The Russian economy (catch all)

[Stan]

Hey Kaur !
From an economist's standpoint, all 10 of these "reasons" appear logical. But, in an abnormal place like Russia... what exactly is then normal or logical?

We have seen so many examples of "rock bottom" and yet 10 years later, still not hitting rock bottom. In the end, Russia's resources won't save the country, but going back to the Red Army days will. Putin is old school and intent on surviving, and President Medvedev would rather step down than piss off Vlad.

They've demonstrated just how easy it would be to return to yesteryear, and the majority of the older population is already begging for a return.

How's life in you neck of the woods?

Terv, Stan

[Watcher In The Middle]

It's going to turn into a really wild ride, because so many of the past investors in Russia aren't just pulling out all the stops to extract their Russian investments, but even maintenance credit flow into Russia is just flat out evaporating. Russia is all of the sudden coming across as an investment of last, worst resort - and that's only if you are ready to lose 100% of your capital. If "preservation of capital" is a primary goal, Russia is fast getting a reputation as a place to avoid.

And this isn't being driven by Western governments either - this is virtually all market driven. It certainly isn't helping any that the liquidity crisis in Western financial markets is happening, because much of that capital coming out of Russia, or not being invested there, is instead going into recapitalizing Western financial institutions. They (the money people) think the money is safer going into Western financial institutions, rather than into the Russian economy. Not sure I'd necessarily agree with that (I'd be looking hard for "Door Number 3", personally), but it's their money.

And with oil heading down to the $100 a Bbl. basis, even more of an impact. One of the real tipoffs on how Russian business is going are the occupancy levels at Moscow area hotels. Prior to Georgia, the higher end Moscow area hotels were booked solid, right at/around 100% of the listed price (literally for months). If you were spending an extended period of time in Russia, it was easier and less expensive to rent than get extended hotel stays.

Article on the Russian Hospitality Market

Let's just say that Western hotel expansion plans for Russia have hit a very abrupt wall, in the financing area.

Rule 1: Do not go out of your way to make the capital markets skittish - there's a lesson here for a lot of nations, including the US.

[Jedburgh]

FIIA, 1 Sep 08: The Sustainability of Russia's Resurgence

Summary

- In recent years, Russia’s resurgence has been driven by favourable conditions rather than solid foundations.

- Despite the favourable conditions, Russia’s resurgence has only achieved mixed results. Buoyed by economic growth, Russia has become wealthy, assertive and confident; but the country has also alienated and provoked its neighbours and the West.

- Sustaining these conditions is unlikely due to problems resulting from Russia’s internal structural weaknesses and assertive foreign policy.

- Without change, these problems are likely to worsen. Energy exports – the cornerstone of Russia’s resurgence – are set to decline. The end of this boom threatens Russia’s domestic stability and ability to tackle other long-term threats as external resistance to Russia hardens.

[Culpeper]

I did my small part to help out the Russian economy. I bought a really cool knife made in Zlatoust. The sheath was cheap but the knife is of excellent quality and steel. It's a monster. The sheath in the picture was custom made by Bluff Creek Outfitters in Texas. That is an 8.4" blade. Russian knives made and sold be real Russians!

[kaur]

Putin And Gazprom

Gazprom is a unique phenomenon in the Russian political and business life. In 2007 proceeds by Gazprom amounted over $93 Bn, which is 7% of the Russian GDP. This is 2.5 times as much as our defense spending. Gazprom’s share in the industrial production is over 12% and in the cost structure of the Russian export is about 16%. The company makes about 43% of the Russian production of primary energy carriers and has similar share within the structure of the national consuming the energy resources. Gas supplies by Gazprom secure up to 40% of production of electric energy in the country. In fact, Gazprom is an energy core of the Russian economy. Stability and prospects of our economy depend greatly on effective and reliable working by the Company.

http://en.novayagazeta.ru/data/2008/63/00.html

[Watcher In The Middle]

Oil prices sustaining Russian aggression
Oil is still trading above $100 a barrel, but the recent trend is sharply downward from the July peak of $140.
By Martin Hutchinson

Russia’s central bank intervened to support the rouble last week, as foreign analysts estimated $21 billion had been pulled out of Russian securities following its incursion into Georgia.

The central bank sold $3.5-4 billion in reserves to stop further depreciation of the rouble. With nearly $600 billion of currency reserves, Russia can afford to support the rouble. It can ignore foreign bleating in the short term. Once oil prices drop, life will become tougher for Russian consumers. That’s when the West will have some leverage.

Moscow’s stock market has fallen 25% since July. Since less than 1% of Russians own stocks, this may not matter domestically. As a result, so long as oil prices remain high, Russia’s aggressive foreign policy and poor governance record have few economic, or political costs.

Link To Article

What's even more interesting is Russia's "breakeven point" on oil prices. They don't get top dollar for their crude (it's not "sweet" enough), so their overall 'bundle' price is likely under $100 a Bbl., and their "break even price" is probably above $60 a Bbl. by now, so they don't have enough to go around (increasing consumer spending, increased government spending, and greatly reduced access to external capital), with the result that spending on infrastructure has to stagnate, because there's just not enough capital - they will be tapped out. And if oil production falls, which appears to be happening, they'll be in a world of serious hurt.

The marketplace is extremely unforgiving, particularly these days.

Ask yourself a question - Putin is one very, very smart operator. Methinks he can do the math as well as anybody, and better than most. He's got a society which has a full stomach of rising economic expectations, and so far the meal's been pretty good. Now they are expecting the main course - where's it going to come from? Maybe his "stepping down" was a classic example of being "Time to get out when the getting's good."

Thoughts?

[Ron Humphrey]

Link To Article

What's even more interesting is Russia's "breakeven point" on oil prices. They don't get top dollar for their crude (it's not "sweet" enough), so their overall 'bundle' price is likely under $100 a Bbl., and their "break even price" is probably above $60 a Bbl. by now, so they don't have enough to go around (increasing consumer spending, increased government spending, and greatly reduced access to external capital), with the result that spending on infrastructure has to stagnate, because there's just not enough capital - they will be tapped out. And if oil production falls, which appears to be happening, they'll be in a world of serious hurt.

The marketplace is extremely unforgiving, particularly these days.

Ask yourself a question - Putin is one very, very smart operator. Methinks he can do the math as well as anybody, and better than most. He's got a society which has a full stomach of rising economic expectations, and so far the meal's been pretty good. Now they are expecting the main course - where's it going to come from? Maybe his "stepping down" was a classic example of being "Time to get out when the getting's good."

Thoughts?

I'd been hoping to see,but dont count out him being able to pin it on Med and come out smellin like roses