Collapse of the Ruble

[imoldernu]

The coming three or four days may bring some of the most unusual changes in the stock market in many years.
Anyone care to wade in?
Today's Market: Dividends, Buybacks And Russia Powering Market Higher | Seeking Alpha
The article was written a few hours ago... when the Dow was up 244... now back down to where it started the day.
Oil, the Ruble, the VIX...
Make a guess?

 

[samclem]

I'm worried about what Russia will do. These very low oil prices have put Putin in a bad spot. He's no doubt feeling domestic pressure, and will be tempted to do something to rouse the public behind the Motherland and forget about their inflation, commodity shortages, and falling standard of living. He'll have internal scapegoats, but will need external ones, too. A geopolitical/military flare-up of some kind is exactly what the doctor ordered, and by the time it's on TV in Moscow, it won't matter who really started it because they'll say whatever needs to be said, and the public will believe it (because they want to).
Those dancing in glee because Putin is in a pickle are ignoring history.

 

[RetireBy90]

Last week he was already saying if the U.S. did any more sanctions there would be consequences. Not sure what he has in mind, but today's news said congress had passed new sanctions and Obama would sign. Guess we in for it now.

 

[mickeyd]

Word out of Russia is that the recent rate hike is not the end of the action they will take, so we would expect some news before the end of the week.

Looks to be a long-term story. I'm steering clear of this potential mess.

 

[samclem]

. . . today's news said congress had passed new sanctions and Obama would sign.

It seems counterproductive at this point--it does little more than has already been done, and provides him another talking point about how this is all the West's fault. At this point, the market is doing enough punishing.

I doubt seriously that this is any kind of secretly arranged effort by various oil producers to influence Russia, ISIS, Iran, etc.

 

[REWahoo]

I doubt seriously that this is any kind of secretly arranged effort by various oil producers to influence Russia, ISIS, Iran, etc.

You can't really mean that!

Of course it's a conspiracy - and it's listed right here (unless there is a conspiracy to keep in off the list...): List of conspiracy theories

 

[NW-Bound]

The article was written a few hours ago... when the Dow was up 244... now back down to where it started the day...

You also [-]spoke[/-] wrote too soon. The Dow closed down -112 from yesterday's close. The intraday range was 360 points, or 2%. That 2% is more than what I live on for 6 months.

Yee Haa! Exciting time is back.

 

[CCdaCE]

Well, after firing up the Russian printing press and giving it to oil companies, and, last night, spiking the interest rate to 17%, it seems like RSX has temporarily stabilized.

I started following Russia this spring, but didn't follow their market other than every couple weeks or so. It has amazing volitility, and I figured the price looked good a week ago, and threw some play money at it. P/E's were rock bottom except for the mining companies. It fell another 28% and I picked up some more. Talk about a hair cut on the first lot. I don't think the Ruble will collapse much more or that the gov't will default, but, I didn't think RSX would drop 28% more. So, my crystal ball is cloudy on the ruble, apparently. I figured it was mostly tied to oil, so with all the CAPEX/drilling contracts out a year or so, I thought that'd be long enough to stablize the price.

The reason I figured RSX is getting hit so hard is the Ruble/Russian economy being so tied to oil. Intially, I thought it was a double whammy of Ruble and Oil prices, but, in hindsight I think it's like asking which came first - chicken or the egg. Half or more of the budget from oil/gas taxes. Whew!

So, in summary, if/when oil prices stablize at $60, or Russia pulls out their invasion forces and sanctions are lifted (not sure how much difference this'll really make?), doesn't get any crazier with monetary policy crushing their economy, things'll be fine. That's a lot of "if's", and there are more, obviously.

Maybe vodka will drop as well. Probably a shortage after today.

Just my 2 bbls.

-CC

 

[Lsbcal]

Situations like this are why I do not explicitly have a retirement investment in emerging markets. Just look at what happened in 1998. Will Russia default again? What about the Iranians? At least the dollar is stable to date and likely to be a refuge should things get worse.

 

[Car-Guy]

I heard Stuart Varney say today on his show that the current oil glut and drop in crude prices (and the Collapse of the Ruble) was due in large part to "fracking". I'm not sure how true that is but I thought it was an interesting comment.

 

[MuirWannabe]

I'm worried about what Russia will do. These very low oil prices have put Putin in a bad spot. He's no doubt feeling domestic pressure, and will be tempted to do something to rouse the public behind the Motherland and forget about their inflation, commodity shortages, and falling standard of living. He'll have internal scapegoats, but will need external ones, too. A geopolitical/military flare-up of some kind is exactly what the doctor ordered, and by the time it's on TV in Moscow, it won't matter who really started it because they'll say whatever needs to be said, and the public will believe it (because they want to).
Those dancing in glee because Putin is in a pickle are ignoring history.

From what I know the motherland is already clearly behind Putin. They love him over there and seem inclined to adopt a 'it's us against the world mentality'. Putin works that angle quite well so I don't know just how much domestic pressure he really faces. Not much in my opinion. But that opinion is based solely on anecdotal evidence through my business travels to Moscow and frequent discussions with some Russian colleagues. Of course, since when is having only anecdotal evidence a barrier to anyone offering opinions around here.

Muir


Sent from my iPad using Early Retirement Forum

 

[LOL!]

We need another release of e-mails and other private info by hackers similar to the Sony thing or the Snowden thing. Who or what company would be the best target? Putin himself? Some Russian oil magnates?

 

[NW-Bound]

... I started following Russia this spring, but didn't follow their market other than every couple weeks or so. It has amazing volitility, and I figured the price looked good a week ago, and threw some play money at it. P/E's were rock bottom except for the mining companies. It fell another 28% and I picked up some more. Talk about a hair cut on the first lot...

28% is a lot lower than a haircut. Sorry to say this, it is is more down to the neck level.

My emerging market bets are more Asian stocks outside of China and Japan. They go down too, but not as bad. Some even inched up a bit recently.

 

[Lsbcal]

Muir, I've seen a few news stories that confirms your experience. However, it's early days in the economic crisis that Russia is entering. Will people be complacent when they see their jobs going under?

I remember in 2008 that people were not aware that the oxygen had been turned off. Some took things more seriously a year later.

 

[eta2020]

I am totally happy about my losses in VWO while seeing Russia sinking down. Little price to pay for my satisfaction......

Putin embarked on Hitler like policies of annexing parts of other countries and there is a price to pay.

 

[Lsbcal]

I am totally happy about my losses in VWO while seeing Russia sinking down. Little price to pay for my satisfaction......

Putin embarked on Hitler like policies of annexing parts of other countries and there is a price to pay.

Well I agree about Putin. But if he follows Hitler's playbook, we are in the early stages of a catastrophe. Let's hope he's just an ordinary autocrat.

 

[Fermion]

Well I agree about Putin. But if he follows Hitler's playbook, we are in the early stages of a catastrophe. Let's hope he's just an ordinary autocrat.

Yes. I don't want to get this thread locked but I do not think this game is over and fear it ends badly.

 

[eta2020]

Yes. I don't want to get this thread locked but I do not think this game is over and fear it ends badly.

What is definition of badly? I don't think we are looking at WW3, but many other things are on a table and they will mean loss of money for investors.
In the other words RSX is still way to expensive given what kind of pile of junk it is.

You can not grow healthy economy in Russian environment where even billionaire Oligarch can be within hours in jail and loose his company.

 

[imoldernu]

Just one of thousands of effects that will be seen as a result of the devaluation.

Apple Stops Online Sales in Russia Over Ruble Fluctuations - Bloomberg

 

[Senator]

What is definition of badly? I don't think we are looking at WW3, but many other things are on a table and they will mean loss of money for investors.

We are definitely not looking at WW3, unless Putin attacks the USA in some sort. Even if the entire EU is overtaken by Russia, it is not worth risking one American life. They have enough people in those countries to fight their own wars.

My personal thought is this. If a war starts anywhere, and we are not ready to use nuclear weapons from the get-go, it's not bad enough to get in.

 

[Fermion]

We are definitely not looking at WW3, unless Putin attacks the USA in some sort. Even if the entire EU is overtaken by Russia, it is not worth risking one American life. They have enough people in those countries to fight their own wars.

Yes, well, unfortunately we happen to be a member of this obscure organization called NATO and they were foolish enough to make a pact that if you attack a member, you attack the whole family. Lots of little former Russian goodies are now members of this club now.

 

[M Paquette]

WW3 would be one of the portfolio failure modes described in The Retirement Calculator From Hell, Part III, where William J Bernstein describes the external risks that make any estimate of long-term financial success greater than about 80% meaningless.

Let’s examine a small sampling of possible political, economic, and military failure modes:

• The mildest scenario is that of catastrophic inflation, as experienced in Germany and Hungary in the 1920s or, more recently, in much of the developing world.

• Political failures are slightly worse, since these threaten the basic human motivation to work and produce. The state, for whatever reason, can decide to confiscate your assets or, worse, society’s means of production. Anyone who judges this unlikely should turn on CNN during any G-8 or WTO conference.

• Local military action. Probably the lowest-probability item on this list, but something to think about on other continents.

• The Big One: Some deranged prime minister or colonel in central Russia, Pyongyang, or South Asia could let loose the four horsemen upon the planet.

So, think about what a 97% 40-year success rate means: the absence of all of the above for approximately the next 1,200 years. (A 97% success rate means a 3% failure rate; those 40 years divided by 0.03 is 1,200 years.) Ignore for a minute the uncertainties of the less-developed world and think only about the winners: Germany—in this century alone, three episodes of military and/or economic disaster, the first two associated with mass starvation. Japan—wartime devastation even worse than Germany’s. England—near brushes with disaster in 1812-1814 and in both world wars. And even the United States—repeated banking failures, civil war, and the near-bankruptcy of the Treasury in the 19th century. The near collapse of the capitalist economy in the 1930s. And oh yes, I almost forgot—the entire globe barely missed mass incineration in October 1962.
History’s best-case scenario was the Roman Empire, which survived more or less intact for about seven centuries (if you ignore the odd sackings of the capital after 200 A.D.).
A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless.

 

[Texas Proud]

I'm worried about what Russia will do. These very low oil prices have put Putin in a bad spot. He's no doubt feeling domestic pressure, and will be tempted to do something to rouse the public behind the Motherland and forget about their inflation, commodity shortages, and falling standard of living. He'll have internal scapegoats, but will need external ones, too. A geopolitical/military flare-up of some kind is exactly what the doctor ordered, and by the time it's on TV in Moscow, it won't matter who really started it because they'll say whatever needs to be said, and the public will believe it (because they want to).
Those dancing in glee because Putin is in a pickle are ignoring history.

You would be wrong in him feeling domestic pressure... his approval rating is over 80%..... so far the drop in the ruble has not filtered down to the person on the street.... now, the big businesses are feeling the pinch, but not the masses yet...

 

[Texas Proud]

We are definitely not looking at WW3, unless Putin attacks the USA in some sort. Even if the entire EU is overtaken by Russia, it is not worth risking one American life. They have enough people in those countries to fight their own wars.

My personal thought is this. If a war starts anywhere, and we are not ready to use nuclear weapons from the get-go, it's not bad enough to get in.

But we have that pesky NATO treaty saying we will protect all of those countries if attacked.... most likely to start in the Balkins...


Opps... see that Fermion beat me to it....

 

[eta2020]

You would be wrong in him feeling domestic pressure... his approval rating is over 80%..... so far the drop in the ruble has not filtered down to the person on the street.... now, the big businesses are feeling the pinch, but not the masses yet...

Just give it a time. Cost of everything is quickly rising.