Posted on 12/29/2014 5:44:32 AM PST by TigerLikesRooster
Russian ruble drops 7 percent as economy shrinks
Monday, December 29, 2014
MOSCOW — The Russian currency extended its losses on Monday after a report showed the economy has started shrinking in annual terms for the first time since 2009 as the country is buffeted by falling oil prices and Western sanctions.
Meanwhile, the government, which has been scrambling to support the ruble and the economy, announced fresh steps to keep the banks afloat.
The ruble has been one of the world's worst performing currencies this year and was down another 5 percent on Monday, trading at 56 rubles per dollar in early afternoon in Moscow, wiping off some of the gains it made last week.
(Excerpt) Read more at bostonherald.com ...
P!
I think this has a large effect on US stock markets and is one reason why I believe that US markets are vastly less vulnerable to a correction of any significant size than most people think.
US markets are simply the world’s money toilet at this point. If you were a Russian and saw these serial 5-7% devaluations, and could all at once extract your money from Russia *and* transform it into USDs (thus removing it from the threat of Ruble devaluation) *and* get dividend paying stocks *and* get the best management in the world, why would you fear a 10% US market correction, all of which in recent memory have corrected themselves within weeks?
I must admit to considerable schadenfreude.
However, strong men types sometimes do desperate things when cornered. Vlad still has a lot of resources to cause trouble with.
It’s a function of GDP. Oil exports count for about 40% of GDP for Russia. In the US it’s less than 1%. The US economy is more diverse. Russia has all its eggs in one basket.
CC
If I was Vlad. I’d reduce all Water Desalinization Plants in Saudi Arabia to smoldering ruins. Let them drink oil.
Yes, and to add to your analysis, the dividends they’d be getting would be buying them a far greater number of rubles every quarter.
They are actually much less vulnerable to drinking water shortages than it might appear. They have lots of water in aquifers. The Ras Tanura oil facility is the bottleneck. If that were taken out along with associated pumping and pipeline facilities oil prices would skyrocket.
Every financial transaction represents a preference. The buyer thinks he is getting something of equal or greater value than what he/she tenders. And sometimes, many times, the buyer could be choosing a ROI of zero in place of a ROI of -7%. In that case, the bargain is enhanced because the buyer not only thinks he/she may be making a decent investment, but is probably avoiding loss. The entire world is engaged in a game of chasing yield, whether coupon or cap gain, is it not?
In the same way, the seller expresses a preference for the cash tendered by the seller over the “thing”.
Sometimes both are right, sometimes both are wrong. Sometimes, in the case of a holder of currency in a ruinous inflation, the urge to chase goods, to buy anything, is well known. We can think we are or are not doing so when we buy ordinary US stocks. Only time will tell. But a Russian holding rubles subject to *overnight* deterioration equivalent to *a whole year* of nominal stock market appreciation has got to be happy to make such a trade. That they are getting [allegedly] transparent companies with [allegedly] the best mgmt in the world in what is inarguably the most liquid market in the world, these are only plusses. So regardless of the scurrilous nature of the forces behind it, IMO, this is a powerful set of motives.
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