Tuesday, December 16, 2014

The Russian Central Bank's "counterattack" lasted 30 mins!

The result of the Russian Central Bank's hike in interest rates turned out to be worse then my worst nightmares: it reversed the downward spiral of the Ruble for only about half an hour, then the Russian currency resumed its collapse.  Rumor has it that the Central Bank might begin buying Rubles next, which I personally don't see as useful at this point.

I have asked for expert opinions and I hope to get them soon.  In the meantime, here is my own take on this which, caveat emptor, is backed by ZERO personal expertise in these matters.  Still, for whatever it's worth, my own speculations:

1) The Ruble is falling due to three completely separate reasons:
i) The recession in the West which triggers a drop in oil prices
ii) The AngloZionist pressures on OPEC not to cut production
iii) The impact of western sanctions

2) None of the above are enough to explain what is happening.  The real problem is the lack of credibility of the Russian Central Bank and the Kremlin.  Thus the key factor in the fall of the Ruble is distrust of the Russian authorities.

3) This distrust is fully deserved.  The head of the Central Bank is a notorious 5th columnist which Putin failed to fire, arrest or otherwise remove from that position.  But there is worse:

4) Putin personally is not trusted either, at least not on economic matters.  Dmitri Orlov put it very well:
Some people are starting to loudly criticize Putin for his inaction; but what can he do? Ideologically, he is a statist, and has done a good job of shoring up Russian sovereignty, clawing back control of natural resources from foreign interests and curtailing foreign manipulation of Russian politics. But he is also an economic liberal who believes in market mechanisms and the free flow of capital. He can't go after the bankers on the basis of ideology alone, because what ideological differences are there? And so, once again, he is being patient, letting the bankers burn the old “wooden” ruble all the way to the ground, and their own career prospects in the process. And then he will step in and solve the ensuing political problem, as a political problem rather than as a financial one.
Orlov, as always, is spot on here. Let me explain, as this is crucial:

First, yes, Putin is an economic liberal.  I hate to admit it, but I am convinced of it.  So while he is "socialist" in a sense of supporting a social state, which helps the poor, needy, sick or old, he also is a "market capitalist" in the sense that he believes that market forces should be left free to maximize the competitivity of an economy.  This might be a result of seeing a (pseudo-) socialist system fail or because he sincerely admires the competitivity of US and other (pseudo-) capitalist economies, I don't know.  But there is no doubt in my mind that he is an economic liberal.

Second, it would be typical Putin to let the "Atlantic Integrationist" 5th column to fail so badly as to make their removal a political demand of the Russian people.  The problem with that is that this strategic can take a huge toll on the Russian people and economy.

Right now the situation is so bad that the value of some high visibility Russian stocks has begun to plunge.  As does the Ruble.  As does the price of Brent.

I am not much of an economist, much less so a trader.  But I have to agree with the markets here: the current Putin+Nabiulina combo is not one deserving trust and if I had to speculate, I would speculate against Russia right now.

Maybe I am naive or primitive but I see only one way to reverse this death spiral: not only to fire Nabiulina, but to fully nationalize the Central Bank, fire the totality of its current top management and to appoint a new team with Sergei Glaziev as it's director with a rank of Minister of Finance.  Then Russia must take the strategic decision drop the current system of backing each printed Ruble with purchased US Dollar and instead back the Ruble with either energy or metals or a combo of real-word resources.  My own vote would go for gold.

The Saker