Understanding international finance and the Russian stock market is above my pay grade, but it appears that Putin’s decision to invade Crimea had an immediate and brutal effect on the Russian economy which forced him to make some less bellicose and somewhat conciliatory remarks today. The result is a partial recovery of the massive losses experienced yesterday.
A salesman at a Russian investment company said institutional investors still expected a wave of outflows from Russia and the region this week.
He said “the market is pricing a completely different valuation range for Russia as a consequence of recent events” because of the increased risk caused by Putin’s unpredictability and economic difficulties that Russia may experience for an extended period.
“When the further development of events becomes more-or-less clear then it would be worth taking a look at murdered liquid Russian stocks,” said Vladislav Silaev, trader at Alfa Capital.
It must be nice to have the kind of cash you need to play in that casino. Russia may have oil and natural gas, but that doesn’t mean that the West can’t wipe our their wealth in a few hours if they are displeased. It’s a different kind of mutually-assured destruction than we’re used to, but it might be just as effective in preventing a major shooting war with potentially apocalyptic consequences.
I just love the way you phrase things in this post. For lack of a better term, I’m going to call it comfort writing since the result is similar to chocolate.
Ah, so it looks like “the free-hand of the market” slapped Ol’ Pooty-poot right in his puss.
So much better than potentially starting WWIII, isn’t it Conservatives and Republicans?
Yeah, I know- that Kenyan SocialiFasciCommuniHeatheMusliAtheist Usurper got lucky again!
‘Dawn that waskawwy wabbit, Bugs OBunny!!!’
Don’t get overconfident. Putin is still holding Crimea.
It’s hardly mutually assured destruction. More like, “Hey Asshole!; put down the Crimea and slowly back away.”
Yeah, I know – and I’m not happy about anything that’s been going on over there.
As I wrote over the weekend, outside of 1/8th of me, the rest is evenly split between being Ukrainian and Russian.
My Pop was a Uke, my Mom’s a Russian.
I just don’t want WWIII to be caused because of strong disagreements that go back hundreds, if not well over a thousand years.
And isn’t ever likely to let it go, any more then we are likely to return Gitmo to Cuba ………………..
Yes, if only Napoleonic Europe had had integrated capital markets, that would have given the Emperor pause in June 1812. Or not.
I have to wonder whether Russia’s investment and stock markets and currency are really going to dissuade Putin from concluding that he sure as hell isn’t going to put up with Sebastopol becoming, um, insecure. Some national interests trump even the holy global capital markets.
Ukraine has become a loose political football, with serial elections, whiplash parliaments and deposed presidents galore. There is no established political consensus about the future of their country. Military brass (Russian or otherwise) with long term geographical “investments” don’t like that kind of instability. Russia has a long term, highly professional military, the only one in the area.
It’s very hard to see the Crimea ever going back to Ukrainian administration after the latest uproar in Kiev–justified or not, and one can read volumes both ways. And if Putin and the Generals see cause to worry about the Donetz industrial basin, tanks and armored infantry will roll there as well. And the world’s plutocrats pullin’ their blood money out won’t likely matter much to Putin.
A couple of points.
It had no effect on the Russian economy because stock markets can quickly move up and down and economies are much slower moving beasts.
That would only be true if Russian entities and individuals were forced to sell their stock holdings to western entities during a panic collapse (assuming Russian stock prices weren’t previously highly overvalued). Perhaps it was Russians that bought at bargain prices as western entities fled.
Wa da da dang
Wa da da da dang hey!
Listen to those 9 billion rubles go BANG!
that finance types have been providing since this whole thing started. And, to commment on your earlier post, I find Putin to be the only master strategist in the game right now. This doesn’t mean he’ll be sucessful, because there always risks involved that can’t be controlled, especially when conflict and military action is involved, but I do think he is entirely predictable and following the standard Kissinger-Thucydides realist playbook that anyone with an international relations degree from college should be able recognize.
The basic, modified Realpolitik model is this:
So, let’s use the above take a textbook at some of the claims circulating the Western blogosphere.
A) Putin’s actions in the Ukraine are irrational and he “cannot be predicted.”
If this is true, then we should be able to identify how Putin’s power is threatened or reduced in Russia because of his actions. Evidence is frequently argued along these lines by showing an antiwar movement and protests within Russia, as well as market movements against the ruble and Russian stocks as money is withdrawn from Russian by foreign (and elite Russian) investors.
There’s some pieces to this “Putin is irrational argument that are frequently missing, however. One, is that we really can’t tell from some protests how unpopular Putin’s actions really are or will be as this plays out. I’m guessing, from that fact that Putin’s tough-guy nationalism has won him elections despite his game-playing with constitutional limits so far, that his support and popularity — and thus power to do things in Russia — has increased, not decreased as a result of this action, much as Bush’s power increased during the fervor to invade Iraq, which was a very popular decision at the time in the US. I’d want to see some actual evidence of widespread unpopularity among his large and diverse base in Russia before I’d conclude that this invasion has not increased, rather than decreased, Putin’s power in Russia, and thus provides a perfectly rational reason for his actions in the Ukraine.
Evidence in support of the Russian nationalists liking what Putin is doing and providing energy to him would be the fact, oddly left out of most commentary on the Ukraine today, the US was caught by Russia red-handed trying to replace a pro-Russian President with pro-European one. That was what the infamous “fuck the EU” phone was all about, remember. And the target of putting that phone call on youtube was not the US or Europe, but the Russian nationist constituency of Putin, to rile them up as pretense for what he is doing now.
The majority in Russia do not see this as Russian aggression. They rather see this a bold act of defense by their tough, shirtless hero, against a blatant act of aggression by the US against their buffer state the Ukraine, much as we would view an overthrow of the government of Canada by a pro-Russian, skinhead version of the Occupy Movement as a blatant act of Russian aggression aimed at the US itself.
B) The withdrawal of foreign funds from Russia, evidenced by the fall in the Ruble and the Russian stock market, is a threat to Putin’s power.
In short, no it isn’t — it’s only paper wealth, not real things. Yes, a substantial part of Putin’s support comes from the wealthy elite, and they are taking a hit on their paper balance sheets from this, but this in no ways should be interpreted as actual evidence that they will abandon Putin because of this.
Paper wealth is not real wealth, and in the Realpolitik playbook that Putin is following, only real wealth — actual supplies and movements of food, energy, industrial material, and weapons, matters in the calculation of power. And none of this is significantly affected by the 1% playing games in stock and currency markets like a grand casino. The oil and gas will continue to flow and people will continue to eat and use toilet paper in Russia because Russia is a very large and physically self-sufficient country with lots of options to sustain a war with the rest of the world indefinitely. Only the US really has the same capacity for self-sufficiency today. Putin, therefore, and likely most of the Russian 1%, are aware of this and are not freaking out because of some market movements in daily casino that they’ve come to enjoy.
So, no, Putin’s power is not seriously diminished by financial operations or even threats to isolate it from the global banking system that US governs. Russia is not China, in other words. And as a net energy exporting economy, it really doesn’t need much from outside world, either. If such an isolation carries on for a long period of time, it might have an effect on his support from the 1%, but that does not, by itself, mean his power has been hindered in Russia if the median voter — likely a Russian, anti-gay nationalist, still has Putin’s back.
Putin is doing this in the Ukraine because he has calculated that this is providing him more power and sustaining his power, within Russia, making his job as president easier, not harder. It’s helping his ability to govern. Unless the West can maneuver Putin, due any setbacks that might occur, into a position where his power is threatened, Putin has no reason to change the course he is on. Let’s hope Kerry can do that, but the odds at this point are all with Putin and against us.
Former Amb to Russia today commented that Russia’s economy was headed into a recession before this all came about.
I believe something similar happened around 2004 when India and Pakistan were really sabre-rattling over Kashmir. Money talks in situations like these.
Exactly right. The market oligarchs spoke, “the market is pricing a completely different valuation range for Russia as a consequence of recent events” and Putin flinched. Now they know he can be bought – this is their finest hour…
Political events seldom have a persistent effect on stock markets. When short term political events conclude, stock markets often continue the former trend. There is going to be some damage to the Russian economy and IMO, the degree of that depends on how long this is unresolved and what kinds of financial retaliation is taken by other countries.
I just keep thinking of Lebensraum and Sudetenland…
How much more territory does Putin’s appetite require for his new block of nations?
Most of the financial types are in NATO countries (and countries that Russia has used Gazprom to intimidate).
Financial types don’t like surprises of any kind, and Putin securing Sevastapol and closing Crimea was a huge surprise.
Interruption of natural gas transmission through Ukraine could affect the European economy adversely.
More than enough reason to punish Russian securities.
Bloomberg News is fairly decent for financial info without a paywall. This article has a really cute title:
Putin Would Be Humbler Without Toilet Paper
http://www.bloombergview.com/articles/2014-03-04/putin-would-be-humbler-without-toilet-paper
For more substance try:
http://www.bloomberg.com/news/2014-03-04/putin-s-ukrainian-gambit-stings-economy-as-allies-lose-bill
ions.html
Oligarchs at war
Notice how wars kill less people when it’s oligarchs fighting, rather than ideologues, or nationalists, or religlionists?
Notice how life expectancy and per capita income in all countries, all socio-economic classes keeps increasing under the rule of Oligarchs?
Yet the nutty Tea-Partiers hate Oligachs. Go Figure.
The real question is who do us Progressives consider the more ominous threat to our world-view….
Tea-Partiers or Putin. Who’s crazier?
All Hail Oligarchs!
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Chart MICEX index – Chart USD-RUB – Chart EUR-USD [Euro at 12-month high]
In Pepe Escobar’s latest at Asia Times he suggests that some of the latest Cold War redux has to do with Russia and China backing away from the dollar as a reserve currency. He also doesn’t paint a very rosy picture of Ukraine’s ecomony. I certainly do know enough to speak about international money manipulations, but I’m guessing the ruble’s recent troubles may have something to do with Western manipulations.
…do not know…