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MurphTheSurf3 On July - 28 - 2014
Russian President Vladimir Putin’s meddling in Ukraine is starting to cost Russia dearly in financial markets.Observations from around the globe.1) The price to protect Russian bonds against default, already the highest among the world’s four largest emerging markets, has surged since the July 17 incident in which a Malaysia Air Airliner was shot down by what most experts believe to be a missile supplied to the Ukrainian separatists by Russia. The Micex Index resumed its decline wiping out about $28bn in market value since the Crimean invasion.2) The cost of protecting Russian bonds against default for five years rose about 23 basis points to 207 basis points this month, the highest among the world’s largest emerging markets including Brazil, India and China.

3) Russia has had its credit rating cut to BBB- by Standard and Poor’s, the third reduction since the Crimean invasion. BBB- is the lowest investment grade ranking available to economies the size of Rusia’s. Global investors withdrew $348m from Russian bond and stock funds since the end of February.

4) Russian corporate debt sales overseas are down 67% this year just as cheap global borrowing costs spur record issuance worldwide.

5) Russia’s foreign reserves have slid by 17 percent in the last six months.

6) Russia’s market slump is exacerbating an overall economic slowdown. Russian Deputy Economy Minister Andrey Klepach said this month the $2-trillion economy posted zero growth in the second quarter when compared with the first. That follows a 0.5% contraction in the January-to-March period.

7) The 19 richest Russians lost $17.4bn since the start of the year. By comparison, the richest 64 Americans have seen their wealth go up $55bn.

8) “The market is sending a signal that Russia should avoid becoming an outcast and avoid shutting itself out of global markets,” said Kapital Asset Management’s chief investment officer in Moscow,

9) Russia cancelled its first rouble bond auction in three months, citing “unfavourable market conditions”, its finance ministry said last Tuesday.

10) British Prime Minister David Cameron on Monday raised the prospect of a EU-wide block on defence exports to Russia, as well as targeted sanctions against the “cronies and oligarchs” around Mr Putin unless the country drops its support of the separatists

11) Spiro Sovereign Strategy’s Nicholas Spiro in London reacting to Cameron’s announcement noted that, “The big difference between the recent deterioration in sentiment towards Russia and the pressure on other emerging market assets is that in the case of Russia it is almost entirely driven by the actions of one man. While there’s no question that Russia’s economy is in a dire state right now for a variety of reasons, sentiment towards Russian assets is still strongly, and negatively,  influenced by perceptions of what Mr Putin will do.”

BUT…..

12) A number of analysts believe that Russia will periods of short-term market volatility because of its strong foreign-reserve and fiscal accounts.  “I don’t see any material reason to be overly concerned about the value of Russian assets for long-term investors,” head of research at Ashmore Group, Jan Dehn, has observed. “Ultimately investors tend to focus quite closely on the underlying resilience that’s embedded in the Russian economy by virtue of its very high foreign-exchange reserves and very low levels of debt,” he said.

Here is one of the strongest indicators of that resiiene: Russia’s debt equalled just 13% of gross domestic product last year, compared with the global average of 79%, while its foreign reserves were the fifth-largest in the world.

Written by MurphTheSurf3

Proud to be an Independent Progressive. I am a progressive- a one time Eisenhower Republican who is now a Democrat. I live in a very RED STATE and am a community activist with a very BLUE AGENDA. Historian, and "Gentleman Farmer."

16 Responses so far.

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  1. The financial analysis you provide is spot on, but I think there’s more to this discussion than what Putin is up to. My understanding is that the dissolution of the USSR and the independence of its satellite countries was negotiated under some understandings that have since been violated. Specifically, the then-Soviet leadership was assured that NATO would not expand eastward. In fact, the opposite has happened.
    http://www.spiegel.de/international/world/nato-s-eastward-expansion-did-the-west-break-its-promise-to-moscow-a-663315.html

    And Ukraine membership in NATO is the Rubicon. As a NATO member, Ukraine could be used to base military forces on a vulnerable point on Russia’s eastern border. The West has engaged in a no-holds-barred attempt to lure Ukraine into the EU fold. And the World Bank’s $10 B in ‘aid’ to Ukraine would be a loan that would require the kinds of austerity measures that have lead to riots in Greece and Spain.

    The financial world is extremely fragile at the moment, what with the possibility of war and oil embargo in the Arab world and the ongoing meltdown of Japan’s financial position post-Fukushima. Putin cannot be the leader of Russia who lets go of Ukraine.

    • MurphTheSurf3 says:

      Not a word here with which I would disagree.

      This is the other side of the story and worth recalling.

      Still. It has been 25 years since the events surrounding the dissolution of the USSR, followed by the short lived CIS.

      Suspicion of Russia remains in place and it has failed to entice former Soviet aligned states into a treaty or association based alliance.

      Thus the movement toward the EU and NATO is natural, and now even more so as Putin has chosen to set aside the route preferred by Medeved. Why? Well, it was not having much success as the rise of the Western leaning parties in Ukraine demonstrates. But, I suspect that Putin’s approach is also very much about a restoration of Russian preeminence and the recreation of an expanded sphere of influence which mirror, even if only vaguely, the days of the Warsaw Pact.

      Putin, perhaps as a manifestation of his personality as a “macho man” and his experience as a KGB colonel who founded a party to express reemerging nationalism has looked to the military rather than diplomats or trade negotiators has his primary agents….and that is a great concern.

      In doing so he has actually made a stronger case for NATO’s expansion and for increased membership in the EU.

  2. AdLib says:

    Murph, what has to be kept in mind as the most powerful offensive force against Putin is the Russia public. He has been riding high in the polls because of the propaganda campaign he has been waging, making Russians believe that Russia is now on the path to return to imperial greatness.

    But if the Russian economy continues to tank and the Russian peoples’ dream of world power evaporates into massive unemployment and deprivation, the anger and pushback against Putin and his regime will be overwhelming.

    This has to be long game thinking and there will be losses especially for neighboring countries of Russia’s as time goes by but it would be insane and far more devastating to pursue any direct military or surrogate military approach.

    • MurphTheSurf3 says:

      I thought I replied to this earlier….I know I read it and I know I framed the response…well, duh!

      Articles like this one tell me that the PR war still favors Putin. http://www.businessinsider.com.au/putins-position-within-russia-seems-secure-2014-7

      Although there is a “free press” in Russia it is very much constrained by a variety of laws carefully written to allow a lot of coercive leeway for the government. Alternative versions of events have a hard time getting through.

      So, even if the sanctions begin to have an impact further down the socio-economic pyramid, I expect that Putin will remain highly successful in shaping the message in his favor.

      Someone I know in Eastern Europe tells me that the Russian Media is full of images of Russians standing resolute against the forces of imperial oppression and transgression as it did during the Great Patriotic War, i.e. WWII. Interesting. Just as the Western media is comparing Putin’s efforts as reminiscent of 1938, Russian media is citing the same dates but in reference to Western aggression.

      Still, I think in the long game your reading on this is correct. Before the real pain that comes with long term sanction materializes undermining Putin’s solid support he will feel the pressure to moderate from his own top level of support. The question is how will he respond.

  3. EXFANOFARIANA says:

    So MTS, it means that he has already won?Scary shit …….”Those who do not learn from the past…”Great post!

    • MurphTheSurf3 says:

      No- it means that another route is being used to undermine his position and given recent Ukrainian regular forces victories in pushing back the Russian back separatists, this approach seems the wisest one to me.

  4. monicaangela says:

    I believe the sanctions will ultimately only hurt the little people. The Billionaires of the world always find a way to recoup their money. This game that is being played internationally is just that, a game, a show, something to make it appear that the west is able to dominate Russia and the countries of the Eastern Bloc…you would think the time for flexing muscles against these countries as we did during the cold war would be over…too bad we are beginning to learn differently. The rich of the world laughed and made money during the “real” cold war, and they will continue to do so now. As I said, only the hard working little people will be hurt when all of this is over, in the U.S. as well as in Russia.

    • MurphTheSurf3 says:

      You are undoubtedly correct that there will be impact across the economy but the brunt of the burden is on those whose wealth is determined by securities and currency trade, exchange, and negotiated value.

      This approach is certainly better than providing additional arms to Ukraine and vastly better than considering any U.S. personnel involvement.

      As to the “Eastern bloc”. This term refers to the USSR’s sphere of influence established in the days following WWII when its forces occupied most of Eastern Europe and a good chunk of Central Europe.

      East Germany
      Poland
      Hungary
      Bulgaria
      Czechoslovakia
      Romania
      Albania
      Yugoslavia

      Revolts in East Germany, Hungary, and Czechoslovakia; Solidarity Movement in Poland; the dissolution of Soviet influence in the 1980’s and the end of the USSR in the 1990’s have made “Eastern Bloc” a meaningless term in today’s Europe.

      This Map of the European Economic Union tell the tale. With Ukraine and three other former Soviet States in the process of joining the Union and similar developments in expanding NATO membership apparent, Putin’s Duma backed efforts to secure a pro-Russian buffer is understandable (although not acceptable).

      [img]http://upload.wikimedia.org/wikipedia/commons/5/59/Member_States_of_the_European_Union_%28polar_stereographic_projection%29_EN.svg[/img]

      It is Russia that is at the heart of this neo-Cold War situation not the U.S. or its allies and associates.

      • monicaangela says:

        Thanks Murph, but I do realize that the USSR is no longer in existence. My comment was to point out the fact that this “effort” we are undertaking reminds me of what happened when there was an Eastern Bloc, it is as though we have allowed Putin and Russia to assume the place of those countries in this new battle between what amounts to mostly the U.S. and Russia. It looks just like the cold war used to look. The U.S. doing all the heavy lifting while the rest of NATO just more or less gives moral support and continues to do absolutely nothing so that this push and shove between nations will come to a more rapid end.

        • MurphTheSurf3 says:

          The Cold War was a complex series of engagements between a Soviet and a U.S. bloc. The U.S. bloc still exists, although it is far less unified than it used to be and far less dominated by the U.S. The Soviet bloc is gone and it is this that Putin is, in part, seeking to address.

          The U.S. military presence in Europe is much diminished, even under the GOP this was so as military resources were needed for two wars in Afghanistan and Iraq. Even in matters of economic sanction, without European commitment to them, U.S. unilateral action is going to have low level impact.

          Add in the growing number of unaligned nations, or nations clustered into new alignments, and the continued presence of China as the other Great Power, and the U.S. vs. Russia meme as the cornerstone of world power politic is outdated.

  5. RSGmusic says:

    HI Murph. Yea a great article on the state of Russia.
    Basically Russia has very little allies in the economic world that they use to have. More nations are not like the Russian government now. Before they had lots of help.

    If the sanctions keeps being applied to Russia ( Puttin will fold .)

    How is that song i sent you? The children of the sea.

    • MurphTheSurf3 says:

      You might want to read the reply I left for Monica….you could have written it. Right on the mark!

      The song….lovely, and interesting…..

      I thought I had replied….this business of hopping around five sites is more than a little confusing.

      • RSGmusic says:

        HI murph, Thanks on the song.

        Yea 5 sites is tough and you do articles.
        liking planet and kos more and more perhaps i will write some diaries or and article on something. I have an idea so i will keep it secret for the time being.

        OH i visit HP every once in a while. I must be on the automatic delete list if my post are longer they 4 points.

        live long and prosper!

        A synthesizer can create any instrument made and others that have not be created yet.

        • MurphTheSurf3 says:

          Welcome- keep on making your presence felt in your observations on the comment that folks make…you have a git in that.

          • RSGmusic says:

            OK murph, i will keep that up.

            Business is looking good for my fall session on music re-engineering of songs for local groups to go forward in the music business.

            • MurphTheSurf3 says:

              Glad to hear about your business initiative and your avocation in the arts.


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