Tag Archives: economics

Special Extra — The Russian Economy, Imploding

The Russian stock market has plunged below the 1400 psychological barrier and, as shown above, its key indexes are down nearly 45% since June

The Russian stock market has plunged below the 1400 psychological barrier and, as shown above, its key indexes are down nearly 45% since June

The Russian stock market continues its freefall, and the Kremlin is in full-on panic mode.  As the graphic above indicates, the RTS metals index is down 45% from its June position, and the other indexes are hot on its heels.  The Moscow Times reports:  “Hit by the news that second-quarter economic growth fell to 7.5 percent, from 8.5 percent a quarter earlier, and a year-to-date inflation figure of 9.8 percent, the dollar-denominated RTS fell to 1,309.49 points, a two-year low, closing at 1,334.33, a fall of 4.4 percent. The more liquid, ruble-denominated MICEX fell 3.8 percent to 1,114.67 at the close, its lowest level in 27 months.”  And this in a climate of radically higher oil prices! Do you dare imagine what would be happening to this market if oil was still at $60 a barrel?  UPDATE:  The following day, the market crashed through the 1300 psychological barrier to close at 1298.08 on the RTS, ignoring the reassurances given by “president” Medvedev, as described below.  The MICEX was flirting with triple digits, and Russia was warned against artificially inflating the market with a government cash infusion, on pain of a reduced credit rating.

Russian “president” Dima Medvedev’s reaction? Pure gibberish, frighteningly unhinged.

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Panicked Investors Flee Putin’s Russia in Droves

The Guardian reports:

For Russia’s leadership, it seemed everything had gone right. In three weeks, the country had invaded Georgia, crushed its military and defied international opinion by recognising the breakaway republics of South Ossetia and Abkhazia. Western threats came to nothing. Russia’s attack on Georgia went unpunished.

But victory has been undermined by an alarming flight of capital. Analysts estimate that, since the war began on August 8, $19bn (£10.7bn) has been withdrawn from the country. The Kremlin is also facing other economic problems. They include a rapid drop in the oil price, which has fallen almost 30% from peaks close to $150 a barrel, and a 9.7% increase in inflation since the start of the year.

Analysts believe the war could become a catalyst for a more profound slowdown following at least seven years of unprecedented economic growth. So far the Kremlin has managed to unite Russians in support for the invasion of Georgia. But as the economy cools, the euphoria is wearing off.

“The war in Georgia has been the major driver of the whole thing. Officially capital flight has been $19bn. We estimate it could be $20bn-$25bn,” said Vladimir Osakovsky, a Moscow-based analyst at UniCredit.

“For most of this year we were viewed as a safe haven. Capital was flowing into Russian markets and into Russian funds. We have lost this safe-haven sense.”

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Third World Russia

Apparently the proud KGB spies who rule Russia believed that the world would be impressed by their military action against tiny, defenseless Georgia.  But in fact, all that has happened is that massive Russian weakness has been exposed.  The world has scoffed at the shoddy, backwards quality of the Russian military hardware that’s been paraded in Georgia (much of it broke down before ever reaching the battlefield) and now the prestigious Investor’s Business Daily remainds us that Russia is “practically a caricature of the stereotypical Third World country.”  Ouch! Nice PR work there, Mr. Putin! The author is Richard Ebeling is a senior research fellow at the American Institute for Economic Research in Great Barrington, Mass.

I was in Moscow just before the collapse of the Soviet Union and spent most of three days at the Russian Parliament building, watching as Boris Yeltsin, standing atop a tank, rallied thousands of fellow Russians to defend their emerging democracy against a then-in-progress coup attempt by Soviet hard-liners. The day after the failed coup, tens of thousands of Muscovites celebrated in a large square behind the Parliament building. As the Soviet flag was lowered and the traditional Russian colors of red, white and blue were raised, the crowd chanted in unison: “Swaboda, swaboda, swaboda” — “Freedom, freedom, freedom.”

How long ago those days now seem, as the recent conflict in the Republic of Georgia reveals. Today’s Russia has fallen back into its historical tradition of a centralized and authoritarian government, a regulated and manipulated economy, and suspicion and hostility toward the West. Gone are the days when Russian President Vladimir Putin appeared to be moving his country in a free-market direction by dramatically lowering business taxes, introducing a 13% flat income tax, reducing bureaucratic regulations and using export revenues to pay off Russia’s foreign debt.

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Special Extra — The Russian Stock Market, in Freefall

The Russian stock market is in freefall

The Russian stock market is in freefall

One picture truly is worth ten thousand screams as the Russian stock market closes this week.  The RTS index is down over 6.5% on Friday, just one day, barely above 1400, down one thousand points or an astonishing, appalling 40% down since its summer high of 2400.

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Aslund on Economic Cold Warfare

Writing in the Moscow Times Anders Aslund, a senior fellow of the Peterson Institute for International Economics and the author of Russia’s Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed, gives Russians the bad news about their economic future under the dictator Vladimir Putin, a proud KGB spy with no economic training who has never run a business.  Following, a second piece from Aslund in which he explains how Russian economic weakness can be exploited in the new cold war to the West’s advantage.

Aug. 8 stands out as a fateful day for Russia. It marks Prime Minister Vladimir Putin’s greatest strategic blunder. In one blow, he wiped out half a trillion dollars of stock market value, stalled all domestic reforms and isolated Russia from the outside world. Russia’s attack on its small democratic neighbor was bad enough, but its recognition of two conquered protectorates as independent states has been supported only by Hamas, Belarus, Venezuela and Cuba. Putin is turning Russia into a rogue state.

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Foreign Investors Flee Putin’s Russia

Since August 6th when Russia invaded Georgia in a wanton act of imperialist aggression, the Russian stock market has lost a stunning one-sixth of its  total value

Since August 6th when Russia invaded Georgia in a wanton act of imperialist aggression, the Russian stock market has lost a stunning one-sixth of its total value

Investors Business Daily reports:

In contrast with the West’s otherwise tepid response to Moscow’s new nationalism, one group has taken a tough stance — investors, who are leading the march out of Russia’s markets.

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EDITORIAL: Putin, Enemy of Markets

The Russian stock market tracks the Georgia crisis

The Russian stock market tracks the Georgia crisis

EDITORIAL

Putin, Enemy of Markets

The Moscow Times reported on Wednesday:  “Russia stocks slumped badly Tuesday as concerns over the continuing Georgia crisis fueled investor pessimism . . . .  The dollar-dominated RTS index sank 5.2 percent to 1,685.6 points, its lowest since November 2006, while the ruble-denominated MICEX Index dropped 6 percent to 1,361.54 points, its steepest fall in almost seven months.”

As the chart above clearly shows, between August 6th, when Russia invaded Georgia, and August 10th, when it agreed to a ceasefire at the urging of French President Nicholas Sarkozy, the market lost over 10% of its value.  It then recovered on news that the country would stop fighting, only to plunge again when it became clear that Russia had no intention of keeping its promise to Sarkozy, as world condemnation escalated.  Informed investors understand the basic reality:  The Russian market is a hollow fraud, utterly dependent upon the fluctuating market for crude oil, with no normal foundation based on diversity and consumer production.  On top of that, Russia is governed by a rogue regime capable of seizing assets and starting unwinnable wars at the drop of a hat, isolating Russia from world markets and terrorizing businessmen of all stripes.

The Motley Fool gets it:  “With all that’s occurring in Russia these days, I’m wondering how long it’ll be before Western investment in that nation grinds to a halt.”  They say Russia is now an “investment gulag.”

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