Economic Mournings

[Mir]

Wonder what approval rating for Stalin were.
Anyway Ukrainian economy seems have taken a turn for worse, today Hryvna looks to be in free fall and has been trading at near 9 to the dollar, looks like the only currency competing with it to become the worst performer for 2008 is our Sterling!

[Blues Fairy]

Can an entire country be labeled dumb just because they live in a pink bubble created by the state-controlled media?
This strongly reminds me of something I am witnessing right here.  

http://www.youtube.com/watch?v=mm1KOBMg1Y8&eurl=http://howobamagotelected.com/

[kievstar]

Regarding Ukraine being more corrupt than Russia - take a read about Yushenkos son - also not mentioned in the article is that he owns a Maybach, Hummer 1, and a very nice yacht.  Not bad for a kid who does not work.  Scroll down a little to see article http://kievukraine.info/blog/

Ukraine is very dumb on spending money to help currency.  They sold billions of usa dollars this summer when price was low for Euros.  Than in past months they dumped the Euros for Ukraine dollars.   While doing this certain politicians skimmed money.  This is what my comment was relating to about corruption and dumb treasury moves.  Russia is better at protecting currency. 

[Mir]

Russia is better at protecting currency. 

Not really the truth.
Ukraine is/was dependent on export of steel. Its industry is primitive and very energy inefficient. For the industry to be competitive it is reliant on cheap gas and low oil prices.
As the gas price was increased (I think it was 2006) it was in trouble. As the oil price went through the roof the problems got worse. While the world was in a construction boom (China, middle east) Ukraine was able to export steel but to run its industry it needed to borrow heavily. In the last few months all this changed. The construction boom went bust so no exports for Ukraine steel. As the industry had borrowed heavily against future exports it now has no exports and has to repay the debt. With a foreign exchange reserve of 32-36 billion and lots of debt Ukrainian currency was/is vulnerable and is falling.
Russia has over 500 billion is reserves and so far there has not been a run on its currency. If oil prices/demand remains low in a couple of years Russia will be in the same situation as Ukraine regardless of how good she is at protecting her currency.

[Ronnie]

Protecting currency is not, in and of itself, a smart move.  China purposely holds down the value of it's currency in order to protect it's export market.  Such actions are only a temporary measure. Experience shows us that currency markets will eventually find their own level and that intervention only forestalls the inevitability of market forces.

On my last trip to Europe, the dollar was historically weak.  I passed up making purchases I might have otherwise made had the strong Euro not translated into high prices for my pocketbook.  At the same time, more Europeans traveled to the USA due to cheap (for them) hotel and car rental costs. 

Bottom line, if you want to attract foreign currency into your economy and growth of your exports, you welcome a weakening of your own.

Blues Fairy...
You know my view of Obama.  We talk a lot about red flags on this forum.  Obama has more red flags than the worst Lugansk scammer yet he has yet tip-toed his way through the controversies. 

His right-hand man, Rahm Emanuel, epitomizes Chicago politics - taking office in Congress only by appointment when Blagojevich won the governship (with Obama's and Emanuel's help).  Don't forget that Obama himself eliminated all three of his rivals on technicalities when he was first elected to the Illinois senate making his election basically a stolen one.

Give it time.  The American press, unlike that in Russia, fears no politician and will turn on Obama in a New York minute.  America bought the proverbial pig in a poke but as with all such deceptions, the cat will scratch it's way out of the bag...sooner or later.

[kievstar]

Mir, I do not think your understanding what I am saying.  If you watch any Ukraine television you will understand what I am saying.  Treasury goes on television all the time talking about what there going to do.  Every move they make turns into a disaster.  That was main point IMF had was that Ukraine had to quit protecting currency for two reasons - one reason was they were losing billions by bad treasury moves.  But these bad treasury moves allowed certain politicans to make millions on the side.  Corruption and making stupid decisions.  This has nothing to do with steel.  What you said is true but has nothing to do with what I am talking about.  Ukraine also had a problem as this year they ran out of high quality steel and the steel that is left is not a grade most companies will buy.

Ronnie, Obama is just like most Harvard MBA's - smooth talking with no action.  Notice he is appointing a lot of his Harvard buddies to his team.  Just named his Harvard buddy (also this guy is on his basketball team in Chicago) for eduction.  Chicago has some of the worst schools in the country. General Motors has the most Harvard MBA's of any company in the World.  Should be a law that people with Ivy league are banned from politics and high level positions in public companies.   Wall street gave Obama more money that any other president candidate.  So did the auto industry.  Obama maybe worse than Putin when it comes to corruption. 

[Blues Fairy]

Give it time.  The American press, unlike that in Russia, fears no politician and will turn on Obama in a New York minute. 

I'm not so sure about that; even in 4 and 8 years from now they'll find a way to blame Bush for all the screw-ups.  But my point was, you can't call a country dumb if it believes the media, particularly if the media is overwhelmingly biased and consistently touts a certain political agenda.  Russia is a classical example of a duped (all over again!) country, though it certainly had its glorious moment of dumbness when Putin was allowed to stifle the freedom of press without much resistance.  But there will always be a sizeable number of critically thinking people with access to foreign press who will fall out of line.

[Misha]

Russia is a classical example of a duped (all over again!) country, though it certainly had its glorious moment of dumbness when Putin was allowed to stifle the freedom of press without much resistance.

And, it is getting worse. They are tightening up the law on extremism to be able to charge any journalist simply for being critical of the state. They already warned "Vedomosti" that it could be charged with extremism for publishing one piece earlier this month.

[Ronnie]

Have you heard the latest from the Kremlin?  They're going to do away with jury trials.  The reason being that sometimes the accused gets acquitted.  Appointed judges, on the other hand, know which way the winds blow.

Blues, I think Kievstar isn't referring to the people of the respective countries when he says dumb and corrupt, he's referring to the government officials. 

Kievstar, of course you know BHO is not a Harvard MBA.  He's an  Harvard Law school graduate.*  I don't think he's very smooth talking when off the teleprompter.  Too many "aaaaaannnnnd" - just like McCain and his "my friends" and Palin and her overuse of the word "also".     

*Admitted as a special candidate..due to deficient academic credentials.

[kievstar]

I am referring to treasury department and certain politicians with authority over treasury department. I think Russia does a lot better job than Ukraine when it comes to treasury decisions.  I also think there is a lot more corruption in Ukraine dealing with treasury matters than Russia.  Another article recently in Ukraine talks about the $1 million $usd rolls royce the Kiev mayor just bought.  http://www.whatson-kiev.com/index.php?go=News&in=view&id=6202

Ronnie, you are right on about Harvard law.  My mistake.  My experience with Ivy league grads is they talk well on a subject until you get into the details and than their clueless.  They also like to use words average people do not understand.  This $850 million stimulus package is going to be the end of the USA. Only good thing is USA has the strongest military so I guess we do not have to pay all the foreign debt back - joking. 

[wxman]

Only good thing is USA has the strongest military so I guess we do not have to pay all the foreign debt back - joking. 

No need for us to pay back our debt. We have bigger shoes to toss back than the size 10's that are thrown at us. 

[Mir]

kievstar

You may be right but another possibility is that there is a lot more media/press freedome in Ukraine c/w Russia. So you get to hear a lot more about real/perceived corruption in Ukraine.
IMHO the Russia has been able to hide the failings of its leaders due to the fact that it money from oil/gas. When/if that runs out and the wheels come off the wagon you will get to hear how Russian leaders stole billions from the state and how wrong their economic decisions were.

[Makkin]

Mir,

  Sterling has made a good rebound lately but seems to be fighting the Euro and that;'s the problem. The fight is seen as a percentage gap that has been somewhat stable at .75 over the past three months but in the last 10 days the percentage is about .89. This means that Sterling is worth less at those percentage points against the Euro but it's okay.
   The Pound "looks to be weaker but in reality it causes Europeans of the mainland to spend more in England and thus the banks get more cash reserves in a weird manner. I suppose the reason this has happened is because the woolworths and other companies are in a state of problems and interest rates are not solving the problems.
   For the next six months it's gonna be very very very interesting to see what happens in your country and my ears are pinned back waiting to buy. My friend bought at 1.38 not too long ago and I will buy at 1.28.

Makkin
   

[ScottinCrimea]

My wife just got off the phone with her mother in Crimea.  She says the exchanve rate was up to 9 hrv to the deollar but has now dropped to 6.  I'm not sure exactly what this means or if it is merely a temporary bump in the road, but that's the latest from the front.

[Muddy]

6 is hard to believe

8 is more like it

http://www.xe.com/ucc/full/
http://finance.yahoo.com/currency-converter

[ScottinCrimea]

6 is hard to believe

8 is more like it

http://www.xe.com/ucc/full/
http://finance.yahoo.com/currency-converter

Currency converters are nice, but this came from someone who is actually there, looking out her window and seeing the rates posted.  Feel free to believe what you like.

[krimster]

I will verify what Scott has reported here.  On Friday the UAH/Dollar rate was over 9.5, today on Saturday it is 6.5 with no explanation for how this came to be.  Bardak

[kievstar]

My friends were getting 8.0 today in Kiev.  But President of Ukraine was quoted he was going to make the rate 6 to 1 so he is playing with the market again.  Ukraine is in a bad spot - 6 means no one will buy their goods and 12 means the country goes bankrupt. 

[ScottinCrimea]

My friends were getting 8.0 today in Kiev.  But President of Ukraine was quoted he was going to make the rate 6 to 1 so he is playing with the market again.  Ukraine is in a bad spot - 6 means no one will buy their goods and 12 means the country goes bankrupt. 

Now I'm curious as to whether the rates are so drastically different in various parts of Ukraine.  We're hearing 8.0 in Kiev and around 6 in Crimea.  Is it just the process of adjustment and later in the day Kiev will also be at 6 or Crimea will be at 8?  That seems a little more volatile than I would have expected.

[Ronnie]

As a follow up to doing away with juries, now Putin is pushing a bill that would change the definition of "treason" to include any statements critical of the state or it's government officials.  I'm not sure things were so bad under Stalin and they are becoming under Putin.

[kievstar]

President really wants it to go to 6 to 1 and he even mentioned this week the currency stands on the street will become illegal.  President said the currency stands are making the currency get to weak.  Reality is the currency should be 10 to 1 and the President has a lot of debt in USA dollars so he wants it 6 to 1 or stronger.  IMF has told Ukraine to quit playing with the currency. 

I remember back in 2004 / 2005 Yulia and her families companies had $3 billion usd in debt and by 2006 they had none. Currency is how many politicians in the loop make their fortune.  You will see Yulia and the President fight more as their families have different positions on currency.   Yulia is in a very bad situation right now as her companies are different than the Presidents. 

One things which is important in Ukraine if your not in the loop on currency.  Make sure your earnings are in the same currency as your debt.  Otherwise you might as well play Russian roulette.

[wxman]

http://www.bloomberg.com/apps/news?pid=20601085&sid=a0OZMFivn52M&refer=europe

From article:

"“The rate move today will only provide short-term relief,” said Nigel Rendell, an emerging-markets strategist at RBC Capital Markets in London. “Interest rates don’t fix macro- economic problems, they only put sticking plaster over them.”

The currency may weaken another 24 percent, according to Commerzbank AG."

[Mir]

Well buying and selling is a mater of agreeing to a price between the buyer and seller.
So if you take your dollars to the market to sell and someone offers you 6 UAH for 1 then it is up to you to sell at that price.
It looks like everything in Ukraine is now a total chaos and currency market is part of the mess.
No one is in control of anything.
As of today the official rate of exchange stands at 7.8788 at 1 US dollar as you can see here:
http://www.bank.gov.ua/ENGL/default.htm
but the exchanges have created a massive spread between bid and ask. So if you want to buy dollars you pay 9 UAH for one while if you want to sell they might offer 6 for 1, take it or leave it.
Perhaps this is a scam, but in Ukraine who do you complain to?, specially if you are a foreigner who are all looked upon as sex tourists.

[John K]

I got off the phone with the missus last night and Marina told me that the politicians are fighting over the value of the Hryvna/Grivna.  The rate has been bouncing around for the last few days.  Also, Marina noted that ATMs over there were even running out of Hryvnas sometimes in Sevastopol.  Not sure what to make of it yet...

[krimster]

The macroeconomic justification for the dollar decline was based on Ukraine's central bank raising its benchmark refinancing rate to 22 percent from 17 percent and simultaneously selling dollars at 8.7 hryvnia per dollar.

The ending is pretty clear.  At the moment, to purchase "default insurance" on any bond issued by Ukraine costs 33% of the value of the bond.  The market is saying that Ukraine will begin defaulting on its bonds in 2009.  Ukraine can not pay for its gas imports as well, and doesn't  have a valid sustainable business plan for its internal gas distribution system.  Russia cannot currently sell gas to Western Europe without it transiting through Ukraine.  The North Stream and South Stream pipelines are still years from completion.  So it becomes a game of brinksmanship.  Russia says, "if you don't pay your bill, we'll cut your supply", Ukraine then says, "we'll just have to umm, "borrow" some that goes to Western Europe", Russia then says, "we'll just completely cut off everything".  Western Europe then looses 25% of its gas supply and Russia loses Euro forex (not a good time for that with oil under $40/barrel), definitely a lose-lose situation. So the pending gas crisis will either be more pain for Ukraine (pay your bills on time!) and/or more pain for Russia (lower gas price, lost sales to Western Europe), which will also have an effect on Ukraine (which sometimes diverts it's lower priced gas to receive a higher price in Western Europe).

Internal to Ukraine, the gas business has a separate crisis.  That of it's customers not paying their bills.  In Ukraine the gas business is "bottom-up".  Individual customers buy their gas from a local Oblenergo which in turn buys its gas from NaftyGaz which buys from RosUkrEnergo which buys from Gazprom.  The problem is two-fold, customers pay in  hryvnia but gas is eventually purchased from Gazprom in dollars, a big problem when the  hryvnia suddenly drops 50%.  By far the biggest problem however is lack of payment by customers.  Some of the local Oblenergo have as much as 70% of their customers defaulting on payment.  This problem was temporarily solved by Naftygaz borrowing about 2.4 billion USD from the West mainly by issuing bonds (looks like they can't do that anymore!).  Naftygaz will technically be in default on it's bond repayments in about 10 more days.  Within two years, I would expect a major restructuring of Ukraine's gas business.  There will be higher prices and massive terminations of customers, and the possibility that Russia will "purchase" and control Ukraine's pipelines which is its ultimate goal.

Ukraine's banks are also in crisis.  Reserve requirements were lowered which fueled a credit boom.  Ukraine's banks were able to borrow "cheap money" from the West and loan it out internally at extraordinarily high interest rates.  Now it looks like they are getting "squeezed".  They have to repay of course the money they borrowed from abroad.  At the moment thy are just barely able to do so, and only by tapping into the internal reserves of the Ukrainian people by offering a "high exchange rate".  However, as more and more of this money is siphoned out of Ukraine, it becomes not only a more expensive commodity, but is less available to purchase things like apartments.  People who took out dollar loans have the same  hryvnia/dollar repayment issue.  Their loan payments suddenly increased by 50% at the same time the value of the property they purchased has begun a sharp decline and they are coming to grips as well with all the other economic issues.  When the defaults begin to accumulate in 2009, the banks will default as well on their loan repayments and collapse.  At that point it will be nearly impossible to even attempt to purchase an apartment, where will you get the cash?  Even at this early point in the crisis an estimated 30% of real estate agents have fled the business and real estate prices have dropped by as much as 40% in some areas of Ukraine.

I've outlined the first few dominoes to fall in Ukraine (neglecting the metallurgical and chemical industry decline which triggered the crisis).  There will be many others.  Newton's first law of motion informs us of the tendency of objects in motion to continue to do so unless acted upon, and such is the case here.  The tremendous ineptitude of Ukraine's financial mismanagement is still apparent and will likely not present any meaningful solution to the growing inertia of the financial crisis (indeed, it can be argued they are one of the main causes).

Nothing ever changes in Ukraine.  Vodka sales will likely be brisk this year!  Snovum Gohdum!