The Russian economy (catch all)

[Firn]

1. About the Russian gas weapon

I wrote earlier:

1) Putin should not forgot that turning the valves will stop a large part of the revenues financing his budget and his invasion.

2) In the long run such threads incentives the substitution from other geographical and energy sources.

3) Russia needs Europe a lot more then the other side around.

I can not look into the mind of the governments of the Central Europe and don't know what they know and think. Maybe some truly ignore that in the short and the long run Russia needs Europe money far more then Europe needs Russias gas. See the Federal Clay Budget of Russia, the reliance on European demand to finance their state, the full NG reserves in Europe, the time of year, etc.

Re sanctions:

In the medium (10 years) or long term (>20 years) timeframe the Russian position is not strong when we consider decreasing demand for NG and oil in Europe, the increasing global LNG capacities, lack of Russian LNG capacity, and the structure of the Russian (export) economy. Most of the NG is used in central Europe for heating of buildings. Fortunately, these buildings have an poor insulation level. :-)

The best answer is to build one or two more LNG facilities in the Netherlands, UK and Germany, to ramp-up refitting programs for buildings (KfW) and simply wait. The goal is to compensate for decline of UK and Norwegian NG production with more non-Russian LNG imports, at the same time, efficiency gains will reduce demand for Russian NG.

As the economy of Ukraine is a mess - it is even worse than the Russian economy - an occupation of more territory than the Crim does not improve the Russian strategic position IMHO.

This article supports that take on the gas front. Lower demand through mostly higher efficiency and some alternative energy will hit the Russian state revenues hard in the long run.

For starters, we are not now in early January but in March, considered the final month of the continental European heating season, when demand is likely to be highest. Moreover, this has been a particularly mild winter – the mildest since 2008 – and higher than normal temperatures are forecast to continue for several weeks yet, significantly reducing demand for gas and leaving prices at their lowest for two years. Energy market analysts at the French bank Société Générale said in a briefing note last month that European gas demand in 2013 was at its lowest level since 1999. In the UK, gas consumption is currently approaching a 12-year low.

Partly as a result of weaker demand, but also because since the first "gas war" of 2006, many European countries have made huge efforts to increase their gas storage capacity and stocks are high. Some countries, such as Bulgaria, Slovakia and Moldova, which lack large storage capacity and depend heavily on gas supplies via Ukraine, would certainly suffer from any disruption in supplies. But Gas Infrastructure Europe (GIE), which represents the gas infrastucture industry, estimated that in late February European gas storage was 10 percentage points higher than this time last year and about half full; the National Grid puts Britain's stocks at about 25 percentage points above the average for the time of year.

"The conflict won't have any impact at all" on prices, a Frankfurt-based analyst told Bloomberg News. "The gas price is currently influenced by temperatures and storage levels, and both don't favour demand right now." Prices of gas for delivery next month have risen around 10%, but that reflects insecurities in the market about a possible military confrontation between Russia and Ukraine rather than worries about fundamental shortages of supply were Gazprom to turn off the taps, the analyst told the agency.

[Firn]

2. About the financial markets

The Russian market rallied today, gaining back half of what he lost earlier. More importantly the Rouble recovered a similar amount. I would love if and then how Russian financial entities acted. One should keep in mind Ben Graham: “In the short run, the market is a voting machine but in the long run it is a weighing machine.”

In any case the sharp increase in interest rates, which are now arguably far too high for the weak Russian economy will work against it for the time being.

What I thought highly interesting that Putin decided to act today in a 'calming manner'. While most of the market gains happened earlier panic in the Russian financial markets is obviously no good.

Vladimir Putin has described the turmoil in the financial markets as a tactical and temporary state of affairs, during his ongoing press conference on Ukraine (live on Sky News channels now, and streamed here).

He also tried to pin some of the blame on America, saying that there was already a degree of nervousness due to certain US policies (ie, the slowing of the Federal Reserve’s huge stimulus programme).

I wonder when the last time was that he commented about the financial markets. That he tried to blame some of the crash somehow on the America was however not unexpected...

[AdamG]

Moscow (AFP) - Russia could reduce to zero its economic dependency on the United States if Washington agreed sanctions against Moscow over Ukraine, a Kremlin aide said on Tuesday, warning that the American financial system faced a "crash" if this happened.

Glazyev has long been seen as among the most hawkish of the advisors to President Vladimir Putin but many observers have seen his hand in the apparent radicalisation of policy on Ukraine since the overthrow of president Viktor Yanukovych.

Economists have long mocked his apocalyptic and confrontational vision of global economics but also expressed concern that he appears to have grown in authority in recent months.

http://news.yahoo.com/russia-warns-c...6261.html?vp=1

[Firn]

http://news.yahoo.com/russia-warns-c...6261.html?vp=1

I truly hope for the Russian people that Putin does not listen to him, for Russia the economic game is already tough enough and scoring own goals is more likely to wreak economic havoc at home.

Bloomberg, one of those nasty capitalist websites, reports:

Shrinking Reserves

Bank Rossii sold between $10.5 billion and $12 billion to support the ruble yesterday, Dmitry Polevoy, chief economist at ING in Moscow, wrote in an e-mailed note. The central bank is scheduled to release data on the size of the sales tomorrow, in accordance with its policy to post figures with a two-day lag.

Russia’s foreign reserves have fallen $40 billion since May to $493 billion, according to data through Feb. 21. ING said the country’s “net” war chest, excluding its sovereign wealth fund, gold and International Monetary Fund reserves, is about $270 billion. Allowing for funds to cover three months of imports, it shrinks to $150 billion, he said.

The central bank allows the ruble to float within a flexible corridor against its target dollar-euro basket. Bank Rossii said it will set the amount of market interventions it takes to shift the trading band on a daily basis, giving officials more flexibility in determining how many dollars it sells at a given price level before weakening the ruble’s trading band.

Yesterday, policy makers set the threshold at $1.5 billion, up from $350 million previously, according to the statement on Bank Rossii’s website.

I would love to hear if and how much money they used yesterday to keep the ruble afloat. However it is quite possible that the Russian Central Bank is already under orders to keep things as much as possible under wraps.

Some threats out of Russia from this Glazyev sound like really a parody, I had to laugh when I heard that he came up with the idea to drop the US dollar as a reserve currency.

From Reuters:

A Kremlin aide said on Tuesday that if the United States were to impose sanctions on Russia over Ukraine, Moscow might be forced to drop the dollar as a reserve currency and refuse to pay off any loans to U.S. banks.

Catch that? Glazyev is literally threatening to put his own companies into default. That's the opposite of a threat.

....

Glazyev probably thinks it sounds good domestically to make these threats and to imagine that they're of any significance. For everyone else they're just an amusement.

Well put, quite likely but then again he might believe his own nonsense.

[Firn]

Just short article at the Russian economy in terms of capital inflow or better capital flight.


In

The real potential damage to Russia's economic future is self-inflicted. The real fallout from a prolonged conflict in Ukraine, or even of a worsening of the already negative international perception of Moscow's role in the affairs of its neighbor, may be to radically slow the inflow of much-needed investment capital while capital outflows accelerate.

Last year, Russia scored a spectacular success in attracting $94 billion worth of foreign direct investment according to a report compiled by the United Nations and released in mid-February. That was a jump of 83 percent over the previous year and placed Russia third in the table behind China, which attracted $127 billion, and the U.S. with $159 billion. Some of the high figure was due to the BP investment into Rosneft as part of the deal to sell TNK. But the success of Russia's Direct Investment Fund, which attracted about $10 billion of fresh commitment in 2013, is also an important factor, The fund is well-placed to repeat that success in the coming years.

That money is critical if the country is to pull out of the current growth slump and achieve the targeted annual growth rate of 4 to 5 percent. Last year, the economy grew at just under 1.3 percent, and the macro data published for January suggests the annualized rate has slowed further, possibly to less than 1 percent. While some government officials are talking optimistically about a bounce in the economy from the spring or in the second half of the year, others are more realistic. Despite the fact that the weak ruble and high oil price are boosting the revenues of the federal budget, oil wealth is no longer capable of delivering higher growth. The combination is certainly helping to improve the national balance sheet, but it is definitely not a growth driver.

Out

But attracting foreign capital is only part of the story, of course. Russia also needs to persuade its own citizens to keep their money at home and to invest in their own country's future. Capital flight is a catch-all description that combines normal trade and capital flows with individuals' money being exported out of the country, which is estimated to be about one-quarter of total capital flight. In 2013, total capital flight was $62.7 billion. This means that about $15.5 billion, or 50 percent more than the Russia's Direct Investment Fund attracted from big investment funds in the Middle East and Asia, is money that individuals prefer to save or spend elsewhere rather than at home. Between 2008 and the end of 2013, capital flight totaled $420 billion. Applying the same formula suggests that more than $100 billion of that was from individuals.

Although only two months into 2014, this year is already shaping up to be another big one for capital flight. The total for January was $17 billion, or just greater than the $16.6 billion reported for the fourth quarter of 2013. Given the ruble's weakness and growing crisis in Ukraine, the total for February is expected to have been higher. March could be even worse if the Central Bank is unable to stabilize the currency and the standoff in Crimea escalates.

Good to seem some fresh numbers. I'm pretty sure many financial managers with Russian clients will be rather busy at the moment...

---

BTW the OCSE* storms an Ukrainian shop:



*Minus some countries. I would love to know what the guys working in the shop were thinking....

[Firn]

To honest it is quite sad to see the Russian economy in it's state. In some ways it is worse then I imagined before I looked at the hard facts. For example I would have put the revenue share in the federal budget from commodities at most around 30-40%. A nation, an European nation with such a rich tradition in science and engineering which finances it's state almost like a Gulf country is a tragedy. It makes itself also very vulnerable in any serious economic dispute. Of course after the latest aggression it's neighbours might actually be happy that Putins Russia has big economic weaknesses.

@AmericanPride: I fear we have to disagree again in some areas, just like in the economic discussion

1. Yes Putin and his Russia did gain 'political leverage' by creating military facts on the ground. But at the price of creating great resistance and even hatred within the Ukrainian government and especially it's people. He might actually annex the occupied Crimea, given the current playbook, as bringing the peninsula 'back home' is very popular and might be seen as a longterm achievement. In this case it is also rather likely that the lost 40+ Ukrainians millions for a long time. The international and economic fallout is harder to judge but there will be a price, it is just the question how big it will be.

2. A week ago I would have mostly agreed with the neat (and pretty smart ) statement: "To be in this government is to commit political suicide,” he said. “And we need to be very frank and open". But now as an invader has come like a thief in the night this government will have a far easier time to do make reforms, even tough ones, and to get financial and legal aid from abroad.*

The billions from the West, mostly the EU do have strings attached but some of them containe little to none. The IMF has shown himself impressed and the rules of games are obviously not the same as before. The EU has done something very rare, accepting unilateral benifts for the other side. Good to see that he also found the graph I posted over a week ago.

3. I have already posted enough about the economic vulnerability of the Russian economy and it's elite. Of course Putin can go ahead an let his citiziens suffer greatly for his little invasion, his political positions seems secured well enough that he can show strong willpower against the West. The big question is not if the Western powers can inflict rather serious harm on the Russian economy and elite, the question is if they have the political willpower to pay the relative moderate price for doing so.

Slashing subventions important for the majority in such difficult economic times is almost always a massive blunder, but the winter is over and the natural gas comes from the invader so it might be possible. If it is wise is another question.

@AdamG: This might actually have facilitated the latest political decisions by Putin. Perhaps it is not that stupid to keep the door open for the big capital flight from Russia...

@Kaur: I will leave that area to better informed folk, personally I was just suprised by the ratio of suppressed weapons by some non-Russian Russian troops.

[Firn]

A timely piece by the NYT.

Anxiety over possible economic fallout has begun to radiate from business circles, and some wondered whether Mr. Putin had been warned clearly about the magnitude of the possible damage to the economy. One analyst described their mind-set as one of “cognitive dissonance.”

“I’ve seen 10 people from the Forbes list in the recent few days. They’re pale; they don’t understand,” said Aleksandr Y. Lebedev, a prominent banker who sold most of his Russian assets after public disputes with Mr. Putin. But the oligarchs realize, he said, that their interests carry no weight in this situation, especially if they, like Mr. Lebedev himself, own property outside Russia.
“It’s those who are here who will take the burden,” said Mr. Lebedev, speaking from Moscow. “They all keep their mouths shut.”

There is no doubt that Putin has been able to concentrate much of the power on his person. The rules of the game have changed a lot in this regard since the years after the SU fall.

“Of course they’re upset, but it doesn’t mean they are prepared to challenge Russia’s foreign policy,” said Mikhail E. Dmitriyev, an economist whose research group, the Center for Strategic Research, was originally founded to shape Mr. Putin’s economic platform. “This is a new reality. Even if somebody has reservations with regard to the policy’s effectiveness, I strongly doubt they would express it. This is a policy which, for the moment, is backed by the vast majority of the public. It’s not an exaggeration.”

In private conversations, though, several people described high anxiety within corporations, especially about the prospect of any sanctions’ affecting banks. Large Russian corporations have significantly increased foreign borrowing in recent years, and 10 were negotiating loans when the crisis boiled over, said Ben Aris, the editor and publisher of Business New Europe. Financial sanctions could set off a chain reaction of blocked transactions, frozen accounts and bank closings. “Those oligarchs who are already having trouble would be completely cut off,” he said.

It certainly could hardly happen to a nicer bunch. Liquidity could indeed become a massive problem if the West decides to implement harsh sanctions. Freezing and blocking Russian capital could have devastating effects on the oligarchs and the Russian economy as a whole.

P.S: Interestingly today the ruble has lost far more against the Euro vs the USD then the €/$ exchange rate explains. We know that the Bank Rossii has tried to defend the ruble by selling lots of USD which became hard to come by and got perhaps controlled. So perhaps now much demand has shifted to the Euro. This is obviously a quick speculation, the thing just catched my attention.

[Firn]

Firn:

That is very finely written. I am officially jealous.

Thanks, but I really should check my posts at least twice, it should have been 'guys'.


A look at Russia:

'A kick into the teeth' of the Russian people:

Lawmakers from pro-Kremlin parties United Russia and LDPR have submitted to the State Duma a bill abolishing popular elections of mayors and city councils in major cities.

Analysts said the legislation represents an attempt to increase the dependence of municipal authorities on the Kremlin and effectively liquidate their self-government. Some observers also interpreted the proposed measure as part of a Kremlin effort to consolidate power in reaction to the political crisis in neighboring Ukraine.

The reform would apply to 67 large cities, including 56 regional capitals. The mayors of affected cities would be elected by city councils from among their members, while the city councils would consist of deputies delegated by newly created assemblies of city districts.

City governments would be headed by city managers — executives appointed by commissions, half of which would be chosen by governors and the other half by city councils.

The bill's sponsors argued that the bill would help fulfill an order by President Vladimir Putin

Sadly this is just the acceleration of a long term trend in which more and more power within Russia gets centralized and concentrated. The 'Russian Federation' seems increasingly to be so only in name.

This grab of power was not restricted to the political landscape but was particularly severe in the one of the media. There are lots of recent examples, like the one made only yesterday:

The longtime editor-in-chief of news agency Lenta.ru has been replaced by the former editor of a Kremlin-friendly online publication, prompting an uproar among many journalists who say the move is just the latest nail in the coffin of Russia's independent media.

Alexander Mamut, head of the Russian Internet news service's parent company Afish-Rambler-SUP, said Galina Timchenko had resigned from her post, but the Lenta.ru editoral staff released a statement saying she had been forced out.

It is deeply tragic for the vast majority that at a critical junction of Russia's history, in a time of political and economic instability a Mr. Putin was able to grasp the reigns of power. After almost 15 years he doesn't seem willing to let them go and his long consolidation has made it very difficult to see change coming. The bad luck of Russia was compounded by the boom of the commodities, especially the energy ones:



This has allowed the state to rather easily get it's hands on the by far dominant revenue stream and to support it's internal (and external) political agenda. The Kremlin could increasingly use all that money to achieve it's (short term) goals. The Russian economy has become an extractive one in every sense of the world and increasingly unable to get much sustainable growth in other sectors, especially those in need of high human capital. For the leadership this tight leash on economy has been quite beneficial in the short term but it is aweful for the Russian economy in the long run.

I generally don't advise people to try too hard to find connections between two graphs, but it is quite interesting if we consider the almost Gulf State-like Russian dependency on (energy) commodity revenues outlined earlier. Needless to say that the commodity index should be portrayed as a moving average.



It is important to look at the long term development of the index, not the often wild swings which can often get pretty smoothed out by the automatic stabilizers within an economy and fiscal policies. The weak performance of the Russian economy in the last year and it's bad outlook already before the crisis should not come at a surprise.

[Firn]

I really don't know if those troops will invade Eastern Ukraine. However there is in my opinion the danger that Mr. Putin thinks the following: If Russia faces increasingly tough sanctions over the annexation of the Crimea anyway why don't add two-three other Ukrainian oblasts to the motherland?

Donetsk and Luhansk have a relative large amount of ethnic Russians and could provide some useful local speratists. They have been already invaded by payed Russian thugs. It gets even better. Today we hear reports that Russia is using the killings by it's thugs to remind the world of it's 'duty' to 'protect' it's 'compatriots' in the political turmoil Russia itself is creating. Amazing stuff, as a Western FM I would have a very hard time not to laugh into Lavrovs face.

----

A quick look at the situation of the Ruble. According to this site (translated by google) the Bank Rossii has used another $ 6bn to row against the flow and still it got overall pushed back against it's currency basket. This makes at least $ 21 bn + a 150 points interest rate hike in two weeks and the ruble goes from all-time low to all-time low despite over a 600 points premium against the Euro and USD.

Roughly two weeks ago:

Russia’s foreign reserves have fallen $40 billion since May to $493 billion, according to data through Feb. 21. ING said the country’s “net” war chest, excluding its sovereign wealth fund, gold and International Monetary Fund reserves, is about $270 billion. Allowing for funds to cover three months of imports, it shrinks to $150 billion, he said.

I have no time to calculate the exact numbers but here is no doubt that although the war chest is relatively large it is under considerable pressure and liquidity is flowing out. I would not be surprised if tries to sell some securities of the SWF and gold to get more cash, and there is of course the interesting question what and at which cost the fund did buy. If the carry the investments at market price it is likely that those will have gone down, reducing the size of the war chest.

The falling ruble will cause the price of the imported goods to increase which will not go down well among the Russian population. I don't know how the volume will do. In any case it is plain how foolish the Russians will be to cut their own cash flow by stopping it's exports. In a relative short time, perhaps a couple of months or even less they could not longer cover the imports. And that will get the attention of a large share of of the Russians, especially those at the very top...

[Firn]

Find it interesting that the leader of the Jewish community in Kiev stated recently that they have had no problems with neo right radicals and or neo Nazi's and that they the Jewish community Kiev were also fighting in the Maidan just as was the neo right.

Really thought the use of the fear of "Nazi's" had died with Stalin.

But I guess old habits of the KGB die hard.

Reading the NYT Lede blog, watching a couple of minutes of videos and seeing the Kremlins reaction is really a chilling experience. I would have dismissed it as far too simplistic a couple of weeks ago, but the current actions of Putins regime have indeed KGB all written over it.

Indeed it is not a single action or the combination of some, it is brazen depth and vast width of the whole package which cries KGB, KGB, KGB. That inner circles seems to completely disregard the diplomatic,legal and economic consequences of their deeds, looking almost only through those KGB glasses at the world.

The good thing is that with tiny sanctions the EU and USA have already triggered a great flight out of the ruble and nice burning of foreign reserves. I think it is high time that they ratchet up the effort, perhaps ideally each couple of days to keep the Russian market nervous and to let the capital flee. If the Russian retaliate economically, all the better, as they will hurt themselves the most and the West can easily match it to inflicht further pain. As stated before, cutting off the gas supply into the EU by themselves would be ideally harmful, if there is a little bit of political willpower on the European side.

Of course a week ruble would decrease the prices of their industrial products and services, making their goods more competitive but exactly what goods? What are they able to sell in a meaningful number to make up the lost revenues? To which non-Western country?

[Firn]

A bit more on the Russian gold reserves. They should have achieved overall a net gain in markte price over cost. 2011 and 2012 hurt of course.






At market price they have roughly $ 50bn in gold. Keep in mind that they went through almost half of that in cash in only two weeks and just slowed the fall of the ruble.



The three sovereign wealth funds combined had in 2012 roughly a captial of $ 190bn. $ 10bn was ideally allocated into risk-free Russian assets.

Kirill Dmitriev is on a one-man mission to change Russia's image in the eyes of world investors. The 38-year-old graduate of Harvard and Stanford runs Russia's newest sovereign wealth fund—the $10 billion Russian Direct Investment Fund.

....

"Many people have misperceptions about Russia, and they feel the risk is greater than it really is," Dmitriev told CNBC. "So we put the (Russian) government's money alongside other investors' to make sure they are comfortable and understand that Russia can be an attractive investment destination."

I'm pretty sure that the last weeks have been pretty tense in the Bank Rossii and the SWF. It is pretty likely that they moved already most of the US treasuries out of the US.

Maybe they have already started to sell at a steady pace...

[Firn]

Firn---the Russian Foreign Ministry claimed late last week they could hold up under sanctions as they had over 500B in foreign currencies---any evidence of that?

They would say that wouldn't they?

I think it is important to grasp the basic concepts of a central bank and it's relations to the economy. In general in very rough terms the central bank is there to:

a) help keeping the economy of your country on track
b) handle the technical trade stuff to allow the goods to flow

There is a rather long list of things a country and the central bank itself can do to keep going and to lessen the fall of it's currency. However the further down you go that list and the more forceful some of those actions are the more you tend to hurt your economy.

It seems for example the Bank Rossii has shifted most of it's US gov bonds (treasuries) out of the US and might have already started to sell to get some USD in cash, which they likely need after suffering a cash outflow of $ 21+ bn. As of December the had almost $ 140 bn of them deposited at the Fed. This has per se no effect at all on the Russian economy, but without enough reserves Russia will be no longer able to pay it's many imports. They burned so far through their cash at a surprising rate. Thus the Russian Central Bank, anticipating some of trouble coming it's way has used a two-pronged strategy, selling $ reserves and increasing interest rates.

However raising those rates by the considerable amount of 150 bp does reduce demand in an already weak economy. Now they stated if I recall that the won't go up further but this of course depends on how their ruble and their asset side of the balance sheet is doing. If they have to sell too much $ too quickly they might impose capital controls and increase the rates. So instead of having a central bank doing it's thing to help the economy the economy has now increasingly to pay to keep the central bank (and thus itself) going.

So the key question is how much damange do they have to inflict on their economy to avoid a meltdown of their balance sheet?

P.S: Earlier I ridiculed the idea of some Russian nationalist who imagined that he could inflict some damage on the Western economies by eliminating the dollar as their foreign reserve. Predictably the Crimean Crisis has led to money going into the safe havens, or gov. bonds of Western countries like the US, Germany, UK and so on.

“Treasuries, bunds and gilts lead in this kind of move,” Steven Major, head of global fixed-income research at HSBC Holdings Plc, said in an interview on Bloomberg Television’s “Countdown” with Mark Barton and Anna Edwards. “It’s very difficult to imagine a scenario whereby everyone just kind of kisses and makes up, so on Monday morning it’s not going to be a case of everything’s fine. It’s either going to be very very bad, or very bad.”

German 10-year bund yields fell as much as four basis points to 1.50 percent, the lowest since July, and U.K. 10-year gilt yields dropped as much as five basis points to 2.64 percent.

So at the same time that the Russian Central Bankers have to damage their economy and sell their reserves to slow the fall of Ruble their important Western counterparts are 'forced' to sell their bonds more dearly as so much money is wanting to buy them.

It is the old problem of Russia, if the big money wants security it isn't coming in, it's leaving. And it even does decrease the price it's rivals have to pay for their debt....

[Firn]

At the end of the week the FT run a good story about Russian companies bringing their capital back home:

Russian companies are pulling billions out of western banks, fearful that any US sanctions over the Crimean crisis could lead to an asset freeze, according to bankers in Moscow.

Sberbank and VTB, Russia’s giant partly state-owned banks, as well as industrial companies, such as energy group Lukoil, are among those repatriating cash from western lenders with operations in the US. VTB has also cancelled a planned US investor summit next month, according to bankers.

This mirrors the very likely pull of a $ 100bn by the Bank Rossii out of the US. The article rightly talks about the fear of asset freezes, but there is in my opion more to it and this refers to the balance sheet of the Bank Rossii, the state control/influence over big Russian companies and the fall of the Ruble.

A flow out of assets in the West to Russia does increase demand of the Ruble and help the Bank Rossii to get strenghten it's balance sheet with western currencies. So it is supported it's currency policy in two ways. Personally I think the key issue here is how much the Ruble did fall, despite the rate rise, despite the $ 21+ bn thrown into the market and despite that large capital pull by partly state-owned companies.

Traders and bankers said US banks had been particularly heavy sellers of Russian bonds. According to data from the Bank for International Settlements, US banks and asset managers between them have about $75bn of exposure to Russia.

Joseph Dayan, head of markets at BCS, one of Russia’s largest brokers said: “It’s been quite an ugly picture in Russian bonds the last few days and some of it has to do with international banks reducing exposure.”

Indeed it wasn't pretty:



I think there is still a lot of room left for bond yields to increase if the situation just stays the same. Generally the longer the crisis last the harder it will be for the Russian economy. There are of course some Western companies who already built plants and bought much property, but there is still a great deal of capital which can rather easily flow out.

It is interesting to take a look at the last 14 years:




@Outlaw 09: I asked the same poster twice for sources and arguments to make his case but he didn't deliver. So I wasn't surprised to see much of the same happening to you...

[Firn]

A bit more on the capital flight from Russia, which looks like to be considerably higher then the capital inflow. Keep in mind that due to the accounting logic of the Balance of Payment some capital will naturally flow out as long as Russia continues to run a trade surplus (the other factors canceling each other out).

LONDON — Capital flight from Russia has risen sharply since the start of this year to $45 billion to $50 billion, Goldman said, predicting full-year outflows could be as much as $130 billion, or double 2013 levels.

Goldman said its calculations show capital outflows have jumped 60 percent from year-ago levels as the economy slows and the threat of Western sanctions bites. It also slashed its forecast for Russian economic growth this year to 1 percent.

Interesting to note that roughly 2/3 of the overall sum of BR's interventions was spent in the last two weeks. BTW you can see the accounting logic at work:

Goldman based its capital flight calculations on estimates of a $25 billion current account surplus in the first three months of the year and around $30 billion in foreign exchange interventions by the central bank.

On the Russian macro front:

Regardless of whether the Kremlin is irrational or simply uninformed, its policy in Crimea sends an unmistakable signal to investors: Russia's political leaders are impossible to predict. This will further undermine Russian and foreign investors' confidence and increase capital flight, which could not come at a worse time. With credit-fueled consumer spending, the engine driving GDP growth since 2010, now running out of steam, the economy is stagnating.

It is very hard to see how the Russian government can avoid a (deep) recession if the crisis continues for (months) weeks. Lots of shocks hitting the economy at the same time just as the monetary policy is forced to move into the wrong direction and fiscal policy will very likely be quite costly to finance...

[mirhond]

It is very hard to see how the Russian government can avoid a (deep) recession if the crisis continues for (months) weeks. Lots of shocks hitting the economy at the same time just as the monetary policy is forced to move into the wrong direction and fiscal policy will very likely be quite costly to finance...

Poor us.
You are still deliberately ignoring the fact that we have lived with ####ed-up economy for 15 years. Almost everyone out there understand that all this burgeous pleasantries are temporary, almost everyone either have Plan B if things become hairy, or just don't care about future. We are tempered with endless economic fails, inferior governance and suffocating aura of lies. Even the food, water and electricity rationing won't destroy this system.

[OUTLAW 09]

Firn---in comments yesterday by a former Russian Finance Minister the Russian budget this year was targeting a growth rate of 3.5% and if sanctions are imposed he is saying the growth rate may in fact be 0% and the Crimea costs were not factored in and approved for this year.

Average Russian taxpayer will be carrying the Crimea burden for years to come.

He indicated that there is talk of 80-90M USD per month in just support to keep the Crimea running and the Crimean's felt that with joining Russia their individual salaries would be going to Russian levels (was posted on placards around the cities) which is also not in the budget that was approved so he is estimating an annual cost of 20B USD per year just to do a steady state.

Reference an economic embargo---he feels it will not happen but worse for Russia is they the EU knows exactly where to place "specific targeted sanctions" against specific business types and products that will in a relatively short period hurt the economy baldy and they will do it as they feel the entire world community condemns what Russia has done and Russia is in effective politically isolated and has to take the hits.

His comment was interesting---the EU understands our economy better than we do.

[OUTLAW 09]

Firn---check the outflow of Russian capital to western banks for repayment of debt---in Jan it was some say over 17B and for this quarter they are talking about well over 50B---outstanding bank debt to be repaid seems to be in the 608B range.

[Firn]

Financial Times
‏@FT: 2% of London's luxury house buyers are Russian. So UK will find imposing sanctions tough: http://on.ft.com/1nFLV9e pic.twitter.com/infrAjTBwP

Is this 'tough' ironic or are you kidding me? 2%? Of the luxury market, of London? Make it 20% and it still at most 0,1%something of the UK housing market alone...

[OUTLAW 09]

Interesting Russian news take on the latest round of US sanctions from Interfax.com.



20:32

KREMLIN SAYS CAN'T ACCEPT SANCTIONS LIST PRACTICE IN PRINCIPLE

20:30

KREMLIN SAYS RUSSIA WON'T TAKE LONG TO REACT TO U.S. SANCTIONS

20:29

MOSCOW STUDYING U.S. SANCTIONS LISTS, BEWILDERED BY SEVERAL NAMES - PESKOV

20:26

NATION CLAIMING TO BE DEMOCRATIC IMPOSES SANCTIONS FOR HONEST POSITION, HONEST STATEMENTS - RZD CHIEF YAKUNIN