The Dog Days of August for the Russian Stock Market
August is historically a nasty month for Russia. And true to form, in the first ten days of the month this year, the Russian stock market lost a truly breathtaking 20% of its value, plunging from 2000 to 1600 on the dollar-denominated RTS index. The losses were actually far worse than they appeared, because the Kremlin had been feverishly pumping Russia’s precious reserves into the market to artificially inflate demand and limit the damage.
But even worse than the numbers was the reason for them. Julian Rimmer, a broker in Russian shares at CF Global Trading in London, explained: “Russia is entirely hostage to external factors. The only thing which can arrest the decline would be some form of concerted — and simultaneous — central bank policy response. The perceived lethargy and lack of unanimity is extremely damaging.”
“Entirely hostage.” Ouch. “Lethargy.” Double ouch. Nice work there, Mr. Putin!
The “external factors” Rimmer was referring to were simple: Russia’s dependence on the sale of crude oil and the fact that the price of crude is set on world markets Russia cannot control and heavily influenced by American ability to buy oil — America being a country with which, as we report in our lead editorial today, Russia is at war.
In other words, the Russian market plunged because the American market plunged, and there was nothing that Russian policymakers could do about it — but their general cluelessness made the problem that much worse.
The Kremlin was soon announcing that the economy was so weak that a massive borrowing campaign was underway which would triple the national debt within two years.
Things are so bad that there are actually signs of real opposition in the Russian Duma. First, as we report in today’s issue, the Just Russia party’s leader, Gennady Gudkov, vice chair of the Duma’s Security Committee, blamed the Kremlin for a sensational mass killing in Tula:
The country and society are seriously sick and may already be untreatable. The country is wallowing in corruption, theft, and hypocrisy, and all of this is reflected in incidents like the one in Tula. We need to understand very clearly that this is a reflection of the general symptoms of the degradation of the nation.
Then, as we reported in our last issue, another member of the party, Sergei Petrov, boldly declared that Russia would disintegrate before 2020 because of the Kremlin’s mismanagement. Statements like these are unheard of under the Putin regime, and they are distinctly reminiscent of the type of verbiage tossed about in regard to Boris Yeltsin. Uh-oh, Mr. Putin!
Russians have chosen to be ruled by a clan of KGB spies with no real business experience and no idea how to build a diverse and vibrant market economy. Instead, the only thing this group knows how to do is lie and kill. And that government has chosen to behave like a hooligan rather than a world leader. In the words of Moscow Times columnist Alexei Bayer:
Earlier this year, when the Middle East was thrown into turmoil, Russia had an opportunity to become a responsible oil supplier and a true member of the Group of Eight. It should have taken a lead in calming world markets. But the opportunity was missed. Russia remains the troubled teenager of global politics. It is more likely to pointlessly criticize and provoke the United States than work within the framework of the international community.
Yes, Russia is a troubled teenager, a reckless child experimenting with drugs and crime rather than buckling down to do serious work and turn itself into a leader. Russians are not interested in the reality that should tell them they are too insignificant and vulnerable to directly provoke the United States, instead they prefer to live in the same perverse world of self-deception that paralyzed an destroyed the USSR.
But where is the evidence that Russia will ever grow up? Are things getting better in Russia, or worse? Are the people becoming for free and more responsible? We don’t think so. We think that Russia is governed by “parents” who are even more reckless and crazed than the “children” they are supposed to be raising, and that as such Russia is a country that has no future.