Special Extra: Freefall on the Stock Market, Redux

The MICEX in freefall

The MICEX in freefall

The Russian stock market is back in freefall.  For the second straight day, the dollar-denominated RTS exchange was shut down to stop horrific financial bloodletting, this time after less than half a day’s trading had taken place.  The index plunged by over 4.5% and was artificially halted at noon Moscow time at the shocking value of 577.  Mighty Gazprom’s shares were down nearly 6% as the price of oil continued to plummet precipitously. Once again the Russian market, supposedly a “leader” among emerging economies and “insulated” by fossil fuels from world market vagaries, bore the brunt of world losses and was easily out-performed by nations like Poland.

The ruble-based MICEX index, where most of the trading action occurs, was also hammered even more for second straight day and was down nearly 6%.  Unbelievably, the MICEX was already flirting with dropping below 500, by noon having a value of just 528 points.

The U.S. dollar measured in rubles

The U.S. dollar measured in rubles

And yet, the Russian ruble still remained stable, almost a perfect flatline on the chart both in the past two days even though, as the two charts reveal, the last time the MICEX plunged the dollar soared. In fact, the chart actually betrays a slight uptick in value! Untold billions of rubles are being squandered by the regime as it desperately tries to stave off breakneck consumer price inflation, and loss of national prestige, should the ruble enter the same type of freefall as the stock market itself — squandered even though the regime has publicly admitted it can’t afford to do so.  With the price of oil dropping below $50/barrel, the Kremlin risks total financial collapse if it continues on its current path.

The World Bank now says the Kremlin was lying when it claimed it would have net capital inflow for 2008, and will in fact have a net loss of investment capital of at least $50 billion.  What’s more, economic growth projections were slashed from 6.8% to 6% this year and from 6.5% to a mere 3% next year.

UPDATE: In shamelessly brazen fashion, after the market shutdown the Kremlin entered the markets in a frenzy of buying and drove the RTS back into 600 territory.  Who do these guys think they are fooling?  The Russian stock market begins to take on the indicia of a pyramid scheme.

4 responses to “Special Extra: Freefall on the Stock Market, Redux

  1. A comment for Cathy as she must be reading.

    This from the article that LR cites:

    “In another forecast the World Bank said it is expecting Russia’s oil-dependent economy to grow 6 percent this year and 3 percent next year, down from earlier projected 6.8 percent and 6.5 percent.”

    As you can see the projected GDP is in free fall for next year, and even the World Bank is predicting this. We went from 8% growth projections (give or take) from the World Bank for next year, to 6.8%, and now to 3% GDP growth projections. What will the World Bank’s next projection be? 0% growth? -3%?

    You were arguing vehemently that Russia’s GDP wasn’t at risk and wanted me to cite World Bank or IMF stats. Well, here they are. I told you so.


  2. This is what Gazeta.ru has to say today:

    “Всемирный банк прогнозирует тяжелый для России 2009 год. Темп роста ВВП резко упадёт, инфляция увеличится, а безработица вырастет. Всё будет зависеть от цен на нефть и оттока капитала из страны. Российские чиновники, банкиры и эксперты считают, что все может быть еще хуже.”

    “The World Bank is predicting a difficult year for Russia in 2009. The rate of growth of the GDP has sharply dropped, inflation is increasing and unemployment growing. All depends on the price of oil and the flight of capital from the country. Russian bureaucrats, bankers and experts consider that it all might get worse.” (my translation)

    The source and article entitled “It will get worse”: http://gazeta.ru/financial/2008/11/18/2887422.shtml.


    We can’t thank you enough for so reliably adding value to our blog!

  3. Point of information: how did you determine that the Kremlin entered the market after the market had shut down, driving the RTS back into 600 territory? Just wondering how that’s done, and how you found out…


    Point of explanation. Are you daft?

    (1) The stock market is plunging, the Kremlin pulls the plug, then suddently it’s not plunging. What other explanation can you offer for this rapid turnaround? If none, pipe down. (PS: You do know that the Kremlin has opening admitted, as documented here, that it is entering the market to create artificial demand, right? I.E., you don’t just look at this blog but actually do read it, right?)

    (2) This is an EDITORIAL, where we give our OPINIONS. See how that works?

    (3) You don’t REALLY expect us to tell you ALL our secrets, do you?

    (4) Dude, who do you think you are kidding?

  4. Hugo Putin, sorry, Vladimir Chavez, ooops sorry again, Vlad and his talking head, Dima Malignancy says all will be OK. Oh yes, the dollar is going to fall to 12 roubles.

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