EDITORIAL: A tale of a Russian Bull

EDITORIAL

A tale of a Russian Bull

Between February and April of this year, as shown in the chart at left, the Russian stock market (here represented by the RTS dollar-denominated index) staged an impressive rally, gaining 20%.

But in the last few weeks, the market has given up every single dollar of that gain, free-falling over 15% in another breathtaking debacle, the kind for which the Russian market has become hilariously infamous. Hilarious, that is, unless you are in that market yourself.  Then your emotions are rather different.

A serious crisis in Greece spread to Europe as a bailout was requested, and as traders saw the Western economies losing ground they realized that Western demand for Russian oil cold falter.  Since the only real value contained in the Russian stock market is in the form of oil stocks, the bottom dropped out of that market.

Once again, the pathetic weakness of the Russian stock market has been brutally exposed, just in case there was anyone stupid or foolish enough to have forgotten how, just a few short months ago, the market totally collapsed, losing a shocking 80% of its value and wiping out the fortunes of many Russian investors.

The Russian market has no existence independent of oil prices, which have nothing to do with any activity in Russia. There is no innovation, no growth, no diversification. There is only Western demand for oil.

There is, in fact, no such thing as a Russian “stock market.” What exists in Russia in this regard is the same thing that exists in Las Vegas, Nevada, USA.  There is no stock market in Vegas, there is just a gambling casino.  Anyone with dumb luck can get rich there, but almost everyone walks away a loser.  And that is what will happen to you, too, if you are dumb enough to plonk down your money on Russian equities.

There is an old saying in poker: If you sit down at a table to play and don’t see the sucker, the sucker is you.  If you’re in the Russian stock market for any purpose other than to roll dice, you are a sucker.

35 responses to “EDITORIAL: A tale of a Russian Bull

  1. The recent shale gas discovery in Poland cannot but have a huge negative impact on Russian energy profits. Shale gas is everywhere in huge quantities. In order to compete at a profit one must be close to the end user customer.

  2. The editorial is correct the Russian stock market rises and falls based on the price of crude oil, all Russia’s economic eggs are in one basket and that’s commodities 56% oil 16% gas total = 72% the rest is mainly metals and then 7% arms sales. That’s Russia’s narrow economy in a nut shell.

    Russia under Putin has for the last decade embarked on a suicidal economic policy, with a shrinking oil reserve, now only the 8th largest they have turned themselves into the worlds largest oil producer, a staggering 10 million barrels per day (more than Saudi Arabia), this level is unsustainable, but worse than that Russia needs the price of oil to be around $105 per barrel to meet its budget requirements, currently it’s hovering at $80 which means the government has to issue bonds (a promise to pay later) to meet its fiscal requirements.

    Russia has a problem…. China and India have grown there respective economies through cheaply manufactured low Tec consumer goods, they have attracted an army of foreign owned manufactures, these companies have relocated from Europe and the US for one reason only – the availability of uneducated “cheap labour”. Russia a nation with a comparatively well educated workforce can’t compete in this arena; the people will not accept the poverty wages the Indians or Chinese seem to accept (for now).

    This leaves Russia with one last avenue – high Tec industry; for example nano technology, also the emerging new “green technologies, problem is the USA, EU, Japan, Korea, Australia and others are competing with one another in a race to launch new innovations, Russia has many disadvantages, first they entered the race 10 years behind everyone else, second to gain an advantage countries are forming alliances sharing technical data, and ultimately different parts of the manufacturing process Russia does not have these well developed relationships and is largely out on its own playing catch up, sadly Russian innovation is being strangled at birth by bureaucracy and systemic corruption. And to put a “tin lid” on it Russia is not even a member of the world trade organisation, which makes it almost impossible for them to access the markets needed.

    Russia is; based on current conditions -heading towards economic oblivion, only a programme of dramatic political, economic, systemic change can stop this, I believe Russia under this leadership is incapable or unwilling to meet these serious challenges. They can limp on for perhaps another decade or so, until oil production reaches terminal decline, then under these circumstances – the federation break up will begin.

    • “56% oil 16% gas total = 72% the rest is mainly metals and then 7% arms sales. That’s Russia’s narrow economy in a nut shell.”

      Where do the numbers come from? What do they stand for?

  3. The Statistics…. from a Russia Today business report,..What do they stand for…a lack of diversification

    • You have to forgive Dimitry, he is not too bright really.

      Big words like “diversification” send him into a tailspin.

    • “all Russia’s economic eggs are in one basket and that’s commodities 56% oil 16% gas total = 72% ”

      I am sorry to interrupt your intellectual debates, oh men of wisdom, but “56%” and 16% of what stand for diversification?

      I am absolutely sure Anrew can operate “economic eggs”, but I still can not, so I’ll ask again: what do you measure? I.e. 100% of this is what?

  4. Looks like I will have to “spoon feed” you Dmitry.

    Go to Wikipedia type in Russian economy scroll down to trade and you will find this comment;
    “Commodities, particularly oil, natural gas, metals, and timber comprise 80% of Russian exports”.

    This means 80% of Russia’s revenue is from selling raw material, not manufactured goods which should be part of any diverse economies overall portfolio.

    In other words Russia produces NO manufactured products that others want to buy.

    Russia is currently over exploiting its oil reserves and as it declines there is nothing in place to fill the massive fiscal hole this will create

    I can’t be any clearer than that.

  5. While we are on the subject of Moscow and stock markets, I noticed on the list of world’s busiest airports, that Moscow is not listed even once in the entire decade (2000-2010) as being in the top 30.

    Why do you think this is?

    link: http://en.wikipedia.org/wiki/World%27s_busiest_airports_by_passenger_traffic

    The same goes for the list of world’s busiest airports by international passenger traffic.

    Moscow is not listed once on there.

    Hmmmm, wonder why?

    link: http://en.wikipedia.org/wiki/World%27s_busiest_airports_by_international_passenger_traffic

    • What a strange question. I guess Moscow is not listed because it is not one of the top 30 airports by traffic or by international traffic

      • Yes, but any idea why a country of its size would have less passengers and smaller traffic than a country like the Netherlands, which is not even one-tenth its size?

    • Voice of Reason

      Dima, why don’t you come out and tell us what you are trying to prove.

      • I’m not trying to prove anything.

        Because I departed from my usual stance does not automatically mean I have developed some kind of animosity or unfavorable view of Russia.

        It’s just a question.

        Do you know why no Russian airport is not on the list, given the enormous size of Russia?

        • Voice of Reason

          The reasons why Amsterdam is a much busier airport than Moscow are:

          1. Amsterdam is a major hub, and many people change planes in Amsterdam. For example, when I fly from USA to Moscow, I have to change planes in Europe. I prefer to do it in Paris or Amsterdam.

          2. More Dutch people per capita per year travel internationally than Russians

          3. More foreigners per Dutch capita travel to Holland than to Russia on business and tourism

          4. Does Russia allow you to smoke pot legally? :-)

          How is that?

  6. Dima, please stop diversifying, you’re confusing yourself.

  7. Wall Street Journal
    Amy Myers Jaffe
    2010-05-10

    In the wake of Russia’s strong-arming of Ukraine, Europe has been actively diversifying its supply, and shale gas will make that task cheaper and easier.

    Shale-gas resources are believed to extend into countries such as Poland, Romania, Sweden, Austria, Germany and the Ukraine.

  8. Re: Moscow Airport

    I remember a story from the old days. On a flight from Russia to the UK, the pilot on landing said into the PA system, “Well ladies and gentlemen we are back in good old England”.

    The passengers broke into spontaneous applause.

    • That only very partially answers my question.

      Are you stating that the conditions in Russia were so horrid that nobody wanted to fly there?

      And what about today?

      • I flew to moscow on aeroswit a few years ago. The wings of the plane were “flapping like a bird” over the ocean, etc, and I thought that we would fall. When we landed, the russian passengers broke into a spontaneous applause, because we landed safely. I will NEVER fly on a russian plane again.

        • Dude, AerosVit is Ukrainian. The main Ukrainian airlines, basically.

          But you’re still cool.

          Please NEVER fly again at all, don’t risk the world losing you.

        • Voice of Reason

          http://en.wikipedia.org/wiki/Aerosvit_Airlines

          Aerosvit Airlines

          “Aircompany “Aerosvit” (Ukrainian: ЗАТ «авіакомпанія «Аеросвіт», which means “sky world”), operating as Aerosvit-Ukrainian Airlines is an airline based in Kiev, Ukraine. It is the Ukrainian carrier.
          —————————

          LES wrote: “I flew to moscow on aeroswit a few years ago. The wings of the plane were “flapping like a bird” over the ocean, etc, and I thought that we would fall. When we landed, the russian passengers broke into a spontaneous applause, because we landed safely.

          Wow, these people must be as cheap as you, to fly a Ukrainian airline. When flying Kiev-Moscow, most people splurge and take Aeroflot.

          And thanks for making fun of your own Ukrainian airline, LES.

          BTW, what brought you to Moscow? Was this a connection from Kiev to New York/Newark?

          • Voice of Reason

            No, wait. LES wrote: “The wings of the plane were “flapping like a bird”over the ocean

            What “ocean”, LES? Aerosvit Airlines is a Ukrainian airline, and they don’t have any cross-ocean flights to Moscow or any other place outside of Ukraine.

            You must have flown from Newark to Kiev, not Moscow, LES.

            You’ve lied again, just as you lied to us about that boxer killed by your Ukrainian neighbor in New Jersey.

    • “Well ladies and gentlemen we are back in good old England”

      Well, sounds like those ladies and gentlemen had really suffered outside of.

  9. The Russian edition of Newsweek magazine has reported that Russia is planning to move toward a more pragmatic foreign policy in dealing with Western countries.

    The magazine claims it has obtained a confidential Foreign Ministry report outlining Moscow’s new doctrine on foreign policy. The report supposedly lists countries with which Russia plans to develop closer ties to secure future investment.

    Newsweek further claims that the report mentions membership in the World Trade Organisation and the easing of EU visa restrictions as being among Russia’s priorities.
    A preliminary draft of the document is said to have been already approved by President Dmitry Medvedev.

    Russia’s political elite are running scared investment into Russia is at an all time low, in 2009 bi-lateral trade between Russia and the USA fell to a miserable $16 billion dollars down from $36 billion (2008) compare that with the bi-lateral trade between the USA and its closest ally the UK which is around the $500 billion mark and you can see what little economic weight the Russian federation carries.

    This planned move on foreign policy skinks of desperation, its an attempted reversal of KGB Putin’s aggressive foreign policies, Putin alienated Russia’s major investors for example between 2003-6 the UK was the largest single investor into Russia, now the relationship is so poor that no official visit by a UK prime-minister has taken place for years and vis- versa.

    But words are cheap; President Medvedev needs to send a strong political signal that Russia really wants closer ties with the west bringing about the massive investment Russia badly needs. He should sack Putin and force this odious little man to leave the political arena for good.

  10. Obama will help them as much as possible, but it will not help at all. The Russians will rip off anyone trying to establish an industry in Russia so it is a lost cause.

  11. All is Clear. You see: Write Google : Smolensk omon. Bad things have a preventive effect on…

  12. R John:

    That Newsweek article is very interesting. I would think that the Russian elite would be alarmed. Geopolitical events are completely adverse to the Russians plus everybody hates them (except that stupid Obama who was horrified that Reagan brought down the USSR).

    In addition, there is a once in a century political transformation going on the the USA right now which I am glad I lived to see.

    Yes Obama and Putin are disgusting, but observe the good works they are accomplishing that they are too stupid to see.

    • Obama and Putin are disgusting

      Believe me, a person of your mindset would love Putin, would he be an American politician.

      • Aah, Dimwit Dimitry, boy have you excelled this time! your quote ” a person of your mindset would love Putin”, is really sick! Next you’ll be telling Ron that he will be loving that other murderer Stalin.

        You are now confirming your soviet fascist roots good and proper.

        Go on be a devil and enlighten us about your self, like who pays you, what do you do at night, or for that matter during the day.

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