136 THE BiG DROP
The U.S. may consider economic sanctions a branch of di-
plomacy, but Russia considers them an act of war. So, war it is.
In the end, Russia will prevail because it has the will, the vi-
sion, and the physical proximity to pursue its interests, while the
West does not even have a strong sense of what its interests are.
Beyond that, Russia is the eighth largest economy in the world,
and produces much of Europe’s energy. The world economy is
slowing down for reasons unrelated to Russia, but Russia’s isola-
tion makes things worse. The appetite for additional sanctions
outside of Washington is slight. Russia has absorbed our best
shot, and is still standing. Our will to escalate is not there, and
Putin knows it.
For investors, this geopolitical dead end for the west cre-
ates a classic contrarian investment opportunity. Russian ETFs
are among the best performing investments of 2015, so far, but
have further to go as the situation in Ukraine is slowly resolved
in Russia’s favor.
The ETFs to consider are RSX (Market Vectors Russia ETF),
and RBL (SPDR S&P Russia ETF), which are both up over 20%
so far in 2015. For investors with more appetite for volatility,
you can consider RUSL (Direxion Daily Russia Bull 3x Shares),
which uses leverage to amplify returns. RUSL is up over 65%
year to date, and is in position to perform well in the months
ahead. Of course, leverage can amplify losses as well as gains,
and RUSL is highly speculative. All of these investments should
be added as a small slice of your portfolio — do not go all in.
But, they can be an attractive, if volatile, addition to other
more conservative investments.
The RSX, RBL and RUSL ETFs are all bets on the Ukraine
situation moving toward a resolution and to sanctions gradu-
ally being lifted. Based on my meetings with the national secu-
rity professionals, that seems the most likely path. The U.S. is
not willing to go for the throat, so we will be forced to go for
diplomacy. That can only favor Putin and Russia in the end.