Posted on 08/16/2008 8:41:30 PM PDT by CutePuppy
A list and way to track number of economic issues and problems associated with Russia and its financial system:
Main Google news search including "RTS"
Russia Becomes Worst 3rd-Quarter Stock Market on Oil (Update3) - Bloomberg - good read!
Investment Week, UK
... a near 30% decline in the RTS index in recent months
Lukoil cuts sale price of diesel, jet fuel, fuel oil in August - from Polish source
Europe Grapples with Russia-Georgia Woes
"With energy supplies at risk, the recent conflict in the Caspian region might spur the West to seek other gas and oil sources"
"The very fact of the conflict is not putting investors in the mood to invest in Russia,"
""I don't think Europeans will say we don't want to have to do anything with this country. But Europeans will think we trusted too much that Russia would become more like a Western country."
Mean Street: Russia Says “We Will Bury You, Shareholders.”
"The first and most obvious is that the country is still just too dependent on commodities. Oil and gas companies alone constitute more than 50% of the RTS, the Russian stock market index. Combine them with Norilsk Nickel and the Russian gold, steel and fertilizer companies and that is 70% of the index." ... "Will the commodities bull run continue?
It looks increasingly unlikely. In spite of the Russian-Georgian conflict, oil prices have continued to fall..."
Price of oil Chart - Monthly - also notice the huge increase in volume traded, along with the price, starting at the end of 2006, when Democrats were on the way to take power in Congress.
(Excerpt) Read more at news.google.com ...
Whatever Putin thinks he may have gained with this "show of force" and mafia "protection racket" (and geographically, it ain't much), he lost far more in potential goodwill as a reliable stable business partner, and with prices of commodities down, so may be the dreams of becoming economic power player on the world's stage - something he wants to achieve with military power, but which ironically was simply offered to him by Bush several years ago.
Of course, AP has a more positive spin: Conflict is unlikely to deter Russia investors but there is the rub:
"As a precedent, during the year after Prime Minister Vladimir Putin oversaw an invasion of Chechnya in 1999, the RTS index rose by a whopping 141 percent."
Putin just may be confusing an independent Republic of Georgia with Russian territory of Chechnya and Islamic terrorists.
As Ian Hague, a NY-based fund manager said coming back from Tbilisi: "Russia will be a pariah. It is a pariah. It's difficult to do anything other than reduce your exposure"
Also, how did Western Europe survive before Russia so benevolently agreed to supply them with all that oil and gas?
Good work. I started looking into some of these same sources.
I think you’re correct that Putin probably is probably very disappointed. A spike in oil prices that would pay for his invasion didn’t happen.
Russia: BTC Pipeline is ‘Dead’
http://www.freerepublic.com/focus/f-news/2063102/posts
and this:
Georgian rail bridge blast hits Azeri oil exports
http://uk.reuters.com/article/oilRpt/idUKLG43375520080816
How much would it hurt Russia if we banned them from US financial markets? Maybe talking about that possibility publicly would help drive down their market and give the US some leverage over the situation in Georgia.
I know other non-military cards they have been talking about is turning the G8 back into the G7 and ending the NATO-Russian partnership.
What other non-military options does the US have?
G7 is done deal, NATO-Russia was already canceled. It’s not so much what we can do to “punish” them, it’s what they already have done to themselves in the last couple of years, and now put the nail in it with outright aggression play and incredibly stupid “ultimatums” and threats, military and economic. Nobody wants to be blackmailed, especially otherwise rich and economically powerful countries. And weaker (former USSR republics or satellites) countries would look to someone else for protection, also both military and economic.
And results are already seen. Putin didn’t diversify the economy, on the contrary he moved to concentrate it in commodities. It’s an all-in bet (poker lingo) and it’s not playing out the way he hoped. Despite huge run up in oil, gas and other commodities prices, and with 70% of RTS comprised of these type of companies, RTS index keeps going down (reached 2 year low just before Georgia invasion) and foreign investment is drying up (Yukos was the beginning, Shell, BP most recently etc.), and partnerships are being reevaluated. Self-isolation seldom works to country’s benefit. The question is not whether Russia will pay a heavy price for this long-planned miscalculation by Putin, the question is how fast and how heavy. I guess, the conclusion is, Putin can’t stand prosperity.
http://finance.yahoo.com/q/bc?t=2y&l=on&z=l&q=c&c=&s=RTS.RS - RTS 2 year chart
http://www.rts.ru/?tid=541 - look at the small bump up from the bottom after 08/08/08 which is already fading.
Produce more and become stronger economically. Strength of a nation ultimately flows from its economic power which flows from its people.
Start building nuclear power plants and generate plentiful cheap electricity. Lower energy costs lowers the cost of everything we produce while at the same time increases our standard of living. That makes us stronger.
In addition with cheap plentiful electricity electric cars will find their way into many homes lowering our demand for oil. Lowering our demand for oil has two big benefits and one big negative... The two up sides are breaking our dependence of foreign countries for oil and stopping the funding of our enemies. The big downside is, if our demand for oil dropped significantly, world prices for oil would collapse. If the price of oil collapses then our competitors that use that oil will have even cheaper energy... And electric cars have to then be able to compete with cheap gas powered cars using cheap gas - and then the oil dependency cycle starts all over again...
Thanks. I hope someone will pick up on the idea and keep watching.
Don’t mean to sound callous, with real lives at stake, but this is one prism through which to see the real “score” for this intrusion, particularly since it’s most likely a way Putin primarily views it.
In my opinion the single greatest focus of our country should be long term energy independence. Substantially lowering our need for oil would cause oil prices to collapse. Cheap oil would destroy nearly all of our major enemies - Russia, Iran, Saudi Arabia, Venezuela. Their economies would fold in short order. At the same time the rest of the world that is actually trying to produce something and rise out of poverty would be get a big boost from cheap energy.
Virtuous cycle vs vicious cycle.
Though after diversification, through plentiful electric energy and flex-fuel cars (which, unfortunately, are at least a decade away), oil “shocks” should be much milder, unless we get ourselves into a “conservation” of energy mode again... because we use 25% of world’s energy and all...
Yes, Putin was not happy, and the “ultimatums” and tantrums and threats from his high military and foreign ministry officials (Moscow Bobs?) just plain gave that away. If you’ve got the cards, there is no need for threats and bluster. He knew that his bet went wrong as soon as Bush “made a choice”! How he didn’t expect that, I don’t know, but it probably takes a special kind of hubris.
Putin, like Clinton, relies on polls (internally, very much so) and his were internally high and Bush’s are [relatively] low, (but not in comparison with Congress!) so he didn’t expect such a firm response (”This is not 1968! Times have changed!”) Especially (in his opinion) for such an insignificant and weak country and from a lame duck President with little time left, and in the middle of Presidential election.
Hubris.
Templeton Russia & Eastern Europe Fund
Central Europe and Russia Fund
All are down 30% or more since May (i.e., not a result of invasion, but preceding it), and slight bump up after invasion already faded. Headlines don't look good, and some interesting details on relationship of Russian economy to price of oil.
Few excerpts from Bearish on The Bear (RSX, TRF, CEE, MTL)
Kremlin Unveils Anti-Free Market Sentiment
From Economy of Russia , exports and imports main trading partners:
As was evidenced by the Yukos affair some years ago, doing business in Russia is not without its risks. Once the largest oil company in Russia, Yukos was dismembered, sold to state-controlled oil firm Rosneft, and its boss Mikhail Khodorkovsky still sits in jail on what some would regard as trumped up charges.
......
Russia Economy Could Hit A Tipping Point If Oil Reaches $90
Concerns about what were diplomatically described as "unconventional policy measures", as well as the country's excessive reliance on energy, recently prompted analysts at JPMorgan Chase & Co. downgrade Russian equities to 'underweight' from 'neutral' at the end of July. The analysts also cited the fact that the Russian domestic economy is now showing signs of strain as it grapples with inflation running at over 15% and wage growth roaring ahead at 28%, all at a time when the country's excessive reliance on oil could prove to be its Achilles heel. (For more on analyst expectations, read Analyst Forecasts Spell Disaster For Some Stocks.)
Right now, oil and gas constitute 60% of state revenues, and commodities 75% of total exports. In a recent interview with U.K.s The Telegraph, Christopher Green, chief economist at Russia's VTB bank, said the country could start facing problems if oil falls to $80-90 per barrel. According to Green, the government is now depending on crude prices of $110 per barrel to fund its budget, and it could also face a trade deficit next year, as Russian's continued love affair with pricey western imports, particularly cars, is expected to keep import growth at a double-digit pace.
The Bottom Line
Russia's recent actions in the Caucasus have succeeded in taking the country's "risk premium" a few notches higher at a time when investor confidence is already shaky. If, as feared, the long standing Russia-Ukraine dispute flairs up later this year, the negative consequences would not only be felt by Russian, but global markets as well.
Exports : $365 billion (2007 est.)
Main export partners :
Netherlands 12.3%, Germany 8.4%, Italy 8.6%, the People's Republic of China 5.4%, Ukraine 5.1%, Turkey 4.9%, Switzerland 4.1% (2006)
Imports : $260.4 billion (2007 est.)
Main import partners :
Germany 13.9%, the People's Republic of China 9.7%, Ukraine 7%, Japan 5.9%, South Korea 5.1%, United States 4.8%, France 4.4%, Italy 4.3% (2006)
I suppose the more ominous question is whether the Kremlin will look to further destabilization tactics internationally if the price of oil continues to decline in order to raise the price back up.
All good stuff by the way. Thanks for the summary.
Dollar keeps going up and oil (correspondingly) and metals are going sharply down - oil is now below $112, despite seeming public Russian entrenchment and pipeline action in Georgia. It can't be good news for Putin. There is a message to him in that somewhere. Destroying Georgian infrastructure will only encourage and attract more foreign / sovereign investment there, once Russian "peacekeepers" have to withdraw. Dubai is already committed to huge expansion of the port there.
Russia now can't afford and is in danger of losing some deals elsewhere because of this adventure which is going to be far more costly than whatever they expected to gain. I would suspect the initial "shock value" of invasion has already been realized and it didn't do what was expected - a spike in prices, and everyone running with their "hair on fire" and asking czar Vladimir what can we do for him to make it go away. Instead he got a public scolding verbally and in action (Poland, Ukraine, even Germany) and no spike... It's not going according to plan, that's gotta hurt and give a serious pause. He makes mistakes, but he is not irrational. "The best laid plans of mice and men"?
Russia has seen foreign reserves decline, a sign that the market is more nervous about investing in the region since the recent conflict in Georgia.
Central Bank figures show reserves were sharply down in the week ending 15 August, marking a fall of $16.4bn (£8.8bn) from $597.5bn a week earlier.
Tensions with the west have also been strained by Russia's objection to the US placing a missile defence in Poland.
Georgia has urged the west to invest in the region as it seeks to rebuild.
According to the Financial Times, the latest drop in capital reserves is the largest "since comparable figures began" in 1998, though similar funds were taken out during the currency crisis.
Reconstruction
Finance ministers from the group of seven richest nations have said they are "ready to support" Georgia's economic reconstruction in the wake of conflict with Russia.
The US Treasury issued a statement on the G7 countries' behalf saying they would be ready to help Georgia "to maintain confidence in Georgia's financial system and support economic reconstruction."
He also called on Georgian authorities, the World Bank, European Bank for Reconstruction and Development, Asian Development Bank, European Investment Bank, and European Commission to "identify and support reconstruction needs and the restoration of services that will build a base for future economic growth".
Officials from the World Bank are visiting Georgia on Friday to assess the extent of damage to its economy and how the process of reconstruction can begin.
The development body has pledged to help Georgia access funding to rebuild crucial infrastructure, such as roads and railway lines.
It has also promised to assist people displaced by the fighting in South Ossetia and in Georgia itself.
The US and Poland signed a deal earlier this week to locate part of the US missile defence system on Polish soil, but Russia has warned the base could become a target for a nuclear strike.
Such geopolitical concerns have been a factor pushing up oil prices, amid fears that supplies might be hampered.
"Investors are realising that the bear has put its paw on the pipeline, and geopolitical risk is likely to remain a theme for the next month or so," said Justin Urquhart Stewart, investment director at Seven Investment Management.
Asia Times Online, HK: Georgia invasion worsens Russian downturn
Moscow's equity markets, whose benchmark measure has declined with increasing rapidity since the start of the year, have turned worse with Russia's invasion of Georgia.
To be sure, the conflict in the Caucasus has hurt. On the Friday of the Russian assault on Tskhinvali in the Georgian breakaway region of South Ossetia, the RTS index was down 5.9% on the day (August 8) to close at 1,723.
British academic Martin McCauley suggests that the definitive provocation for the outbreak of hostilities on Georgian territory could likely have come from the circles around South Ossetian secessionist leader Eduard Kokoity attempting to incite a Georgian attack so as to draw Russian forces into the battle. ...
Forbes.com: Investors Turn On Russia
But even though the fight for the Georgian breakaway republic of South Ossetia was over in a matter of days, it has had a long tail. Russia's leading stocks have failed to return to pre-conflict levels, and on Friday the benchmark RTS index fell 1.2% at the end of trading, to 1,701.61 points. On Thursday, the Russian central bank revealed it had lost $16.4 billion in foreign reserves last week, with the total falling to $581.1 billion.
Russia has tried to present itself as a more business-friendly prospect this year, particularly with the arrival of Medvedev in the Kremlin; his reported declarations have included fretting over relations with the European Union as a trading partner in the wake of the Georgian conflict, as well as asking Russian authorities to "stop causing nightmares" for businesses.
TIME magazine: Risky Business in Russia
The big question now is whether this international love affair with Russia as a place to do business can continue. The shooting war in Georgia this month sent investors in Russian stocks rushing for the exit: the RTS stock index has sunk to its lowest level since November 2006 and is down 32% in the last three months. The fighting was the most deadly sign that Russia is not a predictable or stable investment environment, but it was by no means the only one. Along with the new geopolitical uncertainties, foreign businesses and investors are also grappling with signs of economic vulnerability such as rising inflation and slowing oil production, as well as heavy-handed corporate meddling by the government — not least in a high-profile joint venture involving British oil giant BP.
But heightened political tensions between Russia and the West are sure to prompt potential investors to take an even longer, closer look before plunging into the Russian market. There has been talk in Washington and elsewhere of kicking Russia out of the G-8 group of nations, and some analysts believe the Kremlin's actions will ultimately prove counterproductive for the economy. In a note to clients, Commerzbank analyst Michael Ganske wrote: "The strong macroeconomic story of the country is increasingly obscured by homemade negative headlines and developments that clearly worsen the economic outlook for Russia." Ganske went so far as to call the Georgia war "a bloody next act in a screenplay that could be named 'how to destroy the investment story of one of the strongest credits in the emerging-markets universe.' "
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