The Russian Stock Market in Horrifying Freefall
In Friday’s trading the Russian stock market’s RTS dollar-based index (charted at left) crashed through yet another critical psychological barrier. When trading was once again shut down at 1 pm Moscow time to halt the carnage, the RTS index was below 590, down over 7% on the day and less than one quarter of the value the index held in May of this year, down over 75% in just six months. When trading reopened an hour later, the index immediately plunged to a loss of over 13%, just under 550, and the market was shut down again, this time for the rest of the day and “until further notice.” Financials (down over 12%) and fuels (down nearly 14%) led the way into the abyss, and all this happened before the market could take cognizance of a big drop in the U.S. markets, which were down over 5% in early trading before climbing strongly at noon.
Gazprom and Sberbank were both down a jaw-dropping 22%. These are enterprises controlled lock, stock and barrel by the Russian government, and the government can do nothing to halt their slide, nor can it affect the plunge of the overall market even though it is frantically buying shares and squandering the national savings account to do so.Had the Kremlin not simply pulled the plug on the market at 1 pm, the market could well already have reached zero.There was a time, not long ago at all, when the Russophile madmen were talking about the Russian stock market and the Russian ruble the same way they used to talk about the military power of the USSR. And just as the USSR, despite all that blather, spontaneously collapsed and proved the utter folly of the propaganda, now the neo-Soviet economy has done exactly the same thing.
And as bad as things were on the RTS, they were even worse on the MICEX ruble-based index, where the lion’s share of the actual trading occurs.
As the price of crude oil plunged below $65 per barrel (remember, $70 was the critical level at which the Kremlin’s budgetary assumptions collapsed), the MICEX (which also halted trading around noon for an hour) was down a shocking 14% despite the Kremlin’s fevered buying of Russian shares to the tune of billions. The index was flirting with crashing through the stunning 500-point barrier! Markets in Britain, Germany and France were also down — but all of them held their losses under 10%. Once again, Putin’s Russia led the world in failure.
Will the people of Russia ever call their government to account for this failure? Will they even be allowed to know it is occurring by state-owned Russian TV? It can suprise nobody who reads this blog to see the neo-Soviet Kremlin behaving like what it is — an ignorant clan of KGB thugs totally incapable of managing a complex economic system with anything other than blunt trauma.
But that doesn’t make it any less horrifying.
Courtesy of the New York Times, a list of world stock market performance in October through midday in New York City on Friday (it shows the U.S. among the least affected of the world’s markets by the global crash this month, and Russia second from the worst in the world):
Iceland, down 83%
Russia, down 53%
Brazil, down 48%
Poland, down 46%
Mexico, down 44%
Canada. down 37%
India, down 36%
Germany, down 35%
Australia, down 34%
Britain, down 31%
France, down 31%
Italy, down 30%
U.S., down 26%
Finland, down 26%
Japan, down 23%
Israel, down 22%
China, down 21%
What do you have to say to that, Mr. Putin?
I think one should notice that taking a look at rts-website, the RTS index has dropped to a level it originally reached in October 1997, eleven years ago…
I have to say, I was being overly optimistic yesterday. I expected Russian stocks to fall and I thought the RTS and the MICEX to break down through 500 by the end of next week. Russian newspapers are reporting even bleaker numbers. According to Gazeta.ru:
Паника захватила, похоже, не только инвесторов, но и аналитиков.
«Мы полагаем, что при сохранении текущих тенденций с большой вероятностью можно будет увидеть российский рынок в районе 360–400 пунктов по индексу РТС уже на грядущей торговой неделе»,
– признается начальник аналитического отдела ИК «Файненшл Бридж» Алексей Серов.
Not only are investors panicking, analysts are forecasting nothing but gloom and doom as well. They are now predicting that next week the Russian stocks will drop down to the 360-400 range by the end of next week. They are even recommending that the stock market be shut down in Russia for a week.
Whichever. The noly real stock “index” that matters is the personal holdings of Putin’s buddies. Those guys are doing OK – Moscow buys more S-600 benzes than all of the US combined. We still don’t have oil, or we won’t develop what we have, and they are stilling selling it (and gas) all over the world.
Besides, our own market is at least at the same level it was after 09/11/2001.
Given that you likely read Russian, I recommend that you read the following article: http://gazeta.ru/comments/2008/10/24_a_2864133.shtml.
I spells out a likely worst case scenario if the price of oil remains low:
1. Russian reserves will be spend by February 2009. This potentially will lead to a crash in the price of the ruble, not only down to 40 rubles to the dollar, but perhaps down as far as 60 or 90 rubles to the dollar. If the central bank decides that it won’t spent its last dollar and euro defending the ruble, then the ruble could crash before the reserves run out entirely;
2. If the ruble crashes, given the reliance of Russia on foreign imports for food and other essential purchases, a crash in the ruble would push inflation through the roof.
3. As the stock market falls, and the “wealth” of Russian oligarchs disappearing before their eyes, this will leave them at the mercy of foreign creditors when they have to repay loans. This will lead to defaults and foreign lending agencies claiming ownership over the collateral that the Russian companies had put forward when they first negotiated their loans;
4. Unemployment: if the above plays itself out, this will lead of course to higher unemployment just as the country is in the grips of skyrocketing inflation and potentially an economic collapse.
Gazeta.ru is critical of the leadership (though they don’t call out Putin and Medvedev by name). They ask: can’t these people even count?
Vadim, money is leaving Russia. The money allocated to free up their financial system is going abroad rather than to lending and keeping credit flowing. Sweet. Here’s hoping that the Russian sheeple, who will take a big hit, figure out that their governing scoundrels are throwing them under the bus. Sadly, Russians have got to be one of the most misinformed group on the face of the earth out side of Africa. Only 25% of them have access to a computer and I’m sure few of them are actually tuned into news outside of their Pravda tv channels.
It’s fascinating to read the ignorance most of them have regarding Yukos and their rotten judiciary when reading comments at the S. Bahkima site:
Well, you can’t eat crude oil or natural gaz. Their world prices going down and simultaneously food prices going up is a fairly worrisome combination for a country dependent on food imports from west paid for by export revenues of which over 60 per cent depends on crude oil and gaz sales.
Russian money isn’t leaving russia – ours is! As corrupt as they are, enough stays that over time they will strengthen – meanwhile, every day we are paying people like them the world over for oil to use, and producing less and less.
I woould be thrilled if the russians were indeed growing pooere and poorer and that oil continues to fall. But that isn’t going to happen… You all say that they are an uninformed people that is easily swayed. That may be true… but anyone who has dealt with programmers from St. Petersburg, electrical engineers from Moscow, or any of the THOUSANDS of software outsourcing firms from Russia would see that there are PLENTY of peopel over there who are perfectly aware of what’s going on. Microsoft, Intel, and many other “names” have huge facilities over there. Do not make the mistake of thinking they are ignorant.
Their educational system, which I can personally say is outstanding, survived the 90s and is working well. They graduate more EEs, MEs, and software people than we do, and are turning their petrodollars into actual fabrication – which American firms sell them! They have no trouble getting their own citizens into graduate technology programs – find me an American school where the majority of the grad students aren’t indian or chines or iranian students – who GO BACK to their countries after graduation. This practice will KILL US.
People, if this trend continues, the asian countries will take the initiative technologically. Oil will remain important, and the russians will continue to have it. The price of it will not drop low – it is non-renewable, and demand will never go away. So, they are assured a constant income, and we – we depend on our intellectual capital, which is rapidly waning.
Recent market trends simply don’t tell the whole story… Over time, posessing an oil reserve will become key. If we don’t address our issues here, we will become a third world nation.
Russia is paying the price for invading Georgia..they scared people away from their market and then the markets started getting hit and that only intensified the downfall of the Russian Stockmarket
… and America is paying the price for its decadence over the past several decades – our jobs are leaving, other countries do what we do better, and our homes are becoming worthless. We become a nation of lawyers, wal-mart employees and mexican immigrants who can’t and won’ learn english… Meanwhile, the cost of a Moscow apartment continues to rise. Who’s paying the prce, Jeanne????
You write: “Oil will remain important, and the russians will continue to have it. The price of it will not drop low – it is non-renewable, and demand will never go away.”
I agree. However, keep in mind that having oil in the ground is different than being able to sell that oil on the market. Before you can sell the oil, you must drill and extract that oil and then ship it to market. This is extremely expensive and requires massive amounts of capital.
This week, the Russian government finally admitted that oil production has gone down this year, this in spite of oil peaking at $147 a barrel. They expect production to decline next year. Why? Russian oil companies and the state have not been investing in exploration, drilling and bringing new oil fields online.
So, though I agree that Russia has a lot of oil, that in itself is meaningless without investing in the infrastructure to continue pumping that oil out of the ground.
America is paying the price for invading Iraq and Afghanistan. The economy is in serious decay, Wall Street is in total crisis, jobs are becoming scarce, colleges and univeristies are cutting their number of classes available, real estate is in a big mess.
You’re saying that Russia hasn’t invested in the infrastructure to pump the oil out… That’s bull, and you know it. Expertise like this is not hard to come by – there are many companies outside the US that would be happy to do this work – Norway, UK, Netherlands and other would gladly participate. This is happening in Sakhalin right now. As the price for crude rises, there will be more pressure to drill in other places in Russia. Siberian oil deposits for the most part aren’t even discovered yet!
My point is that pumping oil from land, even with tremendous logistical difficulties, is always going to be profitable – it is only money, not research that will succeed if there is enough motive. That means that russian currency will never again be meaningless paper – it will be backed by substance… And they can buy whatever else they need!
We won’t have that kind of luxury.
Vadim, hello, the Russian government released billions to banks to to free up lending and it is not happening, that money is going out of the country. And, please, the Russian housing boom and collapse had nothing to do with America’s decadence, try Russian decadence.
The Russian educational system is crap, my friend. Zero liberal arts, nothing to build a civil society upon. Being a trained technician doesn’t make one “educated” where it counts in a dump like Russia where there is a severe poverty of ideas and civic responsibility. A Russian lawyer is a compromised idiot without the slightest understanding of the principles of our western English Common law(like innocent until proven guilty by a jury of one’s peers) compared to his western counterpart. That’s what Yukos is really about besides the Putin thug issue.
You really need to read the stupid lawyer comments on the Bahkima site. Clueless.
Please, you can’t sustain a civil society with the garbage that Russian schools teach after you exclude math and science. They refuse to even examine Stalin. When you refuse to examine history you will relive all of the horrors.
Russia hasn’t invested in infrastructure. You need to go to Robert Amsterdam’s blog and read Gregory Pasko’s reports on that issue. The roads are the same as 70 years ago and the life expectancy is reversing into African statistics.
Russian currency is dropping like a rock and may be devalued yet. Chavez has oil too, so what, if foreign investment refuses to go there.
You wrote: “You’re saying that Russia hasn’t invested in the infrastructure to pump the oil out… That’s bull, and you know it.”
It has invested some, but not enough.
Financial Times describes how hundreds of billions, for example, will have to be invested by GAZPROM in the coming years to maintain production: http://www.ft.com/cms/s/0/16c11908-9ba0-11dd-ae76-000077b07658.html?nclick_check=1.
Then there is Novaya Gazeta’s analysis on Putin and GAZPROM starting with this one looking at the problem of GAZPROM and declining production: http://www.novayagazeta.ru/data/2008/63/00.html
And Mironov has written extensively on the problem as well looking both at oil and gas. Vedomosti has an interesting interview with him on their videos section on the topic of GAZPROM: http://www.vedomosti.ru/video/89_189.
Given everything that has happened, which country will now pump hundreds of billions of dollars into Russia to develop their oil and gas fields given the precedent that Russia has set in the past? Even if there is a country foolish enough to want to try, where will they find these hundreds of billions given the credit crisis?
Given how BP was treated in Russia, it will be a long, long time before anyone with real money will “invest” in Russia
ah, time again for the real people to notch another hole in their belts and go to grandma in the countryside for a couple of sacks of potatoes to survive the winter.
Because, people, winter is coming, and in Russia, that is a serious force to reckon with. Russia will need to use what gas there is domestically and the people will have to pay… and pay… and then pay some more.
And that’s why Russia will provoke a war in Middle East (by her proxies, of course) as soon as possible. It will push price of crude back to 150-200 a barrel and that will give the Neo-Soviets lot of breathing space and a time to plan her new adventure…
You write that Russia has zero liberal arts and a dearth of ideas… Pray tell, when did you last attend university there? Your comments are completely idiotic… A country that launches the first satellite, first man in space, and supplies NASA with launch capability even today does not suffer from lack of ideas.
The system there does not train “technicians”. It trains engineers who produce original ideas and implement them in fairly novel ways. Ever wonder why there was such a rush to get at soviet aerospace and mettalurgical tech in the early 90s? Or why both Delta and Atlas launch systems use Russian engines these days???
The other thing is that myself, and my peers, when we came to the US and its public schools, found education here obscenely easy. And Russia, with its literature, theater, ballet, etc. never had “zero liberal arts”, and still doesn;t – considering how cheap higher education is there. Only an ignorant Anglo, a true “product” of the public school system would utter this drivel, as you did.
Note to all visitors to this site:
There are 2 characteristics of a Russian adult that you people absolutely must understand:
1. He/She has a pathological inferiority complex. EVERYTHING they do is posturing amongst each other, and especially amongst foreigners.
2. Russians practically from birth understand the nature of two systems – there is “law” and there is LAW. One is on paper…. The other exists in reality. The intuitively understand which one applies when, when to say what, and to whom. These are people that DO NOT need Trial By Jury, Innocent ’till Proven Guilty, or anything else from the Western tradition. Judging them based on Western expectations is ignorant. Treating them as savages, the way someone like Penny does, is stupid. If they were savages WE WOULD HAVE NOTHING TO WORRY ABOUT. Anfortunately, they are not.
The other thing is, please, please do not speculate on what you don’t know. If you have no technical education yourself, don’t talk about “technicians” or liberal arts in russia. Know when you are out of your depth, and don’t tell me, or anyone else from there, to read Mironov, or some foreigner’s blog about Russian roads…
As a sidenote, if you do indeed want to see russian roads, go there, drive in Moscow City (finance district in Moscow) and then tell me about them. Or anywhere else in Moscow or SpB. And keep in mind that there is no other Russia than those cities – its them and the oilfields.
A few thoughts. You write: “Pray tell, when did you last attend university there? Your comments are completely idiotic… A country that launches the first satellite, first man in space, and supplies NASA with launch capability even today does not suffer from lack of ideas.”
I have visited many Russian universities and I know the education system quite well. I know, for example, that it is important to distinguish the academic achievements made 50, 40 or even 20 years ago with what is happening now. You proudly bring forward the fact that Russia launched the first satellite and so forth, yet these are the achievements of two or three generations ago. The question is what will be achieved by the current generation of Russian students.
Two things must be taken into account when judging the current education system in Russia.
1. Corruption. Over the past two decades, the education system in Russia was beset by corruption. Students could pass exams and eventually graduate by bribing the right professors and the right administrators. How do you know whether the recent Russian graduate actually learned something or paid their way through university?
2. Brain drain and the outward flow of young scholars from Russian academia. Many of the best and brightest of Russia’s scholars left for jobs overseas. Many potential scholars abandoned academia in Russia because of the horrible pay. Consequently, Russia lost an entire generation of potential scholars and is relying on past achievements rather than building for future successes.
As for your peers and their peers, who “came to the US and its public schools, found education here obscenely easy,” this is a common statement that revises nationalistic pride and lifts one esteem. However, if you look at the international statistics and how well Russian students do in international exams, Russian do quite poorly when compared to students in Asia and Europe and even my country Canada. True, the United States does not do very well either when you look at public schools, however the United States is very good at attracting the best of students from around the world who will go to the United States for their university studies. Many stay, and the United States succeeds in getting the best and the brightest in the world, including those from Russia.
You bring up some good points that need to be expounded on, and I would like to do that.
You talk about corruption in the university systems in Russia. This is a very real problem that they have not yet solved. The trouble with russia is that when indeed the government desides to clamp down on something, anything – be it agriculture, or tank production, or literacy, or aerospace science – it gets done. Painfully and cruelly – but gets done. My worry is that this system (higher education) will improve in the next few years, especially as funding for it goes up – funding that tracks oil revenues. While a lot of the achievements I mentioned are from a generation or two ago the people involved are still around and teaching. If education recovers before these people die off or retire, we will be in trouble.
Remember that in the US the generation that brought us ICs and Apollo is also dying off, while a lot of R&D is underfunded or moving to Asia – or both. Some of those jobs, and expertise along with it, is moving to Russia. What sense does that make???
About the brain drain – the influx of Russians into germany, UK, and the US is over. In fact, many are being offered high-paying tech jobs back home, and I personally know numerous people that went back. Whatever the markets may be doing, their companies are hiring, while ours are falling apart.
Michael, you also talk about America’s ability to attract the best and the brightest for studies and permanent residency. This can continue only if the economy here does well; europeans and russians will not come here if there aren’t high-paying jobs to take – that’s the whole point. With slumping job markets and low R&D and basic research spending, we can’t attract smart people in numbers, and rapidly lose our advantage.
I agree about the economy influencing the brain drain. However, what you wrote about Russian-speakers returning to Russia because of high-paying jobs is only true if the high-paying jobs remain high-paying and do not disappear. If (I would say when), the Russian economy is hit by a deep recession, then those high-paying jobs will be the first to disappear. This will push Russians who have foreign passports to leave for greener pastures (or at the very least pastures that are not as brown).
I am not convinced that American R&D is dying off. I will have to see what the stats are first.
Vadim, if that is your real name, “the cost of a Moscow apartment continues to rise. Who’s paying the prce, Jeanne????”
Those guys are doing OK – Moscow buys more S-600 benzes than all of the US combined.
Of course they do, the only people that benefit are the political “class”. Did you say “25%”.
Or why both Delta and Atlas launch systems use Russian engines these days???
Asserting that American weapon systems were developed in russia during the Cold War is completely rediculous. I’m sure that you would point out some obscure point of Russian defection, or similarities of a specific design or even espionage.
To say that America buys motors from Russia is…, there is no word to describe it. I will seek out that word, and track you down just to tell it to you in person.
Vadim, if you haven’t noticed, the global market is falling faster than ours? is. America is still the best place to find a tech job.
When American companies ousource jobs, they are jobs that don’t require a regional location in order to operate. They aren’t exactly technical, I’m still trying to see your side, but I don’t think youv’e thought of it.
Vadim, R&D without R&M is useless.
We can count on you to do it all, can’t we?