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Yeah, one of the problems of talking heads and their predictions is there is vitually no cost. The get lots of attention and accolades when they guess right and virutally no blow back when the get it wrong. This is one of the reason we see lots of predictions some of them kind of wild. Keep your grains of salt handy. Even for Steve :)

I listened to a really interesting pod case from Freakonomics recently about this - http://freakonomics.com/2011/09/14/new-freakonomics-radio-podcast-the-folly-of-prediction/

Just started reading the book "freakonomics" and can really recommend it based upon first parts. For critical thinkers it won't be that shocking but nice to read anyway, applied economic tools on everyday events dismissing a lot of "conventional wisdom".

P.S. Great forum actually can be bothered to read and reply on my phone. First time!

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The country is not running out of money.  The banker opportunists are taking advantage of a crisis to make a few billion Euro/USD.  While this is a bit larger than '08, the same thing happened then.  And happened before that...  I didn't panic then and I'm not panicking now.  This is nothing new in this country.

The debt is higher than the assets and the profits that were supposed to pay that debt have vanished.  Yes Russia has money, but that money is fast disappearing when the financial controls are being used to try and protect oligarch friends and poor foreign policy versus the Russian economy.  It gives me no satisfaction to see that millions of Russians are again going to suffer from a leadership that doesn't care about them.  It is true pretty much everywhere, but I think Russia is going to be the poster child next year for disaster economies.

 

More stuff.

 

Ian Bremmer, the president of the Eurasia Group, a consulting firm, summed up the financial dangers facing Russia in one tweet:

"Yesterday the ruble had its biggest drop in 16 years. Today, its biggest drop in 16 years again. 16 years ago Russia defaulted."

Bremmer was referring to Russia's economic meltdown in 1998, when interest rates reached 100 percent annually, Russia defaulted on its debt, and its economic woes spread to other developing economies.

There's one big difference today. Back then, Russian President Boris Yeltsin was on good terms with the West, which came rushing in with billions of dollars to help stabilize Russia's economy. It was a painful period for Russia, but eventually the crisis eased, and the following year Yeltsin named a new prime minister — Vladimir Putin.

Putin's antagonistic relationship with the West means no such help is likely this time.

http://www.npr.org/blogs/parallels/2014/12/16/371167500/has-vladimir-putin-just-overplayed-his-hand

Edited by sburke

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Uh oh, disaster has struck!!

 

Dec. 16 (Bloomberg) –- Apple has halted online sales in Russia due to “extreme” ruble fluctuations, the company said. Bloomberg’s Tom Giles reports on "Bloomberg West.” (Source: Bloomberg)

 

Actually that is really bad, but just funny to see Apple being the critical item Bloomberg is looking at.

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Probably not helped by Steve Job's memorial in St Peterburg getting dismantled after current CEO Tim Cook came out as gay.

 

“In Russia, gay propaganda and other sexual perversions among minors are prohibited by law,” a statement issued by ZEFS reads.

The memorial, it continued, was “in an area of direct access for young students and scholars”.

 

 

Uh oh, disaster has struck!!

 

Dec. 16 (Bloomberg) –- Apple has halted online sales in Russia due to “extreme” ruble fluctuations, the company said. Bloomberg’s Tom Giles reports on "Bloomberg West.” (Source: Bloomberg)

 

Actually that is really bad, but just funny to see Apple being the critical item Bloomberg is looking at.

Edited by Wicky

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The country is not running out of money.

No, but the Government is. Or at least, it's running out of money that's worth anything outside its borders.

 

Just started reading the book "freakonomics" and can really recommend it based upon first parts. For critical thinkers it won't be that shocking but nice to read anyway, applied economic tools on everyday events dismissing a lot of "conventional wisdom".

P.S. Great forum actually can be bothered to read and reply on my phone. First time!

I think the ideas in Freakanomics have been around long enough now to percolate into the canon of general critical thought. 'Twas a pretty original laying out of the insight at the time of its first publication, though. And it remains a shame that they're not more widely considered in public affairs. Freakanomics is kinda the Naughties "Peter Principle".

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If you had a large portfolio in Russian stocks, you have my sympathy. The only solice I have for you is its not a real loss until you sell. If you're a gambling person Russian junk bonds is a high risk, high reward bet, same could be said for upside call bets on anything Russian related. If you have real big gonads of steel the FOREX is the place for you.

 

Other useless words of wisdom-or actionable intelligence.

 

We've had currency crisis before. The Asian currency crisis in 1998 comes to mind. One caveat is the Asian nations involved in the 1998 crisis weren't as aggresive as Russia and didn't have a large military and nukes, nor facing a hostile America about to impose sanctions. In fact the full weight and good faith of America was behind solving the Asian currency crisis. In the case of Russia the full weight of America is behind destroying Putin. All I have to say is be careful of a wounded animal. You can be right and still get a black eye or worse....

 

As Warren Buffet has said time and time again-be greedy when everyone is fearful and fearful when everyone is greedy.

 

Oil prices have collapsed. Russia holds large gold reserves and could easily begin to sell that to raise cash, thus further depressing the price of gold, silver, copper and other commodities.

 

Some have said the fall in oil, gold and commodity prices is the deflating of the Fed commodity assest bubble created by artificialy low interest rates policy. You learn in school there are 3 branches of govenment. I would argue that is incorrect. The 4th branch of govenment and the most powerful is the Federal Reserve. Ben Bernanke was a avid scholor of the Great Depression. The new Fed head Yellen I'll withhold judgement on.

 

If you're in the Bernanke school of thought the collapse of the German economy lead to the rise in facism and Hittler. Could that also hold true in todays Putin lead Russia? On the other hand I can't see Obama not imposing sanctions on Russia given todays political climate and reality in American politics. The political impetus is for an iron hand not a velvet touch when it comes to Russia.

 

So the quiz for today is what assest(s) benefit from what has to be a rising interest policy environment in America?

Edited by db_zero

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The country is not running out of money. The banker opportunists are taking advantage of a crisis to make a few billion Euro/USD. While this is a bit larger than '08, the same thing happened then. And happened before that... I didn't panic then and I'm not panicking now. This is nothing new in this country.

Russia has not experienced anything like this before. As was pointed out before, the last time (1998) there was help from the West, both governmental and markets. In this case the problems today are in part a result of confrontation and alienation of the West. There will be no bailout of Russia unless there is *massive* change in Moscow. And by that I mean Putin steps down peacefully.

Russia currently has money, true enough, but it's not enough to last through 2015. If you add up how much the Russian state controlled industries owe international investors + the current budget shortfall you get a total that is in excess of Russia's total cash reserves. And that's just two big ones. That doesn't include any money for economic stimulus or currency protection, not to mention brand new spending such as a bridge at Kerch, the $50 Billion in fines for illegally nationalizing Yukos assets, or the amount Russia has to come up with to fund the pipeline to China. Add those last three things together and Russia is in debt in the amount of roughly $135 Billion, though not all in one year. The continued expenses for incorporating Crimea into Russia and the war in Donbass are yet more items that need to be figured in. There's all of Putin's unfunded talk of buildnig up Russia to be food independent of Europe. How about brand new arctic oil exploitation that is supposedly under way now? Oh, and who here thinks spending in Chechnya is not going to increase? Who hear has faith that the Kremlin hasn't "cooked the books" to show positive balances in places that have none? The list goes on and on and on.

My very short off-the-top-of-my-head list shows Russia is going to have to make MASSIVE and IMMEDIATE cuts to domestic spending or Russia will for sure default on its foreign debt. That will condem Russia to economic ruin for years.

And every time the Ruble and crude price drops, the gap between what Russia owes and what it spends grows larger (with some limited exceptions).

Putin had 12 good years to make real market and social reforms, work to reduce corruptoin, and forge mutually beneficial arrangements with other countries. He did exactly the opposite in all cases. Russia now stands alone in the middle of a disaster nearly completely of its own making. The average Russia is the one that will have to pay for it. I do feel sorry for most.

Steve

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Yeah, one of the problems of talking heads and their predictions is there is vitually no cost. The get lots of attention and accolades when they guess right and virutally no blow back when the get it wrong. This is one of the reason we see lots of predictions some of them kind of wild. Keep your grains of salt handy. Even for Steve :)

Yup, even for me :)

The thing I do differently than most economist and investment pundents is I look at the history of the larger events, not just balance sheets or what key investors are saying in smoke filled back rooms. I then apply a decent knowledge of how markets and basic banking work. I understand that both are emotionally driven and that means when times are good they tend to over invest/lend, then when times go clearly bad none of them want to be the ones holding the bag. The trick is knowing what the trigger point might be to push things from a simple correction to major reversal, then figure out what conditions would cause it to go all the way to panic.

With that in mind I look at historical examples for guidence on what factors are important for that specific country and adjust as necessary to current circumstances. Then I look at the known strengths and weaknesses of the major players involved in the current drama. Based on that, I make a guess about the trends and the events to watch for, then sketch out likely results of various scenarios. It's hardly perfect, but it seems to be better than what the talking heads come up with when events are this big. Partly becaue those guys don't want to see things go towards panic because they often have a financial stake. I don't have that sort of constraint since I don't.

Where I often fail to predict accurately is the timing of various outcomes. The primary reason is that emotional reactions are almost always a key component. Those are notoriously difficult to pin down to a calendar date.

Steve

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If you had a large portfolio in Russian stocks, you have my sympathy. The only solice I have for you is its not a real loss until you sell. If you're a gambling person Russian junk bonds is a high risk, high reward bet, same could be said for upside call bets on anything Russian related. If you have real big gonads of steel the FOREX is the place for you.

 

 

Like these guys?

 

http://www.bloomberg.com/news/2014-12-16/russia-crisis-hits-pimco-fund-wipes-out-options-as-ruble-sinks.html

 

 

Pacific Investment Management Co. (PEBIX) is facing mounting losses on its Russian bond holdings; almost every bullish ruble option contract registered in the U.S. has been made worthless; and foreign-exchange brokers in New York and London told clients they’re no longer taking ruble trades. Sergey Shvetsov, a first deputy central bank governor, expressed astonishment at the scope of the collapse during a conference in Moscow.

Pimco’s $3.3 billion Emerging Markets Bond Fund has been one of the hardest hit. It held $803 million of Russian corporate and sovereign bonds at the end of September, equal to 21 percent of total assets, an amount that’s more than double that of the benchmark it tracks, according to data compiled by Bloomberg. The fund has lost 7.9 percent in the past month, trailing 95 percent of its peers.

One interesting item in this article is they attribute the prevention of a route to the reassurance that Russia would not institute capital controls.

The ruble sank beyond 80 a dollar, a record low, as panic swept across Moscow’s financial markets before it rebounded after Economy Minister Alexei Ulyukayev denied speculation the government would impose restrictions to stop Russians from converting cash into dollars.

However in the same article it re affirms that everyone is still expecting them

“Our traders are informing me that we see no bids to buy rubles,” SEB’s Hammarlund said. “I thought 17 percent would give them at least a month of breathing space. We next have to look at the experience in 1998-1999. We are also one big step closer to capital controls.”

Interesting perspective if one looks back at WSJ article in October.  They were warning about December when a large pile of debt becomes due and that was when the Ruble was trading at 40....

Russian companies are clamoring for dollars to repay and refinance debt, adding to the relentless pressure on the crumbling ruble.

Debt repayments from companies and banks are light for now. But markets are anticipating the hump that comes in December, when around $34 billion in debt and interest repayments fall due, according to data from the central bank.

With sanctions in place, many firms are largely frozen out of international debt markets and unable to roll over that debt. That leaves them turning to the open market for dollars, jacking up the cost of buying them.

Mixed in with a sliding oil price, signs of Russian economic weakness, and persistent outflows of banking deposits, that keeps the ruble—already stuck at record lows—under heavy pressure.

“The pressure on the ruble is now coming from the corporate sector. Several Russian companies have a lot of maturities coming up and can’t roll this debt,” said Viktor Szabo, emerging-market investment manager at Aberdeen Asset Management, a company which manages £331.2 billion ($535.48 billion).

Russian oil giant Rosneft, ROSN.MZ -4.79% which has been sanctioned by the U.S. and the E.U., has one of the largest short-term debt loads to manage. It needs to repay about $13 billion in foreign-currency denominated debt this year, and a further $18 billion in 2015, according to Bank of America Merrill Lynch.

Russian gas producer Gazprom, SIBN.MZ -2.11% which is prohibited from raising finance in the U.S. but not in the E.U., has to repay almost $8 billion this year, Bank of America data show.

Russian firms as a whole, excluding banks, have about $52 billion of loans and bonds maturing over the next six months, according to Russian central bank data. “The rollover cliff is on,” said Luis Costa, an emerging-markets analyst at Citigroup in London.

Some of that thirst for dollars will be met by overseas parent companies, or from countries that haven’t imposed sanctions on Russia. But that will still leave an overhang, the size of which is tough to guess.

Edited by sburke

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I agree witht the school of thought that the current crisis is more a result of long term Russian economic and leadership problems more than sanctions or any specific action in the West. In fact, it appears the trigger of the panic selling was the Kremlin doing another major oil sector assest grab. Markets didn't like the Yukos grab and times were much better then. Now that things are generally crap, and this time it was a Putin ally (until recently) and not Putin enemy, it appears critical mass of negativity hit the markets.

The West did not force Russia to eschew economic reforms or reverse progress towards a more free society. Certainly the West didn't force Putin to accelerate and increase theft of public money for use by oligarchs and the security apparatus. The West did not suggest that Putin should pursue a lopsided and self serving counter to the EU with former Soviet states. It's also groundless to suggest the West caused the tepid response from former Soviet states to the terms and obvious purpose of the Eurasian trade deal. Despite Russia's deliberate attempts to deceive, the West did not cause Russia to help create Yanukovych and keep him in power. And above all else, the West didn't cause Russian political and military forces to take over Ukrainian territory for annexation. In no way, at all, did the West cause Russia to invade Ukraine and then refuse every single attempt to allow Russia a face saving way out of the mess it created. The provocative bomber flights, air space violations, and the game of "find the sub" in Swedish waters wasn't something the West controlled either. The West didn't shoot down a civilian airliner either.

The West didn't ask for this, didn't want it, did it's darndest to ignore it, and is still struggling with those who favor outright appeasement. Yet the West is still stuck with a nuclear armed autocratic state that is in massive economic turmoil and involvement with a war of aggression. The West is also going to suffer a financial hit from "blowback" caused by this crisis. Worse, the West is being blamed for it by said autocratic state.

Fun times :(

Steve

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Like i said options is high risk high reward. If they were playing with money they couldn't afford to lose then they were in the wrong business.

LOL well it was other people's money so yes "they" could afford to lose it.  Isn't that what the last bubble was about?

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Fun times :(

"Fun" as in "I'd have rather read about these times in a history book, than live in them".

The consequences of a Russian default would probably hit the hardest German banks... and following that, well, pretty much anything can happen, really.

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I agree witht the school of thought that the current crisis is more a result of long term Russian economic and leadership problems more than sanctions or any specific action in the West. In fact, it appears the trigger of the panic selling was the Kremlin doing another major oil sector assest grab. Markets didn't like the Yukos grab and times were much better then. Now that things are generally crap, and this time it was a Putin ally (until recently) and not Putin enemy, it appears critical mass of negativity hit the markets.

The West did not force Russia to eschew economic reforms or reverse progress towards a more free society. Certainly the West didn't force Putin to accelerate and increase theft of public money for use by oligarchs and the security apparatus. The West did not suggest that Putin should pursue a lopsided and self serving counter to the EU with former Soviet states. It's also groundless to suggest the West caused the tepid response from former Soviet states to the terms and obvious purpose of the Eurasian trade deal. Despite Russia's deliberate attempts to deceive, the West did not cause Russia to help create Yanukovych and keep him in power. And above all else, the West didn't cause Russian political and military forces to take over Ukrainian territory for annexation. In no way, at all, did the West cause Russia to invade Ukraine and then refuse every single attempt to allow Russia a face saving way out of the mess it created. The provocative bomber flights, air space violations, and the game of "find the sub" in Swedish waters wasn't something the West controlled either. The West didn't shoot down a civilian airliner either.

The West didn't ask for this, didn't want it, did it's darndest to ignore it, and is still struggling with those who favor outright appeasement. Yet the West is still stuck with a nuclear armed autocratic state that is in massive economic turmoil and involvement with a war of aggression. The West is also going to suffer a financial hit from "blowback" caused by this crisis. Worse, the West is being blamed for it by said autocratic state.

Fun times :(

Steve

What a great summary.

Fun times indeed. When do we get the game to take our mind off it all?

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LOL well it was other people's money so yes "they" could afford to lose it.  Isn't that what the last bubble was about?

 If you were in any open FOREX positions when Russia announced the surprise 7% rate hike that must have been interesting. A 7% change is massive and combine that with the way you're allowed to use margin/leverage in the FOREX can lead to massive losses if you happen to be positioned wrong.

 

Sounds like Pacific Investment Management Co had large positions in Russia that began to crumble and they didn't get out or hedge properly. I don't know much about the firm nor do I have any position in Russia.

 

However after the beating the Russian related equities took and you have cash to burn, then it may be a time to so some selective buying-but at very great risk, just like it was after the DOW dropped 400 points the past few days-although I would personally think the DOW is far less risky to buy after the dip than Russia by a mile. Personally I have no interest in Russia. If I though oil and nat gas would go back to previous levels then I would be very interested in Russia and the ruble after the recent drop.

 

I just don't believe oil and nat gas is going to rise to the levels they were at, so I'd avoid Russia myself.

 

America is the place I prefer to be in at the moment.

 

As for Russia, well Putin is a dictator, but at least he is a known entity. How many time have we recently tinkered with Dictators we didn't like and what resulted in the power vaccum that followed?

Edited by db_zero

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 ...

 

As for Russia, well Putin is a dictator, but at least he is a known entity. How many time have we recently tinkered with Dictators we didn't like and what resulted in the power vaccum that followed?

 

Yeah, but we're not tinkering now, he's doing it all by himself...

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Yeah, but we're not tinkering now, he's doing it all by himself...

This is the most important fact to focus on. The West didn't set up Russia for failure... Putin (and his allies) did. All the West is guilty of is not propping up a failing dictator.

Again, the lessons of history show that governments come and go on a regular basis. Democracies, for all their MANY failings, have an system that is inherently designed for changes in power. Which is why they survive major crisis points, internal and/external, largely intact (which is sometimes part of the problem). This is not the case with autocratic systems like the present Russian government. Autocratic governements are inherently unstable and highly susceptble to catastrophic failure. If Russia had been a well functioning Democracy for the last 20+ years it is very doubtful it would be in the spot it is right now.

Mind you, Russian media is already blaming the West for its present circumstances. Putin and Lavrov have made statements this week that indicate more blame on the West is headed to a Russian sponsored media source near you. One of the good things about being a dicator is you get to choose who to pin the blame on. And if you're a dicator, the last place you're going to pin it is your own chest.

Steve

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Steve, what would a Russian "collapse" look like, I wasn't alive for the fall of the Soviet Union but I have some understanding of what happened, but with Putin now its all up in the air for me?

Edited by Raptorx7

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Steve, what would a Russian "collapse" look like, I wasn't alive for the fall of the Soviet Union but I have some understanding of what happened, but with Putin now its all up in the air for me?

Oh great thanks for making me feel near as old as Emrys. I think he recalls the fall of the Romanov's.

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This is the most important fact to focus on. The West didn't set up Russia for failure... Putin (and his allies) did. All the West is guilty of is not propping up a failing dictator.

There was an article on the Beeb today which suggests that looking back a few more years, the West did have some contributory input to the current negative situation. The author draws vague analogies between the punitive terms of Versailes in '19 and the refusal of the West to help the neonate Russian Federation in the early '90s (in the way they did help Poland). He does explicitly say that it's no excuse for Putin's current behaviour, but some of the root causes of the economic situation and the fertile ground prepared for the "the West hates us" narrative that Putin has pushed can possibly be laid at the feet of the triumphalist attitude to the end of the Cold War.

 

Article: http://www.bbc.co.uk/news/magazine-30483873

 

O' course, the Russians might just have seen a helping hand at the birth of their new democracy as a sign of weakness and ended up in the same place anyway.

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Since the day the wall fell Russia has simply been too corrupt to help.  Under Yeltsin it was incompetently and chaotically corrupt, under Putin the state has been very efficiently looted by a small number of his friends. While the petty officials just publish a rate sheet of the bribes required for their services, or simply to get out of the way.  At a $120 a barrel there was enough to steal and still feed everyone, at $60 per barrel its a problem.

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"The West didn't ask for this, didn't want it, did it's darndest to ignore it, and is still struggling with those who favor outright appeasement. Yet the West is still stuck with a nuclear armed autocratic state that is in massive economic turmoil and involvement with a war of aggression. The West is also going to suffer a financial hit from "blowback" caused by this crisis. Worse, the West is being blamed for it by said autocratic state. 

Fun times ...........Autocratic governements are inherently unstable and highly susceptble to catastrophic failure. If Russia had been a well functioning Democracy for the last 20+ years it is very doubtful it would be in the spot it is right now...... The West didn't set up Russia for failure... Putin (and his allies) did. All the West is guilty of is not propping up a failing dictator."

 

Snips from Steve's insightful observations and comments. Not a lot for me to add to this.

 

 USA does have issues... and an imperfect sytem inherently designed for changes in power.

 

We all live in interesting times... 

"Fun times".... more fun being here than there... getting a bear hug from "Man of The Year #15" ;)

 

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