Special Extra: Freefall on the Russian Stock Market

A Market in Freefall

A Market in Freefall

Yesterday the Russian government announced that it could no longer afford to defend the Russian ruble on the currency markets, having squandered already a huge portion of its cash reserves doing so and simultaneously creating artificial demand on the Russian stock exchanges to prevent them from totally collapsing. On top of that, the price of oil on world markets dropped below $60 per barrel, a stunning cut in price from the $140 it had reached a few months ago.  The result was entirely predictable:  The Russian stock markets went into freefall.

The Russian stock markets had already plunged 75% from their high six months before, the same sort of drop that was achieved by U.S. markets over the course of several years during the Great Depression, America’s worst-ever economic disaster.

And now it has gone even lower, hardly surprising in light of the most recent apocalyptic bad news concerning the ruble, a harbinger of a massive new round of crippling inflation as the prices of foreign goods, which Russia must import in huge quantities since its feeble economy is not sufficiently productive, begin to rise dramatically. 

Hovering at 825 at the beginning of the week, by midday on Wednesday the RTS dollar index, shown in the chart, had plunged to well below 650, a gut-wrenching loss of more than 20% in less than two days. It was then shut down at 1 pm Moscow time (the MICEX ruble index, apparently, wasn’t even allowed to open on Wednesday).  Amazingly, this loss actually vastly understated the true state of the markets, which had been shut down for an extended period the day before as well and which are seriously skewed by the Kremlin’s own purchases.  Discounting for these two factors, there is no telling how low the RTS index might be right now.

When America experienced these kind of failures, it replaced president Herbert Hoover with Franklin Roosevelt, from the rival political party — just as it has recently done again by replacing George Bush with Barrack Obama.  And Russia? It doesn’t even have an opposition political party, because Vladimir Putin in his infinite wisdom has liqudated all of them. And even if one existed, it’s unlikely that Russia’s nation of lemmings would have the courage or good judgment to empower it.  They seem to be chanting like zombies that Putin should go down with their ship, all hands and every passenger.

Meanwhile, the Kremlin’s response has been to insanely ratchet up tension in the cold war by threatening to install nuclear missiles in Kaliningrad.  In yet another humiliation for Putin, his regime has already been forced to back away from its crazed bellicose rhetoric, and the nation’s economy continues to implode.

5 responses to “Special Extra: Freefall on the Russian Stock Market

  1. Understanding Oil Prices for Russia:

    145 $ – The current world order should be questioned, we demand multipolarity !

    130 $ – Moscow should become a new center of economy

    120 $ – We are not afraid of the new Cold War

    110 $ – Georgia should be crushed!

    100 $ – Why is the whole world against us?

    90 $ – I think we exaggerated in Georgia

    80 $ – We are ready to have international observers in the conflict zones

    70 $ – We are biggest ally of US, right Barak?

    60 $ – Just a reminder, we still poses numerous nuclear war heads

    50 $ – We are ready for negotiations

    40 $ – We support Georgia’s and Ukraine’s integration with NATO

    30 $ – We demand Georgia’s and Ukraine’s integration with NATO !

    20 $ – Vladimir and Dimitry fled, Moscow is Free

  2. @Luis: :lol:

  3. You nailed it, Luis.

    Here’s hoping for a sustained fall in oil prices, it will make life harder for the petro-thugs, Hugo Chavez and Iran included.

  4. Just a question, since I am a beginner at all this. Since petroleum is a comodity, and in US if you trade in comodities you can get yourself into negative numbers and end up owing money. Can the RTS go into negative numbers and end up owing? Can someone answer this since I am new at all this economics stuff.

  5. Barb, you can get yourself “into negative numbers” if you trade anything using a leveraged brokerage account (an account funded with borrowed money), or if you “short sell.” However the RTS (or any stock market) cannot “go negative” as a whole. What it would imply if the market as a whole “went negative” is that someone would “pay you” to take their stock. If the stock of a particular company becomes worthless, you might just toss it in the trash, but you’d hardly be willing to pay someone else to accept it from you.

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