FYI, it’s the patriotic thing to do in Mother Russia. [Telegraph]
Russia
For whatever reason the Russians are sort of the of the suburban teenager of the ultra-rich age. They go absolutely crazy at the mall when they have a few bucks in their pocket, and melt down into a pile of sobbing Jell-o when the funds dry up. Russia is very much a bellwether of the luxury market with 18 month latency in this way. Their spending excess on last year’s trend gives firms like Moët Hennessy – Louis Vuitton a perfect opportunity to dump two-season ago hot items that have backed up inventory and charge premium pricing to do so. The risk, of course, is getting stuck when the oligarchs start sucking wind. That would be circa now.
Moscow had 74 billionaires a year ago, more than any other city in the world. Now it has 27, according to Forbes magazine. The 25 richest Russians lost a combined $230 billion during six months last year as the value of their companies plunged along with commodity prices, according to Bloomberg calculations.
As if this were not enough, the degree to which the Muscovite oligarch depends on the acquiescence of the Kremlin in all of his affairs makes the cross attention of Putin an experience that makes being a bailout spending, private jet flying Big Auto executive look tame. After all, Obama, for all his bluster, was never a member of the KGB. (We’re pretty sure on this one).
Sounds like it might be time for Western consultants to hire a pair of AK toting “guides” and head over to draw some consulting fees again. Who’s in?
Party Ends for Russian Rich After $230 Billion Losses [Bloomberg]
Here’s a thought experiment:
What would you make of the Deputy Prime Minister of a large country that insisted that, compared to the rest of the world, centralized regulation like price or production caps would be difficult to impose in his country because of the independent nature of the country’s legal system and the sanctity of property rights? Sounds reasonable, no?
Then what if I told you that the CEO of the same country’s privately-held and largest energy conglomerate was arrested on almost certainly politically motivated fraud and tax evasion charges? That he was sentenced to nine years in prison and a controlling interest in the firm was then transferred to a successor? And if that that successor was forced to flee to Israel to avoid similar charges? And if I pointed out that what followed was a mass exodus of the entire Board of Directors and most of the executive corps to foreign shores to avoid arrest and prosecution? If I then told you similar stories about the larger media and banking interests in said country, you might find our Deputy Prime Minister’s claims a bit fantastic, no? Consider:
“It would be irresponsible for Russia to join OPEC because we can’t directly regulate the activity of our companies,” he said, as nearly all are privately owned.
Yet, he supports “coordinating actions” with the cartel because of the shared interest in lifting prices. He said Moscow isn’t in a position to mandate lower production, but Russian oil companies will curb output this year as falling prices cut into their ability to produce.
He figured that if oil slides back under $40 a barrel, Russian output this year could fall twice the amount the government now forecasts, or about 300,000 barrels a day.
Oh, and apparently:
“In Post-Soviet Russia, falling price reduces demand.”
Moscow Warns on Low Oil Prices [The Wall Street Journal]
Yes, the S&P 500 shed four and a half percent today. Yes, the Dow dropped three and a quarter percent. Yes, the bailout index dropped almost eleven and a half percent. But this feels like a walk in the park compared to Russia’s trubs. Consider:
Russian stocks fell the most in three months, triggering trading halts in the two largest bourses, as the country cut its economic forecast and oil prices declined.
OAO Surgutneftegaz, Russia’s fourth-biggest oil producer, tumbled 15 percent. OAO Sberbank, the biggest lender, slumped 14 percent, while VTB Group, the second-biggest bank, dropped to a record low.
The 30-stock Micex Index lost 9.4 percent to 645.18 at the close in Moscow, the most since November. The RTS Index also dropped 9.4 percent, to 552.03. Both the Micex Stock Exchange and RTS halted trading for an hour today. The ruble weakened more than 3 percent versus the dollar.
It wasn’t twelve months ago when Russia’s Putin was flying Bears into U.S. airspace, killing dissident journalists with everything from midnight assassination squads to bombs to Polonium-210 and generally scaring everyone again after 20 years. Now he looks like a Madoff sibling.
Russian Stocks Tumble as Economic Outlook Worsens, Oil Declines [Bloomberg]
Related: Commodities Crash Decimates Russian Billionaires [The New York Post]
Poor Russia. All those dreams of greatness, renewed world position, and (dare we say it) power. For awhile there they looked realistic. Putin was General Secretary of the Communist Party of the Soviet Union President of the Russian Federation Prime Minister for life. Russia had adroitly dominated energy reserves and carved itself into a capitalist (sort of) power. Bear reconnaissance bombers began to harass U.S. naval vessels again, as well as testing the air defenses of the Northeast, to the surprise (and alarm) of the United States. One mission was such a surprise that the craft hit Pennsylvania before being intercepted. The pilots got medals. Someone at NEADS got reassigned to Alaska.
But it was not to be.
Now, with oil $30 a barrel below the budget-balancing level for Russia, and their inability to even blackmail the Ukraine and Europe with natural gas effectively, (no one believes they can leave the spigot off for very long) their dreams of power have slowly slipped away, and Putin, if you can imagine this, is politically vulnerable. The daunting health crisis they have been ignoring is making itself known in ugly ways (really their population is frightfully sickly) and their currency is heading back to 1998 levels as the central bank devalues it (again) this week.
It doesn’t help, of course, that concern over their little camping trip in Georgia sucked over $120-$200 billion of foreign investment out of the country. Inflation was over 13% in December.
Of course, the problem is, with circumstances like this, military conquest looks like a nice distraction.
We’re not long bomb shelters yet here, but that’s only because a certain Goldman partner (who shall remain nameless) promised us spots in his basement in the Hamptons.
Russian Ruble Slides to Pre-1998 Crisis Low; Forint, Zloty Sink [Bloomberg]
Who said the Russians don’t know bailout? When Mikhail Fridman (close ally of Putin’s administration) got himself on the wrong side of Deutsche Bank and friends to the tune of $2 billion, the Kremlin simply wrote him a check, which he steadfastly refused twice before finally giving in.
In Former-Soviet Russia, bailout begs for you.
Russia Tosses Life Preserver to One of Its Richest Men [The Wall Street Journal]
Russia decided to pull a SAC after a 10 percent on the “technical index” triggered a halt. Looks like that’s going to be the story of the day all over. Circuit breaker Friday.
Russia’s Micex Halts Trading Until Next Week After Stocks Slump [Bloomberg]
- Use the Bloomberg command
NH BLG_DEALBREAKER <GO>
to access Dealbreaker
