The Russia “Sanction Spiral” Elegantly Spirals Out of Control

testosteronepit's picture


Wolf Richter

Attorneys with the SEC’s Investment Management Division are exhorting managers of registered investment funds, such as your mutual fund, to disclose their holdings in Russia and warn of the risks associated with them, now that the Crimean debacle has turned into a magnificent sanction spiral. “Several people familiar with the matter” had been talking to Reuters. The SEC is apparently fretting that the funds aren’t truthful with investors and aren’t even thinking about how to respond to the possible outcomes of the crisis.

Investment Management Division Director Norm Champ, when contacted by Reuters, didn’t even deny it. “We want to be proactive,” he said.

The Division contacted asset managers on other occasions when civil unrest erupted or when things threatened to blow up; it wanted to make sure managers weren’t omitting or misrepresenting material information – for example, during the uprising in Egypt in 2011, when the Cairo stock market simply shut down. But this time it’s different: the lawyers at the Investment Management Division were joined by another group of SEC lawyers who focus on risk examinations.

Would the White House be trying behind the scenes to give investors second thoughts about plowing money into Russia? Would it be trying to demolish Russian stocks, bonds, and the ruble? Naw.

The efforts by the SEC, which started “over a week ago,” were accompanied by a White House announcement that 5 million barrels would be released from the Strategic Petroleum Reserve. WTI tanked. Russia, a huge energy exporter, depends on its oil and gas revenues, and knocking down the price of oil could wreak havoc on the Russian economy. It was a declaration that commodities would be used as a weapon against the Putin Regime. 

Then on Tuesday, White House spokesman Jay Carney launched another attack on the Russian markets at a press briefing. In light of the sanctions the US and the EU were slapping on Russia, its economy would pay the price, he said. “I wouldn’t, if I were you, invest in Russian equities right now, unless you’re going short.”

Shaken to its roots by these threats, Russia annexed the Crimea and picked a new target: Estonia. A Russian diplomat told the UN Human Rights Council in Geneva on Wednesday that Russia was “concerned” by the treatment of the ethnic Russian minority “in Estonia as well as in Ukraine” ... even while Vice President Joe Biden was in Lithuania to calm tattered nerves in the Baltics and the EU.

On Thursday, German Chancellor Merkel announced in Parliament, shortly before the EU summit in Brussels, that the EU would come up with new sanctions, such as expanding the list of Russians subject to travel limitations and freezing assets. And if the situation escalates, there would be “without doubt” economic sanctions, she said. Russia was “largely isolated in all international organizations.” And the G-8, which includes Russia, and whose upcoming shindig has already been cancelled, “no longer exists.”

She was immediately attacked by the parliamentary leader of the opposition Left Party, Gregor Gysi, who accused the government of double standards; the separation of Kosovo from Serbia had been a breach of international law too, he said, but it had been supported by the German government at the time. The transitional Ukrainian government wasn’t legitimate, he said. “Fascists are part of this government, and we want to give them money?!” Under pressure from the US, Merkel was imposing sanctions on Russia to the detriment of Europe, he said. That’s “moral cowardice.”

The “Putin Doctrine” was what SPD parliamentary leader Thomas Oppermann, who is part of Germany’s governing Grand Coalition, was fretting about. Under that doctrine, Russia could intervene if ethnic Russians were perceived to be in danger outside Russia. It would give Russia an automatic right to intervene anywhere, he said. “Such a right does not exist, and such a right cannot exist.”

Hours later, President Obama announced he’d slapped new sanctions on a “number” of oligarchs, additional Russian government officials, and a bank that provides services to them. The White House was working “closely” with the EU “to develop more severe actions that could be taken if Russia continues to escalate the situation.” Then he urged US Lawmakers to approve the aid package for Ukraine and urged the IMF to put its aid package together pronto. Alas, read.... Aid for the Ukraine “Will Be Stolen” – Former Ukrainian Minister of Economy

As Obama’s words were still echoing around the world, the Russian Foreign Ministry shot back: nine US officials, including Speaker of the House John Boehner and Senate Majority Leader Harry Reid, would be barred from entering Russia. And it published the list on its website.

Delicious irony: that boring list with nine names on it, issued by a Russian ministry whose website rarely gets shared in the social media, lit up a mini-firestorm on, the second largest social network in Europe after Facebook, and one of the most popular sites in Russia. The list got, as I’m writing this, 538 VK “likes.” Not sure if Obama’s list got any Facebook likes.

Not to be left out, Standard & Poor’s slammed Russia by lowering its outlook to Negative from Stable. “In our view, heightened geopolitical risk and the prospect of US and EU economic sanctions following Russia’s incorporation of Crimea could reduce the flow of potential investment, trigger rising capital outflows, and further weaken Russia’s already deteriorating economic performance.”

The Sanction Spiral works in a myriad ways and performs, as we can see every day, outright miracles. It spirals elegantly higher and higher and takes on grotesque forms. And by the looks of it, no one at the top has a clue how to back out of it. Yet stock and bond markets in the US and Europe, stuffed to the gills with central-bank liquidity and intoxicated by free money, the only thing that really matters anymore these crazy days of ours, are blissfully ignoring the entire drama, and what may eventually come of it.

The first official warning shot was fired. Not by a Putin advisor that can be brushed off, but by Alexey Ulyukaev, Russia’s Minister of Economy and former Deputy Chairman of the Central Bank. A major escalation. Read.... Kremlin: If The US Tries To Hurt Russia’s Economy, Russia Will Target The Dollar System

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Sat, 03/22/2014 - 05:59 | 4579824 Peter Pan
Peter Pan's picture

As I keep saying.......this world does not have just has some problematic people.

Sat, 03/22/2014 - 08:01 | 4579919 mvsjcl
mvsjcl's picture

Called psychopaths.

Sat, 03/22/2014 - 05:45 | 4579818 no1wonder
no1wonder's picture

Russian ambassador to the UN Vitaly Churkin has issued a response to Christiane Amanpour after the CNN anchor lashed out at the diplomat over his inability to appear on her show and brought his daughter into the equation.

Read story: Russia's UN envoy Churkin replies to CNN anchor Amanpour (March 21, 2014)

Speaking of, here's some more of the CNN anchors's venom in full swing: CNN's Christiane Amanpour and Wolf Blitzer got into a heated on-air sparring match Monday over a controversial quote by the Russian Ambassador to the U.N. Security Council, who called pro-European Ukrainian protesters "anti-Semites and fascists."

Watch video: Amanpour, Blitzer in On-Air Spat Over CNN Coverage (March 3, 2014)

Sat, 03/22/2014 - 05:42 | 4579816 Cast Iron Skillet
Cast Iron Skillet's picture

Sanctioning the "oligarchs" ia perfectly in line with Obama's apparent belief that only the 1% matters.

Sat, 03/22/2014 - 02:19 | 4579697 q99x2
q99x2's picture

Russia should offer to exchange oil and gas for Bitcoin.

Sat, 03/22/2014 - 01:53 | 4579683 zionhead
zionhead's picture

CALPER's is Sitting on Ton's of Russian Paper, God please tell me so :)

Fri, 03/21/2014 - 22:12 | 4579339 Gadfly
Gadfly's picture

We've made this bed, and now we're going to sleep in it.

Fri, 03/21/2014 - 20:59 | 4579177 lakecity55
lakecity55's picture

Just be glad you are not an American in a foreign country. Bath House won't help you. He will, however, allow you to be anally raped with a bayonet and then shot. He'll also supply the bayonet and the guns.


This may be the chosen way to "kill the dollar."

Fri, 03/21/2014 - 21:10 | 4579207 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

um, dude, I'm in Australia, and the only thing I risk getting hit by is a the mistake. The guy would apologize profusely, then we'd go for beers

Fri, 03/21/2014 - 21:52 | 4579302 DoChenRollingBearing
DoChenRollingBearing's picture

And they´re treating me just fine in Peru.  Even perfect strangers!

Fri, 03/21/2014 - 21:37 | 4579263 DeadFred
DeadFred's picture

A guy from the only country that has had a national leader eaten by a shark says there are no risks in his country. Of course I'd prefer a shark over a bankster any day.

Fri, 03/21/2014 - 19:49 | 4578968 Johnny Cocknballs
Johnny Cocknballs's picture

Sec lawyers are always dishonest, and generally incompetent, but they are also very political.

And there are a disproportionate number of "neocons" amongst them.  As in treasury snd state.

I thought they'd back off, but the neocon networks may be the inmates running the asylum.  Not good.

Not good at all.

Sat, 03/22/2014 - 01:58 | 4579685 zionhead
zionhead's picture

We know they want to bankrupt and destroy the USA, they could have moved it up sooner, rather than later.

NEO-CON's have openly called for destroying the USA all my life, ... I think now that the ZIO-Con's are all rich beyond their imagination, holding dual-passports, loot in Israel, ... what's the wait now,... Run the USA into the ground.

Out of the ashes comes a ZIO-NEO-CON super-state, the kind of country Cass Sunstein dreams of.


If PUTIN were really smart he would ban Facebook or Twitter some ZIO-SPY SW that would really get the ZIO's to call this shit OFF.

Given that its all ZIO-SPY, microsoft, google, oracle, facebook, twitter,... if PUTIN wanted to hurt them he would ban their zio-spy SW like CHINA has,...

Fri, 03/21/2014 - 19:27 | 4578911 logicalman
logicalman's picture


blah blah blah.........

Counter sanctions.........

blah blah blah ............

With the insanely convoluted connections within the world's financial 'system' they likely have no clue of the effects they will have. It's just more of the elites' theatre.

Guess who will pay the bill, whatever happens.

Fri, 03/21/2014 - 19:24 | 4578900 shovelhead
shovelhead's picture

Well now, won't that be a refreshing change...

After 5 years of everything being Bush's fault, Obama's got a new fall guy.

"Putin did it."

Fri, 03/21/2014 - 18:29 | 4578742 ebear
ebear's picture

OT: anyone looking at vacation properties in the Crimea?  Might be a good time to buy.

Mighty nice beaches there chock full of cute babes wearing next to nothing...heh.

Tried to do a google walk-about in Sevastopol, but no dice.  Works ok in Moscow though.  What's up with that?  

Fri, 03/21/2014 - 19:09 | 4578857 Jack Burton
Jack Burton's picture

Sevastopol is a military city, and an official Hero City for it's defense against the Nazi invasion in 1941-42. I doubt Russia or Ukraine would allow a google street data gathering car in there.

Fri, 03/21/2014 - 17:50 | 4578637 kchrisc
kchrisc's picture

I thought that they were still busy investigating Cozine. Did Cozine do something to the Russians and Crimean too?!

I guess that I missed something.



Fri, 03/21/2014 - 22:56 | 4579448 Rock On Roger
Rock On Roger's picture

You did miss something.


Stack On


Fri, 03/21/2014 - 16:59 | 4578499 Soul Glow
Soul Glow's picture

The release from the reserves did nothing to the price of oil.  5 million barrels is half a day of the United States consumption.

Fri, 03/21/2014 - 17:02 | 4578488 rsnoble
rsnoble's picture

Sooner or later if you with play fire you get burnt.  Unless you have no gas lmao.

All this just goes to show how far the elites will put the peons in compromise to get what they want.  No surprise don't even know why I mentioned it.

Fri, 03/21/2014 - 16:53 | 4578482 Ariadne
Ariadne's picture

This is all scripted. The acting is pathetic.

Fri, 03/21/2014 - 17:27 | 4578569 Charles Wilson
Charles Wilson's picture

Maybe we can get Kevin Costner to play the role of the President in a Made-for-TeeVee movie.

Fri, 03/21/2014 - 19:38 | 4578942 Ariadne
Ariadne's picture

Soros could do it a little better if he'd just take off the mask.

Fri, 03/21/2014 - 21:39 | 4579268 DeadFred
DeadFred's picture

If he takes off the mask he has to avoid mirrors.

Sat, 03/22/2014 - 04:18 | 4579766 StychoKiller
Fri, 03/21/2014 - 19:52 | 4578974 stiler
stiler's picture




and figuratively.

Fri, 03/21/2014 - 16:28 | 4578386 moneybots
moneybots's picture

Then on Tuesday, White House spokesman Jay Carney launched another attack on the Russian markets at a press briefing. In light of the sanctions the US and the EU were slapping on Russia, its economy would pay the price, he said. “I wouldn’t, if I were you, invest in Russian equities right now, unless you’re going short.”


A warning for Americans to get out of the U.S. stock market?

Fri, 03/21/2014 - 17:05 | 4578505 Omen IV
Omen IV's picture

So the USG creates an "artificial" valuation of Russian assets  -  the easiest to subjectively value are equities by limit of supply of funds alone from europe and us - and the rest of the world isnt going to see a value stock proposition and act accordingly or a buyback by the respective companies?

the need for speed in these tactics is palpable - Europe must be closer to the end game than we think  - us maintaining major inventory directly or indirectly of bankrupt countries and bankrupt bank paper debt may be at the end of the line 

only major country   with hardly any debt is russia less than 11% of GDP versus USA north of 70%

so are Funds subject to shareholder suits for not recognizing primary shareholder responsibility ?


Fri, 03/21/2014 - 16:34 | 4578407 slightlyskeptical
slightlyskeptical's picture

Just affirms that we are financial terrorists.

Fri, 03/21/2014 - 16:26 | 4578373 moneybots
moneybots's picture

"The efforts by the SEC, which started “over a week ago,” were accompanied by a White House announcement that 5 million barrels would be released from the Strategic Petroleum Reserve. WTI tanked. It was a declaration that commodities would be used as a weapon against the Putin Regime. "


That hurts American oil companies.

Fri, 03/21/2014 - 16:04 | 4578292 skifff
skifff's picture

Lines to open accounts in "Bank Rossii" after US sanctions:

Fri, 03/21/2014 - 19:07 | 4578852 Buck Johnson
Buck Johnson's picture

They are trying to get out of this but the problem is Russia doesn't have too.  Obama either took advice from a moron or he is one, one of two things are going to happen.  One, we go to war or two Obama will walk away with major egg on his face and look weaker than he is now.  Never put yourself into a position where you have to walk it back.

Fri, 03/21/2014 - 22:54 | 4578998 ClassicalLib17
ClassicalLib17's picture

 Rules For Radicals is not a viable foreign policy.

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