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Old 6th November 2014, 01:01
Hannia Hannia is offline
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Russian Headwinds Mounting
Oct 21, 2914 WETRADE4YOU Blog

Vladimir Putin may have won the opening battles of his conquest, but he is a long way from winning the war as the Russian economy suffers the consequences of Putin’s imperialistic ambitions. Gratitude is a great gift. It costs nothing and generally leaves a strong impression for those that receive it. However, gratitude does not seem to be part of Putin’s lexicon. Nationalism is Putin’s favorite weapon for galvanizing support. It is easy to see the effectiveness looking at the polling numbers which show he has the overwhelming support of the Russian populace. However, for Russia’s burgeoning lower class, nationalism does not put food on the table. With basic staples seeing massive inflation, national pride might shortly take a backseat to worsening economic conditions.

The upper-echelons of Russian society have also suffered under the current political situation as tit-for-tat retaliatory economic measures impede the ability to do business outside of Russia. However, the elite are fearful to speak up for fear of retribution from the government especially after watching the dismantling of Mikhail Khodorkovsky’s Yukos oil empire and subsequent imprisonment. Capital flight from Russia is reaching epic proportions as even the rich are feeling pinched by Putin’s Ukrainian adventure. Not withstanding the fear element, sanctions are also crushing private companies ability to repay debt issued in dollars. The government is also facing a difficult borrowing situation, canceling tomorrow’s bond auction as traders anticipate rate increases from the Central Bank to combat the spike in inflation. A survey of analysts is expecting rates to rise by 200 basis points, from 8% to 10% in the next 90 days. Most investors are unwilling to buy debt ahead of a projected rate increase because it will see prices of outstanding debt issues decline.

The economic chaos may dent Putin’s well-conceived plans and harm his vision of rebuilding the Russian empire. Even though the political situation in Russia remains stable, the divergence in the economic situation is cause for concern. Disconnecting from the west has already had a substantial impact on the Russian economy and pressure is mounting with the recent rout in oil prices. The question remains as to who can hold out longer in this conflict, the east or the west. The Russian economy has shown itself to be less than resilient, however Europe is also suffering the consequences with manufacturing declining and deflation creeping into the fray. Expect more losses for the ruble in the meantime as the Bank of Russia attempts to stem the slide in the currency. Already over $13 billion has been spent in October alone. The intervention has largely been an exercise of “spitting into the wind” as speculators look to topple the Russian Ruble. The ascending triangle pattern setting up in the USDRUB pair could see an upside breakout as the Bank of Russia loses control and the ruble trades at new record lows.
Russian Headwinds Mounting -

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