ping pong balls "tinking", muffled by a thick canopy of leaves.

Back on the road, a bus rolled up that said “Vykhino Metro” which I knew to be the last stop on the violet line. I hopped on, and we got to the metro by the time I was done paying for my ticket. Clearly, the stop I got off at to reach Kuskovo was really bad advice. I had wasted more than an hour walking around when I could have made it in about 15 minutes.

There’s a lesson in that somewhere, but I’ll probably forget it by next weekend when I go for another excursion.

Omen

I was walking down the street today and, for some reason, noticed a little notebook page. It fluttered my way and somehow, instinctively, I knew that the writing was in English. I picked it up and found written on it, four times, the sentence:

May the Force Be With You.

It's been a long time, but I feel like things are finally going to go my way from now on.

Beginnings

Svetlana Smirnova called me last evening at about 7:30. She’s the Director of Communications for Alfa Bank, and the real overseer of the Alfa Fellowship Program here in Moscow. She invited me to meet the head of Alfa Capital the next morning. The folks there wanted to meet me since I had been allotted to them when the work assignment phase begins in October.

We met just outside the Chistie Prudy Metro stop at 9:40. Well, we were supposed to meet at 9:40. I went with the assumption that Svetlana, a diminutive, proper lady wasn’t the kind of person who takes the more common Russian attitude toward meeting times. Good thing. As I got off the subway train at 9:20, my phone rang. She was already waiting for me.

We walked together toward the office, up Myasnitskaya toward the Garden Ring (Sadovoye Koltso). She filled me in on the history of the firm, and some of the personalities that currently run it. The great thing about Svetlana is that she only speaks Russian. That is to say, her English is truly excellent but she insists on speaking only Russian to me. I love that.

I met with Bernie Sucher, the head of the firm. He gave a little overview on what they do, and how they have been doing it. Then he invited me to sit in on their weekly investment committee meeting.

I joined the investment staff in the conference room, and observed while they reviewed fund performance and mulled over buys and sells. It was a great discussion – very open and honest. And they weren’t afraid of asking each other tough questions.

It was a standard investment committee meeting. What made it really Russian, however, were some of the questions that they asked.
“Who really owns this company?”
“How much money is management stealing?”
“Who is the political patron of this business?”
“Who are the real financial backers of this concern?”

After the meeting, Svetlana returned and we headed off to lunch at Na Melnitse on the Koltso – just steps away from the office. It’s a beautiful restaurant made up to look like a country mill – that’s what the name means. Staff in traditional dress, traditional Russian food, and heavy rustic wooden furniture – I had the okroshka and pirogi. I have a serious addiction to okroshka – a vegetable soup made from kvas, a fermented (non-alcoholic) bread drink, and served cold. It’s a perfect remedy for steamy Moscow afternoons.

Anyway, we talked over the program, his goals for the firm, my goals in the program and in life in general. It was a great conversation that was thought-provoking and introspective. As we headed back to the office, he expressed his excitement at having me join them – and invited me to start work part-time while the language training program is still in progress. I jumped at the chance.

Back at the office, he showed me where he wants me to sit. Just outside the CIO’s office on the desk where the analysts and portfolio managers sit.

We decided that I should begin on Tuesday afternoon.

Sinking In

It’s clear that my time in Moscow will be quite different from my previous experiences in Russia. The city is so much more advanced in almost every aspect of life, that it frankly bears little resemblance to what I saw 10 years ago during my first visit – let alone how I lived in Kaliningrad all those eons ago.

We took a trip out to IKEA for any essentials missing from our furnished apartments. My apartment is furnished accurately but sparingly, like any place where no one else has lived before. The kitchen is well fitted out. I decide that I can’t live without a nightstand and clothes hangers.

Ikea in Yugo-Zapad region of Moscow is just like an IKEA anywhere else in the world. Meatballs and the other familiar cheap stuff of global middle class living. All of it labeled with strange, ostensibly Swedish names that make no sense to any consumer anywhere in the world. Probably even in Sweden. I remain convinced that the one-world language will be born in a store like IKEA.

Then we head off to Ashan, a massive French supermarket just next door. Massive doesn’t quite convey the scale. It’s an absolutely cavernous warehouse, with 4 aisles of meat alone. And what seems like tens of thousands of hungry Russians. Things are flying off the shelf so fast that they don’t bother refrigerating the eggs. They just keep driving pallets of eggs up to the ends of the aisles when the last pallet is sold out. Yum – unrefrigerated eggs. The staff is all on rollerblades, and when you get to the check out you can see why. The checkouts quite literally stretch into the distance so far that they dissolve into a hazy blur. The entire front length of the building is lined with them, and all of them are open. And all of them have lines. And it’s Tuesday morning.

Just walking around my neighborhood is also providing the striking impression that things are pretty good here for at least some people. It’s a well located neighborhood in the very center of town, only a 15 minute stroll to the Kremlin. The old mansions in this area now house embassies, and the region is dotted with ancient and neoclassical churches alike. The streets are a jumble of parked cars – expensive BMW’s and Mercedes most popular of all. But a more than fair smattering of Bentley’s, Aston Martins, and Ferrarris. Most cars like that are also closely followed by an SUV full of frowning, ominous men.

The stores in the neighborhood cater to the new earning class. The House of Whiskey. Villeroy and Boch. Italian cafes. A store that sells only expensive espresso machines. Banks with more ominous men lounging outside and smoking cigarettes. A Finnish supermarket with peanut butter, spaghetti sauce, and Old El Paso Mexican food. In short, if you want it, you can get it right here in the heart of Moscow. All you have to do is pay.

Arrival

Sheremetyevo. The airport is largely what you would expect of a major international airport; unsmiling and uncommunicative passport control, a rather confusing experience at customs trying to declare my computer and other valuables – the guard x-raying my luggage and talking to other travelers while his back is turned to the monitor displaying the contents of my 2 large bags, crowds of taxi drivers waiting for fares and occasionally getting chased off by the militsia. In some ways, hard to imagine I was back in Russia after a 9 hour flight from JFK.

But then, I went to the bathroom. Tucked behind a little corner of the arrival area, the public restroom has that indescribable smell that all Russian public bathrooms have. The smell of neglect and carelessness and way too much cleaning solvent applied too late to have much effect. To get to this oasis, however, you walk past a little casino – a bank of slot machines opposite the bathroom doors. Dark suited men in dark shirts, chain smoking and hanging around – gambling intermittently and chatting on cell phones. Ahh – now that’s the Russia I came looking for!

The trip in to the city was a rolling briefing. I got my apartment keys and cell phone, and a package of information and papers that held all that I would need to know in the practical realm of living somewhere new. It was a warm and very well organized welcome.

The view from the window of the van is of exurbs, populated with strip malls and megastores and auto dealerships. Bright, shining commerce and bright, shining parking lots jammed with cars on a Monday morning.

Sergei, our driver, gives us a bit of an impromptu tour. He’s about 35 or so, a huge man, and a former policeman in Moscow. He has the sense of humor and easy rapport with others that is born of long interactions with the public. He drives us to each of our apartments and drops us off. We help each other with the luggage. When he gets to one place, he opens the van, takes stock of the enormity of luggage that one girl has brought with her – a mountain of overstuffed black canvas duffels – and pops a cigarette into his mouth. “Well”, he says looking at the two remaining men, “Go ahead. I’ll watch the van.” He uses his enormous hands to pass off the bags.

My apartment is listed cryptically as being on the “last floor.” I understand what that means soon enough. The elevator goes to 5, but I live on 6. The best of both worlds - but the apartment more than makes up for any perceived slights. It’s in a 19th century building a stones throw from the boulevard ring, a park that circles the inner sanctum of Moscow. The apartment is beautiful and totally renovated. I can tell, because the guys doing the renovation are currently on the floor in the kitchen with what looks like a heap of appliances in the middle of the room.

“Damn”, one of them says, “He’s early”.

One worker runs out to get parts that the other needs to finish connecting the sink to the wall and plumbing. He apparently gets confused and has to keep calling back. This begins to irritate the very friendy, but gruff, guy I’m talking to in the kitchen. He answers the phone each time in a more and more agitated state. “Allo”, he shouts. “Nyet, ne tak.” Another ring a moment later. “Allo! Nyet. Ya uzhe tebe skazal!” The really funny part of all this is that the gruff guy doing all the shouting has programmed his ringtone to that Mancini tune the “Baby Elephants Waltz”. DOO de doo doo DEE doo DOO doo DOO doo. Then hoarse shouting in Russian.