The Times the are a-Changin’
A year or so ago, when the U.S. and Russian stock markets were at historic highs, the ratio between the two was roughly 6:1. The U.S. Dow Jones average was valued at 14,000 while the Russian RTS average was at 2,400.
Times have changed. Both the U.S. and Russian stock markets have suffered debiliating setbacks, but the impact on Russia has been far, far worse. Today, the Dow Jones stands at 7,500 while the RTS is at 500. That means the ratio betwen the two is now on the order of 15:1. The relative size of the U.S. stock market compared to Russia’s has, in other words, increased by more the double following the onset of the global economic slowdown. It now stands in the appropriate ratio given the relative sizes of the two countries’ GDPs.
Last Friday shares in Russia’s leading (and state-owned) banking institution, Sberbank, lost 10% of their value, and the RTS closed down nearly 6%. Russia’s massive energy monoply, Gazprom, was down 8%. The RTS was down 100 points from 620 at the beginning of the week, posting a loss of 16% on the week and once again flirting with crashing through the critical 500-point psychological barrier.
Between February 11th and 18th, Sberbank’s shares plunged from $0.56 to $0.40 in value — a loss over the course of one week of $0.16 or a nearly 30% of their total value, a stunning figure for a financial institution not onlyh backed but run by the Russian government itself (on Monday, Sberbank stock retreated another whopping 10%). Gazprom, equally synonymous with the Russian government itself, saw its shares on the RTS plummet from $3.60 to $3.00 during the same period, a loss of almost 17%, horrifying but not all that bad when compared to Sberbank.
And the Kremlin is getting very, very desperate. Streetwise Professor points out that it has just inked a deal with China in which it has basically sold its soul for investment capital. Russia gets a $25 billion loan in exchange for 15 mllion metric tons of oil at a fixed price for 20 years. Russia has apparently promised China a price of $20/barrel, meaning that the effective interest rate it will be paying China, in addition to guaranteeing it a flow of oil for decades, is a whopping 23%. SWP is not surprised: “Given the dire financial straits of Rosneft, and the strong Chinese bargaining position, and their reputation for hard-nosed negotiating, I would expect the Chinese to be able to extract a very nice deal. ”
As Vladimir Putin’s chokehold on Russia tightens, things are getting worse and worse. Unemployment is rapidly approaching double digits, the value of the ruble has crashed and the nation’s savings account has been squandered in a futile attempt to stave off the crash. Russia, quite simply, can no longer afford the ignorant incomptence of the KGB simpleton tho rules it.