MAGGIE LAKE: Hello. Welcome to the Real Vision Daily Briefing. It's Monday, March 7th, 2022. I'm Maggie Lake, here with William Browder, the CEO of Hermitage Capital. Bill, thanks so much for being here with us.
WILLIAM BROWDER: Great to be here.
MAGGIE LAKE: The global economy continues to reel from the crisis in Ukraine, oil surged again, we had nickel up an astounding 60% today. Wheat is limited up another 7%. US equities closing at their lows as we close trade shopping at this moment, on the lows of the day. Investors are really trying to wrap their head around this.
I just want to, before we dive in, for those many, many of our viewers know you well, but for those who are not familiar with your background, your firm really made its reputation by uncovering the corruption at Russian firms. You personally became a target as a result. You were banned from the country, the lawyer that worked for you, Sergei Magnitsky, was arrested, died in custody in Russia.
You sought justice for him, got the Magnitsky Act pass against a lot of odds, and have really been towed to toe with Putin for the better part of 15 years now. I can't think of a more perfect person to sit down with at this moment. What do you think the mindset, what do we need to understand about the mindset of Putin at this very critical juncture?
WILLIAM BROWDER: Well, Putin has been a dictator for 22 years, he has been a dictator who has stolen an enormous amount of money from the Russian people, I guess, as well north of $200 billion. That's money that should have gone to hospitals and schools and filling in potholes and roads, and so on and so forth.
After 22 years, people tired of him and he's watched other countries around him, the dictators in those countries have a problem. He saw Lukashenko, who was the dictator of Belarus, has been there for a few more years than him, almost lose his position because people rose up after a fraudulent election. He saw Nursultan Nazarbayev, who was the dictator of Kazakhstan, getting washed out after gas prices went up dramatically and huge protests across the country.
Putin is a guy who sees risk and understands risk. And he says to himself he doesn't want to be a sitting duck waiting for it to happen. What does a dictator do in a situation like that? He digs into the dictator's playbook, and he starts a war. That's what this is about. A lot of people say this war is about NATO enlargement, they say this war is about Ukraine democracy.
And those are things that probably upset Putin, but the principal driving factor of Putin going to war in Ukraine, and why he's doing it now is that he's a washed-out dictator, who's afraid of getting overthrown and he needs to find a way of distracting his people and creating a crisis. And that's what this war is all about.
And it's important to understand that because if you understand that, then we can start to think about what are the tools? Where's the leverage to either stop him, slow him down or change his behavior in some way?
MAGGIE LAKE: Yeah. And that leverage, presumably, is money. That's certainly the tool that has been used from the playbook so far. Does it seem like it's working?
WILLIAM BROWDER: Well, it's important to understand who Putin is as a character. And he's not a guy who ever can reverse. There's no reverse gear in Vladimir Putin. All he can do is go forward. We can never expect, no matter what the sanctions are, no matter what the military situation is, for him to say, uh-oh, okay, ceasefire. Let's negotiate. That's just not who Vladimir Putin is.
He comes from a prison yard mentality where it's always escalate, escalate, escalate, show that he's the meanest prisoner in the prison yard, he's ready to take his knife out and shank anyone who comes anywhere near him. That's his psychology. He's never going to back down or negotiate. When we think about what would work and what wouldn't work, at this point, now that he's invading, it's all about making it impossible for him to carry on going forward by depleting his resources.
This is a very expensive war, and it requires a lot of money. And we need to impose absolute crippling sanctions. I would describe it as what we need as a total economic blockade, so that he eventually runs out of money, and he doesn't have enough money to execute a war. If you use the car analogy where he can't go into reverse, he can only go forward, we want the car to splutter out, because it's run out of gas.
And that is, in my mind, the only thing that's going to stop Vladimir Putin from taking over Ukraine and then further challenging us at a NATO neighboring border like Estonia, Lithuania or Latvia.
MAGGIE LAKE: Certainly, the West has moved quickly on sanctions, maybe more quickly than the Vladimir Putin thought they would, there seems to be a lot of cohesion, but has it gone far enough? Certainly, there's carve outs for oil and gas, there's carve outs for companies-- Russia, big producer of nickel, those are carved out.
There's been a lot of conversation about that today as we've watched nickel prices soar 60%, so not only are they not carved out, but there's been a huge increase in those metals. Is that what needs to happen? Does it need to be absolute? And what are the prospects of that?
WILLIAM BROWDER: Well, the prospects change every day as he commits more atrocities, and the world watches them and the world understands that this is like World War IIS Hitler-- early World War II Hitler type of situation where we're watching on the television humanitarian disaster that he's executed playing out in real time. I do think that as the thing gets worse and worse, the sanctions will get tougher and tougher.
At the moment, only 70% of the banks are disconnected from SWIFT, and that's a meaningless punishment, because the other 30% of the banks can handle the transactions that the 70% of the banks use to handle if necessary. We've sanctioned roughly a dozen oligarchs, we need to sanction 100 oligarchs. And probably, we need to say no more Russian oil, we'll find oil elsewhere. And I think if we do that, then he really is in a terrible, terrible position.
And you can see it right now that the Russian stock market is down like 95%. And for what it's worth, if they don't ever get access to capital again, there'll be so many defaults that the equity will be worthless and a lot of companies. You have the ruble down 40%, it's really a quite dramatic situation, more dramatic than anything I've ever seen in my professional lifetime.
MAGGIE LAKE: Yeah, and we're going to the risks around that as well. But it seems to be that some of this is happening through self-sanctions. This is a term that's been called that, that although countries themselves haven't banned, certainly this is happening on the energy market, haven't banned oil or gas, everyone's afraid to touch it, because it might be and then they'll be stuck with it. Is that giving the same effect? Or does it need to come from the countries themselves, first of all?
WILLIAM BROWDER: No, this is very dramatic. The idea that just about every foreign company doesn't want to do business with Russia totally elevates the level of economic pain that's being inflicted. If you have heard these stories about there's no transportation companies that want to take any Russian oil even if Russian oil hasn't been sanctioned because they don't want to be in a position where they picked up some Russian oil, they go 10 days to some other place, and then they can't unload it, and so better just to avoid it altogether.
And I would imagine that that's the same across the board with almost everything. And on top of that, you have all these-- you can't fly from Russia to anywhere. The entire Aeroflot fleet has been grounded. And it's really just, at this point, almost total economic blockade, but there still needs to be more done. And if more is done, I do think that Vladimir Putin is going to be in an extremely precarious position because this war that he's waging is an extremely expensive operation, it's costing billions of dollars a day.
And it carries on and carries on and carries on, we're on 12th day. And he doesn't have access to much cash anymore. His central bank reserves in all hard currency is frozen. Now eventually, he's going to go to the Chinese and say I need some money. And the Chinese are going to lick their lips and say, okay, we'll give you some money.
And it'll be like borrowing on a credit card, borrowing money on a credit card where has to pledge all sorts of assets that he never intended to pledge and so on and so forth. But I do think he's going to run out of money. And at that point, it becomes a very interesting situation. How does he handle it from there?
MAGGIE LAKE: Yeah. If he's attempting to stay in power, if he is motivated by what you think is, does the pain inflicted on the Russian people work in the favor of seeing him overthrown, or does it dig in and they feel victimized by the West, and it solidifies power around him?
WILLIAM BROWDER: Well, he's hoping for the for the latter. We're hoping for the former. There's a total misconception inside of Russia of what's going on. Most Russian people think that there's no invasion, there's no war, there's some limited special operation going on to free Ukraine from Nazi occupation. And it's like a humanitarian intervention from the Russian people's perspective, because that's the propaganda that they're fed.
In some cases, they may start to be mad at the West. And that's certainly his calculation. But I think that I saw some clips of Russian people demonstrating not for or against the war, but against higher prices. And I was just listening to Gary Kasparov, the Grandmaster chess champion, talking about this, and he says, sometimes the fridge outweighs the television.
MAGGIE LAKE: Yeah, that's a great line and so true, but we're feeling it too. At some point, it's a game of attrition, and who can tolerate the discomfort and the higher prices for longer? Although given the sanctions we've seen, it's going to be a lot more painful for people in Russia. In Russia, the ordinary Russian person may not know what's going on, but the oligarchs certainly do.
They certainly know what's happening even if they are in Russia and are somewhat limited by the information they're able to access. Is there an apparatus? Where do you think their head is? Is there an apparatus to begin to think about replacing Putin? How loyal are they still to him?
WILLIAM BROWDER: Well, the oligarchs are there at his pleasure. In other words, at any moment, he can take away their wealth, put them in jail, or kill them. They're all terrified of him. And they know exactly what's going on, their wealth has been decimated, wiped out by 90% or more. Whatever they own in Russia is down 95% and whatever they own in the West either has been frozen or will be frozen. It's a disaster for them.
It's an unmitigated existential disaster for them. And these are people who don't value anything but money. It's just the worst thing that could have ever happened. But at the same time, they also understand that if they speak any disloyal statement about Putin, even privately to another oligarch and it gets back to Putin, he might just take them out right then and there, because he's afraid, if we're talking about this, I guarantee you that Putin is thinking about it.
And if he's thinking about disloyalty and betrayal, he's going to go out and look for it and try to figure out who might be in that camp. And we've seen this the way in which people are afraid of him. There was this meeting he had with his National Security Council, where he was like, the head of the foreign intelligence or military intelligence was a guy who like pokes people's eyeballs out with his bare hands was quaking like a small school child in front of Putin.
This is how scared he has his people. I wouldn't be imagining that there's going to be any oligarch uprising. And I also don't think in the short term anyways that people will rise up not because they're not unhappy, but they're not going to rise up because they're so scared anytime. Any person goes out and demonstrates, they get arrested.
And there's these rumors that the peace protesters are going to be the first people to be drafted when they declare martial law and sent to the front line. He's a brutal, vicious, sadistic man. And it takes incredible bravery to stand up against him. And yes, if everybody stood up against him together, he'd be gone in a day. But if you show up and nobody else shows up, then you're gone in a day.
MAGGIE LAKE: Yeah. When you live in fear like that, it's very easy to say rise up. It's a quite another thing to see happen in real time. We're talking about the possibility of a complete economic blockade and especially looking at the metals market today because of what's going on. Wall Street Journal raised a very interesting question in one of their articles, are these companies simply too big, too important to the global economy to fail or just strangled to death by those sanctions?
WILLIAM BROWDER: Well, I think the answer is, in some cases, these companies were too important in the global economic community to cut off completely, if you have major commodity producers, and you change the supply situation for these commodities, then of course, they're going to have a massive dislocation. And we saw this before.
Back in 2018, Oleg Deripaska, who was one of the biggest oligarchs, was sanctioned by the US for his involvement or proximity and involvement with Putin and Putin's involvement in hacking the elections of 2016. And this set the aluminum markets in a total frenzy. And eventually, they had to unsanction his company because it was just too important in the big picture.
I imagine that there'll be a lot of discussions about that around the world in the next weeks and months, but at the same time, we're also facing an unbelievably dangerous situation. They're bombing nuclear power plants, he's threatening nuclear war. He's threatening war to anybody who gets involved in helping the Ukrainians in their military defense.
This is a very dangerous situation. I can't overstate how dangerous it is. And I don't think that we should even be talking about money when we're talking about the survival of the planet. If Putin goes the way that he could go, and by the way, he always does things worse than people expect. That's been my whole experience with him over 15 years of fighting with him.
We need to really be careful and prepared to try to do whatever we have to do. The only thing we should be minimizing on is minimize his ability to carry on with his military venture, because the consequences are just so horrific if this thing goes in the wrong direction, that it could truly be lights out for the world.
MAGGIE LAKE: Yeah. It's well put, it's hard to imagine that we're having this conversation, but I think that people try to put a rational view on it, and leave room for an off-ramp or negotiations, and from what you know of him, that's just not going to happen. There is not de-escalation in his worldview.
WILLIAM BROWDER: It's not possible. He's never ever done it in my entire experience with him. And he tends to do these things that appear irrational, where he will cost himself enormous amounts of money, respect, connections, whatever. This is long before he invaded Ukraine. In other situations, just to show that you can't get the better of him. That's how he thinks.
The only tool we really have is just to make it impossible for him to continue this war, because he doesn't have the resources to.
MAGGIE LAKE: Right, no matter what the short-term cost to the rest of us. I want to play Raoul Pal thinking about this, as we all try to wrap our head around this, sent a macro flash update today. And I'd like to play a clip about the risks that he's thinking about in this ripple effect. Let's have a listen.
RAOUL PAL: If Russia remains out of the global system, which looks increasingly likely, then we'd probably have a big liquidity problem. And that's spits around the world in various ways, whether it's countries who are trying to get access to dollars, banks trying to get access to dollars, or whether it's credit spreads widening, as people pull back, trying to assess the risks that are going on.
And we don't really know. How does it affect Egypt? How does it affect the Middle East at large? How does it affect all sorts of countries? Again, we don't really know yet. But that's a hugely concerning moment, and that's a big global recession if that takes place, and a massive, monumental geopolitical shift.
MAGGIE LAKE: And Raoul's full update is available across all tiers on the website. Bill, have you thought about this? Is there a contagion risks from deplatforming Russia from the global system?
WILLIAM BROWDER: Well, there's a contagion risk from everything that's going on right now. Let's just look at, one of the things that that worries me the most, in addition to the higher energy prices, is the higher food prices. Ukraine is the breadbasket of the world. Russia is a big grain producer. And this will affect us and make life inconvenient and more expensive.
But there's a lot of developing countries around the world, poor countries around the world where the people are on the verge of poverty, and this will stick them into starvation territory. I think one of the risks that nobody isn't even thinking about right now is all sorts of revolutions and uprisings and change of governments and hugely, horrible things going on in Africa and Latin America and Asia, where we're not even paying any attention.
And another contagion thing which I think is really right in our face, the elephant in the room, is that Putin loves to weaponize refugees. He did that with the Syrian war where he basically created 5 million Syrian refugees, and they spread out across Europe and that led to all sorts of change in politics and populist sentiment and crazy people becoming leaders of their countries. And we're now having a second refugee crisis.
This could be much, much bigger than the Syrian refugee crisis, where we're going to be talking about the prediction for the UN is like 4 million refugees. In a country of 44 million people, I could imagine 10 million refugees, and that's a lot of people to be housed, clothed, educated, and given healthcare all over Europe and all over the world, and that