Special Extra: The Final Countdown on the Russian Stock Market

The RTS index is down nearly 20% this week

For the 35th time since the August financial crisis began, the Russian stock markets were shut down on Thursday at 1:30 pm Moscow time.  At their low ebbs, the RTS dollar-denominated index was down over 8%, and the MICEX ruble index was down over 9% (the RTS closed down 7.4% and the MICEX closed down 4.4%) .  Shockingly, the MICEX index was flirting with breaking through the 500-point psychological barrier into a 400-point valuation, and the RTS index had Sberbank, the nation’s leading and state-owned financial institution, was down a whopping 13% at its low point, closing down nearly 9%, while Gazprom and LUKOil were both down over 10% at the close.  The RTS, too, was flirting with 400-point territory. Crude oil prices continued their slide, threatening $40/barrel territory, and the Russian markets collapsed once again.  The RTS is down nearly 20% this week alone, despite repeated market closures and furious Kremlin buying.  Had this not occurred, the value of the exchange could well be zero already.  European markets were also down, but less than a third the amount Russia was facing.

The Russian market has lost all crediblity as the result of so many arbitrary, panicked closures by the Kremlin (on average, two every week since August), especially since they have been useless in halting the slide, revealing the Kremlin to be impotent.  Shockingly, the value of the ruble has remained totally stable this week, but only because the Kremlin has now spent nearly $60 billion of the Russian people’s vital nest egg, almost $1 billion each and every day, creating artificial value for the nation’s currency to stave off even more intense consumer price inflation.  Consumer price inflation has already topped a sickening 12%, and the year is not even over yet.  The old Russian bugaboo, unpaid wages, has again reared its head, with arrearages increased by a horrifying 33% in October.

The country is now faced with an electric power crisis.  Domestic industry, especially petroleum, demands that the government continue its subsidization of electricity prices, as do domestic consumers, since the financial crisis is devastating their ability to pay.  But the electric industry, and its investors, have pinned their hopes on deregulation of prices in order to pay their own costs and generate sufficient capacity to meet national demand. They face bankruptcy if market prices are not bought on as the government has previously promised.  The Kemlin’s reserves are rapidly depleting, so it cannot solve the problem for everybody.  The lights may soon go out in Moscow.

The Kremlin’s response to all this? All it can think to do is to intensify the media crackdown in order to prevent Russians from learning what is really going on, just the same tactic that was tried in Soviet times. How then can Russia expect to avoid the fate the USSR experienced?