Despite aggressive attempts to prevent it by the impotent Kremlin of Vladimir Putin, the Russian stock market has totally collapsed, suffering its worst day since the 1998 economic meltdown, closing down almost 11.5% at 1131 on the RTS Index, a massive loss of almost 150 points on a base that had already been emasculated into insignificance. In just the month of September, the RTS ruble index has plunged sickeningly from a high of 1650, a breathtaking drop of more than 500 points or one-third its total value at the start of the month. The MICEX index, which is measured in dollars, crashed into triple digits, smashing the crucial 1,000 point psychological barrier. It was down at one point over 15% to below 900, before recovering slightly. Share values in Sberbank, state-owned and dominant in the market, were down more than 20%.
The Kremlin is in full-on panic mode. Both the MICEX and the RTS were forced to impose the draconian measure of a halt in trading for a full hour, a clear sign of desperate fear that the entire market could implode before gaping eyes. Had this not occurred, for all we know the current value of the market might be zero. Heaven only knows what duplicitous behavior the Kremlin may right now be engaged in behind the scenes to keep the full nature of the collapse from the world’s prying eyes when the market opens tomorrow morning. Perhaps the Kremlin will simply spend the national rainy-day fund to buy the entire market and decree the prices. That’s what the USSR would have done.
“It is pretty shocking,” said Lars Christensen, chief analyst and head of emerging markets research at Danske Bank. “It’s people moving into cash and … getting worried about who they are dealing with,” a Moscow-based trader at a Western bank said.
It’s people, in fact, finally waking up to the reality that Russia is ruled by a proud KGB spy. It’s the beginning of the end for the neo-Soviet state. The government, however, is still asleep and in denial. “There are risks in our system and when there is more shocks from the global crisis, more risks there are in Russia, but they do not have an extraordinary, systemic nature,” said Finance Minister Alexei Kudrin. This implies he wants us to believe that if there were an “extraordinary, systemic” basis for this collapse, he would admit it. It’s nonsense, from the highest levels of Russian government.
And it’s all happening with oil prices at massively high levels compared to just a few years ago. With its crazy behavior, Russia has killed its golden goose. Consumed with a frenzy of hatred for the outside world, it apparently never stopped to think for a moment that Western demand is crucial for Russian economic prospects, so it needed to do all it could to promote the U.S. economy. Instead, Russia has relentlessly sought to attack and undermine the U.S., and now those chickens have come home to roost.
Anders Aslund says things will get much worse before they get any better, reminding us that Russia also has the business cycle to contend with, something that in its crazed nationalistic furor Russia seems to have forgotten about.