Russian stockmarket freefall

[wxman]

One problem in buying up money with money, is that if the currencies flop worldwide, then countries with the biggest gold reserves emerge the strongest. The US owns 8,133 tons of gold which make up 78% of all it's reserves. Russia on the other hand owns 457 tons which only make up 2.5% of reserves. Gold is skyrocketing in this crisis and I would not be surprised that it goes over $1000 an ounce and stays there for quite some time.  Currency needs to be backed by something. I'm not sure the ruble is backed by other than oil.

[BC]

My God, are you kidding me?  Things are a hell of a lot worse than I thought.  That's a desperation move.   

roykirk,

This is nothing unique to RU.  It is a tool that has been and is still used by central banks of many countries and not a desperation tool.

[roykirk]

roykirk,

This is nothing unique to RU.  It is a tool that has been and is still used by central banks of many countries and not a desperation tool.

Buying your own currency with foreign currency to prop it up?  Yikes!  It's an incredibly risky move.  If the dollar keeps falling, I would consider a move by our government to buy U.S. dollars with, say, Euros, to be a sign of doom.  I think most Americans would, and rightfully so. 

[wxman]

The only thing that scares me about this financial crisis is that governments are trying to figure out a way to save Wall Street. If Wall Street collapses, so does capitalism. Right now they are using all their theories of economics to devise a plan that will work. Capitalism has it's back in a corner and if the major world financials do not bounce back, I fear the US government will be forced to use their A bomb...nationalizing all financial institutions, assume their debts and watch the US fall into a depression to save capitalism. The question is which will be worse, the medicine or the disease? We didn't see the depression coming in the 20s and it hit overnight. When the stock market has a record swing of 1500 points in 4 days, it tells me there is a panic going on and every little rumor causes a wild swing. Right now Wall Street is like a group of panic filled lemmings. They are running around left and right and the cliff is just a few feet away. Any misstep by financial officials or misspoken words by the Fed could easily push the lemmings off the cliff. When the Fed, certain members of congress and the Treasury secretary get together in an emergency meeting, it generally means it is worse than we think.

[BillyB]

The only thing that scares me about this financial crisis is that governments are trying to figure out a way to save Wall Street. If Wall Street collapses, so does capitalism.

Other nation's governments are only helping Wall Street because it helps themselves. People are still working and producing. Yeah a few people owning stock on paper may lose but letting Wall Street collapse making the public lose confidence will hurt Capitialism because people will stop spending which creates a loss of jobs. If nobody wants or needs to spend money on anything, then nobody will need to work to create anything. Unemployment has increased only slightly.

America emerged out of the Great Depression as a super power. Things were so bad then, people were starving and jumping off of buildings to their deaths. I don't see that happen here yet. Everybody trips but America always gets back up. At the end of Bush senior's presidency we were looking bad economically, same with Carter, same with the end of Clinton's when we entered into a recession, and the same with Bush Jr. This stuff works in cycles. and it's not the President's fault either. Private business plays a large role and so does consumer confidence. Governments and large financial institutions are solving the problem. The media is probably doing more harm by scaring people with news of gloom and doom.

[chivo]

Seems to be a lot of volatility everywhere.

Yesterday, the RTS rose 20% after all the dust settled and the news from around the world was in. Such is life in an emerging market.

More importantly for a lot of people here was the fact the government got involved and really seemed interested in maintaining the market.

This is huge in relation to the past where the attitude was basically, "so what, its not my problem, I have my money".

While the money reserves took a hit, I think there's enough to maintain balance.

This attitude, coupled with the new tax breaks that were established for companies in this market are two major steps in the right direction to regain the confidence of foreign investors and Russians themselves.

chivo

[Bruce]

Chivo, you are not here in the USA.  Right now the confidence expressed by the press in the Russian stock market, both written and spoken is absolutely zero.  How can anyone invest in a market you can not trust???   

The US has gotten a cough and the rest of the world has a cold.  I have heard that line a lot and it seems so true today.

[kievstar]

When the USA stock market is impacted with tighter credit like most of western Europe.  Investment in emerging markets will suffer as less credit granted. 

Russia has a problem as people have pulled there money out of there markets.  Russia will have to do something to get people to put money back into there markets.  Companies need money to borrow to grow.  Ukraine has same problem.

Russia and Ukraine need to have there currencies get weaker to stimulate investment.  At current rates not worth the investment in either countries.  35 to 1 ruble and 6 to 1 Ukraine will get investors back into these countries for significant investment.   Plus make there goods cheaper and workers.

China did currency control for years and it worked.  They still do it.

[chivo]

Chivo, you are not here in the USA.  Right now the confidence expressed by the press in the Russian stock market, both written and spoken is absolutely zero.  How can anyone invest in a market you can not trust???   

The US has gotten a cough and the rest of the world has a cold.  I have heard that line a lot and it seems so true today.

I'm not surprised by what is expressed in the western press regarding Russia. Very little that is positive is written about Russia by the west.

Also, I'm not comparing markets just reporting what's going on. Sure the market is shaky, but if you go back to the last crisis here in '98, you'll notice a big difference in the response from the government here as  mentioned.

I expect the Russian market to rebound partly because that's been the trend for the last quarter over the last 5-6 years.

Maybe you didn't read he article I post earlier on this thread. It was from a American site that seems to view things differently than what you're reporting about Russia.

Seriously, at the very least, it's a cough like the one a doctor asks for. IOW, somebody's got somebody by the huevos. Will see what impact it has on the American public.

We all know the world economies are dictated by Wall St.

Another thing to consider is the fact that the mortgage crisis doesn't affect Russia that much because of the relatively few mortgages currently on the market, and zero sub-prime loans. That would also go for the credit crunch as well. Russia doesn't carry that much consumer debt.

Consumer spending still drives economies.

Russia is hardly out of the woods, but, because of the oil boom, its not in the same position it was in '98 when it had massive debt to other countries. All that has been settled, so its a different landscape now.

No one is suggesting there isn't a problem. There is. The government's willingness to step in and deal with it is a huge first step in the right direction. The negotiated deal with TNK-BP, the offer to move natural gas into the Czech Republic for free, and legislation to move away from government intervention like we saw with Mechel (not sure if anyone is buying that) were at least moves in the right direction.

As Kievstar correctly points out, Russia needs to get the lenders confidence back in order for continue growth in business. What I think will happen in the near future will be all that money for infrastructure, new construction, etc. in Russia will be scarce, if not nonexistent.

We'll see where it goes from here. Good luck.

chivo

[roykirk]

Chivo,

I'm asking this because I don't know anything about it, I only have what my girlfriend tells me.  I get the impression from her that overextending on credit is a serious problem in Russia, at least in Novosibirsk.  She constantly tells me of friends and family that are living off of their credit cards and getting upside down in loans.  I remember when she told me of how average rent for an apartment is around $600-$800 in the city.  Then she told me that most people don't make more than $600 a month on average.  When I asked her how people managed to live with such salaries and prices, she said simply, "They live off of their credit cards, like everyone around here seems to.  It's a crazy way to live."  Either she is correct, or she's exaggerating.

[kievstar]

roykirk,

I think she is right to some point on credit.  Most people have credits on there apartments now which they got for free.  Depending on when they got there credit can be anywhere from 7 to 20%.  Credit card debt is growing as well but hard to get the big limits like you can in USA. Ukraine and Russia economy is headed for a train wreck but not like 1999.  This will reduce housing prices and weaken the currency.  People over extended on credit will lose there apartments or cars.   But there are many people who do not have credit and will not be impacted as much other than there apartment will be worth 50% less. 

But credit is a problem all over the World.  Right now in Brussels where I work most of the time the restaurants are empty and housing prices dropping fast.  People just spend way to much.  Good news for the younger generation in Russia is apartment prices will be very affordable in 3 years as compared to now. 

[chivo]

Chivo,

I'm asking this because I don't know anything about it, I only have what my girlfriend tells me.  I get the impression from her that overextending on credit is a serious problem in Russia, at least in Novosibirsk.  She constantly tells me of friends and family that are living off of their credit cards and getting upside down in loans.  I remember when she told me of how average rent for an apartment is around $600-$800 in the city.  Then she told me that most people don't make more than $600 a month on average.  When I asked her how people managed to live with such salaries and prices, she said simply, "They live off of their credit cards, like everyone around here seems to.  It's a crazy way to live."  Either she is correct, or she's exaggerating.

Can't speak to Novosibirsk, maybe Jooky can if he reads this.

I do know that credit was easily available to just about anyone who wanted it. All you had to do was go into a bank or store and show that you had a job (verifiable income). It didn't matter what you made. Of course the interest rates are astronomical compared to the west.

You have to remember that Russians still pretty much consider debt to be a dirty 4 letter word. I read somewhere that they tightened the credit system a bit because the Russians were having a difficult understanding how things worked. You know, like actually paying the loan back  .

I know some who have loans here for various things, but most work fast to pay them off.

Mortgages are on the rise, but again many put down big down payments, and carry terms less than 30 years, for instance.

My gut tells me she's exaggerating a bit, but probably is not far off with that monthly income. I'm sure people there working in or related to the oil industry were making good money. Ciao.

chivo

[Misha]

I know some who have loans here for various things, but most work fast to pay them off.

Based on what I read from a variety of sources, the default rates for consumer loans last year ranged from 20 to 40%. This was before inflation really took off. The banks were simply getting rid of bad loans by selling them at deep discount to collection agencies. One of the reasons that so many banks are facing so many problems now, is that they borrowed a lot of money on foreign markets to lend to consumers. They were making profits based on the fees they charged and the high interest charged on the loans where people actually paid. As long as the number of loans were going, things were good (much like any typical pyramid scheme). Now, they don't have easy access to foreign credit and foreign creditors aren't giving them the money to refinance old loans let alone get new ones. This doesn't leave them with many options. Unless the government bails them out, they are likely to go bankrupt.

[chivo]

There was some fallout pertaining to credit here. Your numbers are consistant with what my understanding is.

The government DID get involved, and continues to do so. This is big. As of Friday the RTS has risen close to 30%, and the MICEX 22%, virtually regaining most of what it had lost previously.

Today we have word that oil prices have soared past $120 a barrel, commodity prices have increased, while the dollar took a hit.

My feelings are this trend will continue at least until the New Year.

Also, whoever gets elected, be it Obama or McCain, it will be better than Bush in relation to Russia. The Bush administration is much more tied to foreign interests that either of the other candidates, so less pressure will be aimed in this direction. In the long run, I expect better and smoother relations with Russia and the world for that matter  than what we see now (can it get any worse). Especially with regard to Russian hardliners like Cheney (the devil) and the like.

Emerging markets are rollercoasters. Rollercoasters can be fun...they can also make you dizzy. Good luck

chivo

[kievstar]

People in Ukraine and Russia tend to panic a lot on bad news and vice versa on good news in the stock market.  Expect it to always jump up or down.  A lot of people poured money into the market when it dropped - I did.  So do not expect it to keep climbing longterm unless the economy improves.  Economy is in very bad shape there and little new investment money is coming into country now. 

Invest in Russian military companies as there is a high demand on there products right now.  Be careful of steel companies in Ukraine.  All there high quality steel is gone.  They just got a boost with Ukraine dollar losing 10% of its currency value so cheaper prices to sell at but poor quality steel. 

Large construction companies are stopping in Ukraine on building apartments as money to build has dried up.  Banks in Ukraine and Russia are struggling right now. 

Very good buys out there but in select companies and industries.  Need to do your homework just like any good investment.

[Shadow]

Stock in Ukraine took a beating that was just as heavy as in Russia. In emerging markets the movements tend to be stronger as in markets that have an established trade. This because there are less speculative investors, and more who invest with long-term goals.

[Bruce]

Glad I listened to my wife and did not buy RSX or any other equity position in the Russian stock market.  The big question is when will the bottom occur and what will RSX and other basket equities fall to before they do become super attractive to risk money in???

[daveyj]

Glad I listened to my wife and did not buy RSX or any other equity position in the Russian stock market.  The big question is when will the bottom occur and what will RSX and other basket equities fall to before they do become super attractive to risk money in???

Gnom, I think the global markets will probably bottom in March of 2009.  Afterwards I see strong results through to the end of the year, but then some drifting downwards in 2010.

Also, I'm concerned about the Greek Sovereign debt - I think we may see some problems here!

On a separate note, I see the Yankees winning the 2009 world series this year, and also, if you can keep a secret, I'm good friends with Tiger Woods and that guy needs to keep it in his pants! (but you didn't hear it from me, ok?)