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Interview with Bill Browder, CEO of Hermitage Capital Management, from the World Economic Forum 2017

Following are excerpts from a CNBC interview with Bill Browder, CEO of Hermitage Capital Management, from the World Economic Forum 2017 with Steve Sedgwick and Geoff Cutmore.

GC: Well, our next guest says it's uncharacteristic of President Putin not to respond to the latest round of US sanctions, but perhaps Mr. Putin is looking for a little gift from the new American President. Bill Browder joins us, the CEO of Hermitage Capital Management. Bill, good to see you.

GC: Well, our next guest says it's uncharacteristic of President Putin not to respond to the latest round of US sanctions, but perhaps Mr. Putin is looking for a little gift from the new American President. Bill Browder joins us, the CEO of Hermitage Capital Management. Bill, good to see you.

BB: Good to see you.

GC: Well, let me ask you about this, you know, much has been made of this supposed new relationship between Russia and the United States that will come with the inauguration of the new President. Do you think that it will unfold as it seems? I mean, that there will be closer ties?

BB: Well, first of all, there is no relationship yet. There's all sorts of hopes from Russia, there's been a few tweets from Trump, but on the other side, there is an administration, a foreign policy and security policy administration that Trump has put underneath him, which are entirely hawkish towards Russia. And so if the Russia policy is driven by the Defense Secretary, the Head of the CIA, Head of Homeland Security, or various others, then the Russians aren't going to get any gifts. If the policy is driven by whatever Trump's, you know, emotions were at the moment that he made those statements, then it could be an absolute windfall for Vladimir Putin, and Russia.

SS: Is Mr. Trump actually in tune with American people on this one? Because he seems to be in tune with American people on a lot of things, hence why he got elected, but on this one, is he actually out of line with the mainstream thinking?

BB: Well, historically, Russia was the evil empire, and in the Midwest, where he has a lot of his support, I don't think there's any, you know, great enthusiasm to reengage with Russia.

SS: So why do you think he is so friendly with Mr. Putin?

BB: It bewilders me, and it bewilders everybody else around us. It doesn't make any sense. It doesn't make any sense why he would be so unfriendly towards a lot of our allies, and then so friendly towards a country which is an adversary to the United States. It just doesn't-, you know, based on anything you can put on a piece of paper, and look down, it doesn't make any sense.

GC: Look, a lot of people have been looking for a smoking gun, to try and find some conflict of interest in his business relations in Russia, and so far I don't think anybody's managed to dig anything up that would stick, but let me ask you more about the direction that Russia is going in at this point. You could see Mr. Kostin very excited about the idea of a thaw in relations, and the Russians that are here are cock-a-hoop about the idea of Donald Trump. At this point, Russia does look like it's going to develop a decent growth rate for 2017. Do you think, even if there isn't a removal of sanctions, that ultimately things do improve for that economy, just because the global economy is getting stronger?

BB: Well, I mean, Russia comes down to really one thing, which is oil. If the oil price, you know, stays here, or goes higher, then Russia will kind of muddle through. If the oil price goes down, Russia will go down. You can track the Ruble, you can track the stock market, just off the price of oil.

SS: But at $51 a barrel for WTI, or $55, is that enough to sustain the Russian infrastructure and system, and keep-, well, keep Mr. Putin in his position? Because we don't hear about dissent anymore. We-, a couple of years ago we heard all kinds of stuff, but actually, we don't hear of it anymore. So enlighten us as to what's going on.

BB: Well, first of all, there's no dissent because he's either exiled, imprisoned or killed anyone who's a dissenter, so that doesn't really work so well, but it all comes down to-, so if-, so no, they don't have enough money, at $51 a barrel, to do everything they want to do. It doesn't mean he's going to get kicked out, but they don't have enough money. That's why he's so desperate to get sanctions lifted, because if sanctions-, so Russia's got a great balance sheet, they don't have a lot of debt on their balance sheet, but they can't borrow money with the sanctions. And so they could borrow their way through whatever low oil prices there are, to fund enough social spending to keep people happy, if sanctions weren't in place. And so while everybody is saying that they are surviving with sanctions, let me tell you, every morning Putin is praying for sanctions to be lifted, and every evening he is praying for sanctions to be lifted. It would be the single most important thing on his mind. It would be the single biggest gift that could ever be given to him, if it happens with the new Trump administration.

GC: Bill, it's been many years since you were forced out of Russia, and I don't think you really focus on investing in that part of the world any longer. Just talk to us a bit about what you're doing with your own business. Because we've had this terrific bump in publicly listed equity share prices as a result of expectations around Donald Trump. Is any of it justified in your opinion? Are you putting money into stocks?

BB: In my own personal opinion, I think the US equity market is overvalued. At these valuations, it's pricing in some type of certain, positive outcome, and if you look at what's going on, we don't know what's going to happen. We don't know whether he's going to start a trade war, if he's going to start doing tariffs, we don't know any of the stuff that's going to happen. And I would argue that some of the policies that are being proposed will be very inflationary. If you put tariffs in place, it creates inflation. If you put inflation in place, you have to raise interest rates. You raise interest rates, and stock markets shouldn't be so high. And so I think actually the level-, the risk premium should be higher, and equity markets should be lower, with all this uncertainty. There's never been a time in my life where you had the names the United States and political uncertainty in the same sentence.

SS: You know he's doing a screenplay of the book, don't you?

GC: Yes, we were talking about it a little earlier on.

SS: Yes, exactly. You know he might be looking for actors, to play different characters.

GC: Oh, is that right? There's a chance?

BB: If you guys ask good questions, then I'll consider you.

SS: Anyone-, who are you thinking of playing Bill Browder?

GC: Tell us what's going on with the evolution of your book into a movie?

SS: Well no, they're writing the screenplay.

BB: Well, I mean-, so Red Notice, my book, everybody should read it, I know you guys love it. It's a thriller about what Vladimir Putin does in real life, in Russia. And hopefully it will be on the big screen-,

SS: Some say he looks like matinee idol Richard Todd, we've heard it many times, as well. So if you're looking for someone to play Bill Browder-, it could be a new departure for you, Geoffrey, Richard.

GC: Right, thank you very much indeed for that. Bill, it's always a pleasure to catch up, thank you very much for coming and joining us here, and best of luck with the book to the movie.

BB: Thank you.