More To Ruble's Collapse Than Meets The Eye?

Tyler Durden's picture

Submitted by Colin Chilcoat via OilPrice.com,

The ruble is dying, and fast. In what is now being dubbed ‘Black Monday’ the ruble’s value to the dollar dropped nearly 15 percent. Tuesday brought no respite and the ruble fell another 10 percent. The ruble’s collapse follows a similar – though by no means as extreme – slump in oil prices. Still, the Russian economy’s troubles are deeper than that and President Vladimir Putin will be hard-pressed to find an easy out. With a recession looming, state energy companies are struggling to stay afloat, if not directly contributing to the country’s woes.

On the year, the ruble has lost more than 55 percent of its value against the dollar, breaking psychological barrier after psychological barrier. Tuesday’s low of 80 marks a new record and harkens back to the period of hyperinflation that characterized post-Soviet Russia. Then, as now, citizens are seeing their material wealth disintegrate amid rising costs domestically.

 

Ruble vs Dollar

Source: QZ

For its part, the Russian central bank has been unable to stop the slide. Neither periodic use of the dwindling foreign exchanges reserves nor interest rate hikes have proved effective. The latest interest rate increase – enacted under the cover of night Monday – brought the key rate to 17 percent, up from 10.5, in an effort to end investor speculation. Tuesday’s trading demonstrated the speculation is far from over and the central bank is far from in control. The higher rates will further squeeze growth as the economy heads for a 4.5 percent retraction next year. Ill prepared to wait it out, the central bank is clearly a step behind the game and perhaps even out of its league. Black Monday suggested other powers might be at play.

Monday was incidentally the day of an interesting 700 billion ruble liquidity auction. Prior to the auction, Rosneft raised 625 billion rubles (almost $11 billion) in a bond issue backed by the central bank. The central bank then quickly cleared the lower-yield bonds to serve as collateral for banks seeking liquidity in the auction. It’s unclear who purchased the bonds, but Rosneft explicitly stated the proceeds will finance internal projects and will not touch the foreign exchange markets. Nevertheless, speculation has persisted and theories abound.

It is within reason that Rosneft’s subsidiaries and their respective banks were prepared – or financed by Rosneft that is – for the bond issue, after which they could refinance the bonds at the central bank for a 5 to 10 percent profit. A similar theory has been suggested for the bigger state banks like VTB and Sberbank, who would not comment on their involvement. The idea goes that they purchased the bonds, flipped them for foreign currency at the central bank, and then passed cash along to Rosneft through a currency swap. While complicit, the central bank has little control and, in either scenario, the money hitting the market from such a deal is certainly of the scale to inflict the damage we saw Monday.

The move highlights dire straits for Rosneft who must answer to $10.2 billion of debt in the fourth quarter, which includes a $6.88 billion loan from foreign banks due Dec. 21. The company – whose market value has tumbled 40 percent this year – has approximately $55 billion in net debt and has thus far been unsuccessful in its attempts to garner bailout money from the government. In its recently defined strategic development goals, the company stressed efficiency, gas production growth, and the localization of advanced technologies and equipment. In the meantime, all eyes at Rosneft are on the price of oil, which appears to be undercutting their expectations.

For Russia, the uncertainty is just as great. The Russian stock market has collapsed in tandem with the ruble and traders in the US anticipate stricter government controls as early as this week. While flows of money have thus far been unimpeded, capital controls such as limits on foreign exchange transactions appear ever more likely as the ruble continues to sink.

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jefferson32's picture

You're missing the point. This is economic warfare.

Comte de Saint Germain's picture

casus belli (kay-s<ls bel-I). [Latin] An act or circumstance that provokes or justifies war. (Black's Law Dictionary)

https://www.congress.gov/113/bills/hr5859/BILLS-113hr5859enr.pdf

As a result today's enactment of the Ukraine Freedom Support Act of 2014 and under international law, the Russian Federation is now entitled to retaliate against the United States of America using all conceivable means at their disposition, whenever they deem appropriate (UN Charter, Chapter VII, Article 51).

War is officially on.

Latina Lover's picture

Russian firms are learning the hard way that the western banksters can never be trusted.   Notice however that the real assets did not disappear, and that the Ruble is substantially undervalued versus other currencies.   Don't be surprised if a huge influx of USD dollars suddenly appear in Russia, buying out assets on the cheap.  This is just another way that banksters screw us.

Anusocracy's picture

Russia should pass a law stating that all asset purchases by foreigners will be transacted in gold

BraveSirRobin's picture

All they have to do is let westerners buy up everthing and then nationalize what was bought, then redistribute it to cronies. That way, they get lots of dollars and euros and keep all the stuff. Western interests can buy all the land and buildings and factories and such they want, but they cannot haul it back to Europe or the USA. Art, diamonds, jewels, etc, are another matter, but the real money is in land and what's on it, and that is not easy to haul over a border.

_ConanTheLibertarian_'s picture

THIS!!! MOTHERFUCKING THIIIIIIIIIIIS !!!

max2205's picture

They should have gone full N Korea on them

Paveway IV's picture

Russian firms have no choice. The Russian National Bank - Russia's central bank - was designed by the West to keep Russia in a perpetual third-world economic state. It is basically a Western banker parasite attached to Russia's carotid artery. They can't just rip it off or they will die as well. The Russian government doesn't control the central bank - it's a foreign-owned private entity. Part of the rape of the Russian people in the post-Soviet asset grab.

Putin is maneuvering to remove it, and every bank in the West is lining up to prevent that from happening. They seek to foment a popular uprising in Russia to remove Putin before Putin can replace their current foreign-controlled central bank with a real Russian one. The most powerful Jewish-Russian oligarchs today are bankers and will do anything to eliminate Putin's threat to their criminal livelihood. 

https://www.youtube.com/watch?v=VT085isnyB0

This only ends one of two ways: Putin kicks out the foreign central bankers and throws the current Jewish oligarch Russian bankers in prison for years of treason and theft, or the bankers have Putin killed first.

NoDecaf's picture

great interview, thanks for posting

Latina Lover's picture

At least in Russia they are having serious debates over ejecting the CB.   In the USSA, this isn't even whispered. We are so fucked.

Paveway IV's picture

If the central bank in the US was owned by Russia or China, then we would certainly be having the debate.

Considering who actually owns the central bank in the US, it's not the least bit surprising that there was no debate, is no debate and will never be any debate.  

Newsboy's picture

JFK was going to dial the Fed out of the picture, making those nice "treasury notes". That was one of the things that likely led to his assassination...

Oracle 911's picture

True, but according this:

https://translate.google.sk/translate?hl=sk&sl=ru&tl=en&u=http%3A%2F%2Fp...

Russian began emit Ruble independently or rather according their economic needs. The fun has just started.

tarabel's picture

 

 

1) Russians have already lost about half of their life savings, seen their paychecks cut by 50% in real rather than nominal terms, watched inflation go up to 10% even prior to this latest crisis, and you want to natter on about how fucked the United States of America is? We might end up fucked in the future, but these guys are fucked right now. Period.

2) And it is only going to get worse for them. Many admirers of Grandmother Putin around here have been posting the same set of financial data. Debt-to-GDP, foreign reserves, etc., but they avoid speaking of the only number that truly matters and that is what used to be known in Silicon Valley as the BURN RATE.

The current burn rate where the 50% of government revenues provided by oil is now cut, say, in half, which leaves them with a 25% shortfall. That shortfall is only going to increase as the price of oil falls further and more countries get LP shipping terminals opened. Plus, a 17% interest rate kills business. That means more of a drain on whatever Russia uses for a social net, less tax revenue, and further increases the burn rate. Kind of what we had going in 2008, but we can borrow money and they can't.

So where is the money coming from to cover that shortfall? 25 billion from the Chinese currency swap agreement? Big deal. That won't even begin to offset the giant sucking sound of money fleeing Russia to the west.

No, there are only two sources of the cash necessary to maintain the Russian State--its fx reserves and its gold. All of those billions piled up in good times are about to head west, as the British used to say. Can Russia outlast the storm?  Depends on how much their burn rate is, how much it increases, and how long it needs to burn. The final outcome is going to be a Russia that has a lot less gold and hard currency when this is over. But at least you know why they aren't going to spend a lot of it defending the ruble.

Boy, are we Americans fucked.

winchester's picture
winchester (not verified) tarabel Dec 19, 2014 8:51 AM

you lost me at but we can borrow money and they can't.

 

you not borrow money, you print it out of thin air.

 

PERIOD. :)

lakecity55's picture

I doubt more than 25% of US Serfs know what a "Central Bank" is.

Latina Lover's picture

At least in Russia they are having serious debates over ejecting the CB.   In the USSA, this isn't even whispered. We are so fucked.

BraveSirRobin's picture

"Jewish oligarch"

Yep, them damn joos again. They control everything and outsmart everyone except Zerohedge and all the Zerohedgimites, cause we's on to them... which posits the question, if we are smarter than the joos, how come Zerohedge does nto rule the world and control everything? It must have something to do with the number 31.

tarabel's picture

 

 

Well, you see, we had this big book filled with all of our math skills and we let the Jewish guy across the street borrow it.

But he stole it and now we all have to work in places where the cash register dispenses change automatically since we can't do it ourselves without the book.

But Grandmother Putin has promised to get it back for us and that's why we like him so much--because we can quit the crappy jobs we have now and get new ones as nuclear engineers and bitcoin miners.

Augustus's picture

A large number in the ZH community have been short SPY from about 900.  And hedged that with long GLD from 1700.

 

Responding to calls from the broker takes most of the day.

TheGreatRecovery's picture

PIGS GET SLAUGHTERED.  Going short is always risky.

TheGreatRecovery's picture

Judaists?  Judeochristians?  Judeocatholics?  

This is not outsmarting other people.  This is being the richest kid on the block, and yet pretending to be a martyr, and begging other people to help, and then using that help against them.  "He killed them with their love."  ("The Green Mile" movie)  This is selfish dishonesty.  "Thou shalt not steal". 

But apparently such culture, such "acting", has worked for a long time.  The Romans began every invasion either with a pretense of having been abused or a pretense of helping protect a "friend" in the invaded country against his neighbors.  Always and everywhere at a huge cost in slavery and misery to the pretenders' victims, in nation after nation after nation.  And despite the march of science, that cost in slavery and misery grows larger every year. 

And now things have changed.  Now there are simply too many people on planet Earth, and "me first, because I am a victim" cultures are wiping out Mother Nature.  So there WILL BE less of everything that is good on planet Earth - for EVERYONE's children.  Yes, the selfish dishonest will be able to brag to their children about the castles, private jets, yachts, and professional sports teams they own, but on a planet with no elephants, tigers, or coral reefs.  Their children will force them to admit, "I built me castles, and all was vanity, for I built them by taking a planet which was alive and beautiful, and killng it, and now I bequeath to you both the castles and the dead planet". 

So it's time to grow up.  Growing up means giving up selfishness, and stepping up to responsibility.  "It is more difficult for a rich man to enter the Kingdom of Heaven than for a camel to fit through the eye of a needle".  But it will be good, because "more blessed is he who gives than he who receives".  Have faith.

daveO's picture

Evgeny Fedorov(PLM). He has several interviews on Youtube. He basically says it's time for Russia to throw out the Fifth Column or fall to the Western parasites. He said the West has about 6 months to engineer unrest, for toppling Putin, by using cheap oil. He expects an Orange Revolution-type attempt in 3-4 months.

sonoftx's picture

Thank you for the link. Awesome interview. Informed Russians are just as pissed as we are. The bad thing is, they are probably pissed at us. Does Putin have the cajones? More like do his backers have the canines. I'm no geopolitical or finance genius by any means but my mind keeps coming back to Joel Skousen's theory. Somehow it just keeps making sense with everything that is happening. So will Putin be the monkey wrench or is he just another player in the drama. Either way good to see a politician talking passionately about a country that he cares for. Again thanks for the link.

Bernanke&#039;sDaddy's picture

Awesome, awesome interview. I'm forwarding that to all my close friends/family.

monkeyboy's picture

This only ends one of two ways: Putin kicks out the foreign central bankers and throws the current Jewish oligarch Russian bankers in prison for years of treason and theft, or the bankers have Putin killed first.

 

If that's the case, then either way unfortunately leads to the inevitable...

 

we're fucked.

 


TheGreatRecovery's picture

Andrew Jackson did it.  Putin can do it.

crazzziecanuck's picture

Don't forget that German firms and the like are going to be hard hit as well,which means a double whammy for foreign bankers fostering a crisis to buy distressed assets.

I can't think of a single financial crisis where the banks didn't come out stronger and with more assets than before the crisis.

HedgeHammer's picture

Right on! Seems to me this is a play to gain absolute control on the worlds oil supply either through war or economic destruction.

BraveSirRobin's picture

Chill, this is just the West reminding Russia who runs Bartertown. Here are the cold hard facts:

NATO GDP: $31.32 trillion / Russian GDP: $2.01 trillion

NATO Population: 900 million / Russian Population: 146 million

NATO Defense Spending: $1.023 trillion / Russia: $0.096 trillion

NATO Personnel Under Arms: 3,370,000 / Russia:845,000

Vlad has forgotten his place in the world, and this is just a reminder.

daveO's picture

No, it's a hostile takeover to grab his resources. His place may be six feet under.

BraveSirRobin's picture

You can't grab his resources without physical control of the land. If you bought all the oil in Russia, they could just nationalize their oil and take it away from you. Happens in lots of place lots of times. The only way to "grab" the resources is to physically contro the land it sits on or under.

bid the soldiers shoot's picture

What was NATO's sovereign debt, just to make your comment a little more balanced?

lakecity55's picture

Lloyd: "I run Bartertown for The Boss."

O: "Who is the Boss, anyways?"

Lloyd: "Satan. Didn't you watch 'Devil's Advocate?'"

O: "No, I was campaigning."

Lloyd: "It's true. Ask Jaimie."

O: "You mean all that Jay-Z stuff with pyramids an' shit is for reals?"

TheFourthStooge-ing's picture

This Sir Brave Robin guy has a consistency that is admirable somehow. His adhesion to fantasy is dedication of the highest order.

Chill, this is just the West reminding Russia who runs Bartertown.

This mentality is ingrained in the 'american' world so much that they can not think of a game without thinking of themselves as winners. They prefer the flattering images sold to them by propagandists like Hollywood. This leads to serious distortions in their analysis.

Here are the cold hard facts:

Should be a good one...

NATO GDP: $31.32 trillion / Russian GDP: $2.01 trillion

Accounting trickery when reminded that NATO lacks a GDP. Still, a valid conclusion can be drawn when one considers the looting potential available for NATO to absorb from constituent member states.

NATO Population: 900 million / Russian Population: 146 million

Intended relevance of this statement evades observation. Perhaps meaningful if intent is to send entire population on invasion to Moscow armed with sticks and rocks. Not an advised method for the next European war, but keep it in mind as it will be needed in the European war which follows it.

NATO Defense Spending: $1.023 trillion / Russia: $0.096 trillion

This cold hard fact is best an indicator of the degree of parasitic infestation of economy imposed by military procurement. But hey, NATO member states have little debt and are experiencing double digit economic growth, so why not?

NATO Personnel Under Arms: 3,370,000 / Russia:845,000

Neglects to mention that, structurally, only about one third of these are actually "attached to the alliance". Of these, about 15 percent are deployable within 7 days and 25 percent are deployable in 90-120 days. The rest would require as long as a year to deploy (reference below).

Much of NATO armor is in storage, especially in eastern Europe. These are not readily available for combat. It took four months for Ukraine to deploy most of theirs. Reduced expenditures for their maintenance in storage resulted in only 25 percent operability.

Vlad has forgotten his place in the world, and this is just a reminder.

You know, the comments this guy tells can be interesting to know. For comedy value, because for knowledge value, the answer is already known.

http://russia-insider.com/en/2014/12/16/1936

TheGreatRecovery's picture

NATO resolve: 1.

Russian resolve: 9.

css1971's picture

You realise you can also invest in Russia, thereby supporting market valuations.

nope-1004's picture

Ruble vs dollar?  More like Ruble vs TBTF western banks manipulating FX swaps.  Dollar vs anything but itself in this environmnet is going to shine, because the corrupt FED pulling the strings is controlling the demolition.  It's called "foreign policy".

Stoploss's picture

Surely someone knows beyond a shadow of a doubt the RCB did not buy cheap dollars along with cheap gold back in the summer, right?

semperfi's picture

trade war

currency war

hot war

Anusocracy's picture

.

Free country

Fascist country

Radioactive country

TheReplacement's picture

You know, a big part of me wishes you were right and thinks we should try it.  That said, the conventeers will be bought and paid for before they arrive in sufficient numbers to provide a new constitution modeled after North Korea or something.

No thanks.  The founders got it right.  Fight the real fight first.  Then write the rules.

buyingsterling's picture

The only 'constititional convention' allowed by the constitution (article 5) does not have any power to change a single law. The states send representatives and they propose amendments that then go through the normal amendment approval process. 3/4 of state legislatures have to approve any amendments proposed by the convention. So there's a check against insanity.

 

You're right that the founders got it right. The point is that about 30% of the country hates the constitution and has completely derailed it. Think about it: a logical amendment would be one that clarifies that the 2nd amendment is an individual right. We're one supreme court appointment away from losing that right (de jure). That's how far we have come.

Even if the process has zero chance of passing a single amendment, it HAS to be done just to give the states a louder voice, and to get these issues on the table. They're not even in the room now.

If you are one who thinks any peaceful solution is impossible, you may be right. But if this is given a real try and fails, many behind it will have nowhere to go but toward radicalism, particularly if the feds derail the process or ignore it. I personally believe that secession/breakup is inevitable, and whatever we can do to legitimize it should be done, and that includes exhausting real alternatives. This is one specifically provided for us by the founders, and provided for just this sitation, where the people have lost control of their country.

lakecity55's picture

It will be a sad day if Americans have to declare a "force majeure" and activate the Second.

Bell&#039;s 2 hearted's picture

can't we do it the old fashioned way?

 

Rocky Balboa vs Ivan Drago

Skateboarder's picture

Even if it was done the old fashioned way, we don't have an equivalent Japanese housing bubble and a following personal computer tech boom to follow it up with.

zwanderer's picture

country #1: less than $700m in debt, around 15% debt/gdp, government budget on surplus, around 12% gold reserve/currency and vast natural resources

country #2: $18 trillion in debt, 106% debt/gdp, government budget on deficit, around 1% of gold reserve/currency and most natural resources peaked

 

ofc, it makes complete sense that country #1 currency should be in free fall in country #2 currency terms, the markets are free and not rigged at all...

Augustus's picture

Russian government budget is as much in surplus as a shale drilling operation was.

Cut oil revenues in half and they cannot pay the bills. 

No one outside of Russia wanted rubles for investment even in the good times.  Those with memories can recall Russian defaults.  If you like Argentine bonds and currency then you will love Russian currency investments.

Patriot Eke's picture

Exactly.  The point people need to understand is that soon the US Dollar to Ruble value will be meaningless.

bid the soldiers shoot's picture

Soon the US dollar to anything but dog shit will be meaningless