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Standard & Poors Slashes Russian Credit to Junk, but Why?

Sprott Money's picture




 

 

Originally posted Feb 5th 2015

 

Nathan McDonald for Sprott Money

 

The Russian economy continues to suffer. The absolute desolation of the oil market effectively destroyed the economy in Russia, which is incredibly dependent on the commodity. Job’s have been lost, the standard of living has collapsed and now the once proud Russian bond, is being attacked.

 

 

Standard and Poors, what some call, “the international credit watchdog” slashed Russian debt to BB+, one step below what the markets consider investment grade.

 

 

Although this action is likely warranted, the rationale being given by Standard and Poors is quite baffling. Remember, although some do call S&P “the international credit watchdog”, they are undoubtedly closely tied to Wall Street. Thus, not the best source of information when investigating countries who are considered “unfriendly” to the West.

 

 

S&P is not citing the collapse in oil prices as the reason for Russia’s downgrade, which has destroyed their economy and standard of living.

 

 

No. In fact, they are not citing the rapidly rising interest rates that have ruined their economy, and is now resting at a whopping 17%!

 

 

Therefore, their explanation must be the collapsing Ruble, which in October was trading at a 35 to 1 ratio against the US dollar and now sits at an all time low of 70 to 1.

 

 

Perhaps their reasoning is due to the sanctions the West imposed on Russia, hindering companies in their ability to gain access to long-term financing from western banks?

 

If you guessed any of the blatantly obvious explanations listed above, then you are of course right, but not according to the Standard and Poors rating agency.

 

 

Their explanation? Well, of course it is an explanation where blame cannot be placed on an outside source, such as the West for opposing sanctions, or OPEC for continuing to pump in the face of collapsing oil price.

 

 

To the contrary, Standard and Poors cites poor leadership and its ability to manage its economy in a way that the market would consider productive to growth.

 

 

To Western officials, who likely had a forewarning of this downgrade before it occurred, this explanation works out perfectly for them. No blame is placed on them, no blame is placed on OPEC. It lessens the credibility of the Russian leadership in international markets and rallies support at home in their campaign to paint Russia in a negative light.

 

 

Regardless of the S&P’s explanation, the Russian economy is indeed crippled and weakened, the Russian leadership knows this and they know the true underlying reasons and causes.

 

 

Despite this attack and all the negativity surrounding the Russian economy, it still reported an account surplus of 3% GDP, or $10.5 billion. This is expected to change throughout the course of 2015, as Russian officials must now account for stubbornly low oil prices, which refuse to move back above the $50 per barrel mark.

 

 

In my opinion, this is simply another classic example of MOPE in action. A strategy that those in the precious metals space are all too familiar with.

 

 

You can rest assured that more rating agencies will follow suit and more downgrades of Russian debt will be coming, as they are warranted. Although the same could be said about most Western economies which are essentially bankrupt, especially the United States. Hopefully their explanations will make more sense, but I’m not going to hold my breath.

 

 

 

 

Nathan McDonald for Sprott Money


 

 

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Fri, 02/13/2015 - 09:00 | 5779944 Brazen Heist
Brazen Heist's picture

S&P after being fined by the US regime is trying hard to impress handlers.

Fri, 02/13/2015 - 08:31 | 5779877 fel.temp.reparatio
fel.temp.reparatio's picture

...and this will affect Russia within BRICS, how? ; )

Fri, 02/13/2015 - 08:22 | 5779856 cwsuisse
cwsuisse's picture

In Russia people are used to deal with problems and a recession is by far not as problematic as in the US or Europe where central banks print to infinity to avoid such thing from happening (also largely in vain). But I think it also obvious that the bleak picture on the Russian economy is not quite correct. The pumping cost are low and income is in foreign currency. The low rouble is helping the oil and gas industry. Other exporting industries such as the military arms complex also benefit from the low rouble. The latter is rather hurting Europe because export to Russia is in a freefall. Car manufacturers expect (officially) 50% less unit sales in 2015 compared to 2013 including cars manufactured by foreign companies in Russia while the salesmen of true russian manufacturers seem to be rather happy. And the european agricultural industry has lost a lot of sales. There is always this argument that the exports to Russia are insignificant but if you chop off 3-4% of your revenues many companies write red ink. If you look at balance sheet items Russian companies have less debt that in the west and the financial reserves of the country last in a no-income situation for 4 years (USA for 15 days). The problem of all these articles is that they have been written by westerners who have little knowledge and understanding of Russia and are therefore in certain sense prejudiced. 

Fri, 02/13/2015 - 06:00 | 5779720 Wild E Coyote
Wild E Coyote's picture

Actually Russian downgrading makes some sense.
US dollar credit lines have been cut off.
Russia is supposedly converting all their dollar profits into Gold.
Russia is also doing new business without US dollar.
So, S&P feels Russia does not have enough dollar holdings.
Another $50 billion dollar law suit may be issued by Yukos bosses against Russian Government and U.S. is sure to encourage ruling against Russia.
Of course, Russia has large foreign reserves.
But there is a real possibility that both US and Europe may declare Russia a terrorist sponsor and confiscate all the assets. As they did in Iraq and Libya.
Recently Russian official also said, pushing Russia out of SWIFT banking system is tantamount to declaration of war.
He knows and S&P knows too.
America and Europe, are desperate. And desperate people can do dangerous things.
But the effectis not normal people and The good guys who save like Russia. Now they are target of wolfs from US.
That makes all the sense.

Fri, 02/13/2015 - 08:24 | 5779862 cwsuisse
cwsuisse's picture

Wild Coyote: A russian SWIFT is said to be introduced beginning May 2015

Fri, 02/13/2015 - 03:43 | 5779627 basho
basho's picture

S&P = dead in the water.

who gives s shit what they say

they've been bought out by the ussa

bye bye candy asses

Fri, 02/13/2015 - 03:41 | 5779624 Sandmann
Sandmann's picture

S & P forces Investment Funds to sell Russian Bonds cheaply to Hedge Funds

Fri, 02/13/2015 - 03:26 | 5779593 dreadnaught
dreadnaught's picture

Keep saying "Russian Economy is ruined" enough and you may fool yourself-not US, and not Putin, who is laughing all the way to the bank...Russians has endured horrible conditions-this is a picnic-they are doing OK

Fri, 02/13/2015 - 02:15 | 5779489 KashNCarry
KashNCarry's picture

The new Chinese version of S&P chairman stated that the Russian Ruble is rated A+ with them because the Russians are able to pay their debts, unlike some rouge superpowers we all know...

Fri, 02/13/2015 - 01:57 | 5779464 roddy6667
roddy6667's picture

S&P, the people who told us that huge mortgages on bubble-priced homes taken out by people who couldn't qualify for a car loan were sound investments.
Take it for it's worth.

Fri, 02/13/2015 - 03:25 | 5779595 dreadnaught
dreadnaught's picture

Bzacktly!

Thu, 02/12/2015 - 23:59 | 5779219 Coldfire
Coldfire's picture

S&P were fined $1.5 billion recently by the US following their downgrade of the US federal debt. It is useful to think of them now as a policy arm of the junta currently occupying the White House. Standard & Poors? No. Standardless Whores.

Fri, 02/13/2015 - 03:57 | 5779640 JoJoJo
JoJoJo's picture

B - I - N - G - O

Fri, 02/13/2015 - 02:51 | 5779542 graveheart
graveheart's picture

Agreed, but S&P was blackmailed by Holder and Obola in standard Chicago style. Most of that $1.5 Billion ended up in the DNC war chest or as arms shipments to ISIS.

Fri, 02/13/2015 - 01:10 | 5779398 luckylongshot
luckylongshot's picture

I agree that S&P are a corrupt bunch of whores but would add that the argument the Russian economy is crippled is simply untrue, so they are lying whores as well. The drop in the oil prices was matched by an identical drop in the Ruble so for Russia, which has cut its ties to the dollar they are getting paid the same amount for their oil as they were before the oil drop started. While it is true that the tourist trade to Europe and America from Russia has been affected they have replaced Europe as a food source and thanks to China have signed a series of monster trade deals that will see them thrive.

Fri, 02/13/2015 - 06:27 | 5779750 Coldfire
Coldfire's picture

Excellent points, particularly about the ruble. Russia is on a wild ride but I get the sense that they will survive this attempted takedown. For all if our sakes I hope so...

Thu, 02/12/2015 - 21:07 | 5778593 Unix
Unix's picture

Some scarey shit right there!

Thu, 02/12/2015 - 19:00 | 5778179 b a n n e d
b a n n e d's picture

Russian want release 9/11 photo

Thu, 02/12/2015 - 18:45 | 5778087 RaceToTheBottom
RaceToTheBottom's picture

"Remember, although some do call S&P “the international credit watchdog”, they are undoubtedly closely tied to Wall Street. Thus, not the best source of information when investigating countries who are considered “unfriendly” to the West."

 

S&P is not the best source of information when investigating the western countries.

 

Thu, 02/12/2015 - 17:18 | 5777620 BanjoDoug
BanjoDoug's picture

This S&P action is "light" compared to bankster actions of the past.....   for instance :: was it a coincidence that JF Kennedy signed an executive order to abolish the Federal Reserve Board and shortly thereafter got shot in Dallas, AND THEN "as soon as Lyndon Johnson was sworn in" (in Dallas I believe) he signed an E.O. rescinding JFKs prior E.O. regarding the Federal Reserve on the plane while flying back to Wash DC.....  these banksters will stop at nothing to preserve their empire - the Fed Reserve is a big part of their current empire, thus it needs to be abolished or audited & tightly controlled from congress.......

Thu, 02/12/2015 - 20:52 | 5778546 weburke
weburke's picture

what you can do, is be a prepper. why not? things are cheap and easy to get now. no one will be upending the elites applecart, except when they want to, so focus on your very local family needs for bad times. There, you can do somethig. Its good you care, but your task, is right where you are. And you can do it. 

Fri, 02/13/2015 - 01:56 | 5779331 tarabel
tarabel's picture

 

 

Teddy Roosevelt once said:

"Do what you can with what you have where you are."

If a severe downturn results in a statistical rise in the proportion and gross number of Rugged Individualists in society, it will be well worth the incidental pain incurred in the meantime.

Thu, 02/12/2015 - 17:02 | 5777541 kchrisc
kchrisc's picture

"Standard & Poors Slashes Russian Credit to Junk, but Why?"

Orders from the Zionist banksters, and message for Russia.

The banksters need to repay us.

 

Thu, 02/12/2015 - 16:49 | 5777491 Lumberjack
Lumberjack's picture

S&P sounds like Cramer talking...

Thu, 02/12/2015 - 16:39 | 5777458 BanjoDoug
BanjoDoug's picture

This S & P action is nothing other than the zionist-banksters at war with Russia.....This S&P action goes along with the stupid sanctions the west has tried to implement on the Bear, etc..... 

The American people are not at war, & they don't want war.....  but the zionist-banksters are potentially losing their financial grip on the planet and they will sacrifice anyone, any country, to mantain their control & financial empire.....

Thu, 02/12/2015 - 16:31 | 5777422 pashley1411
pashley1411's picture

dup

Thu, 02/12/2015 - 16:30 | 5777420 pashley1411
pashley1411's picture

S&P accepts the myth that low interest rates are good, will open up purchases and investment opportunities, while higher interest rates are bad.   Pure Keynesian bs.

This, despite history.   

As the poster says above, "buy Russia".

Thu, 02/12/2015 - 16:24 | 5777397 RealityColin
RealityColin's picture

What's the best way to buy Russia right now?

Fri, 02/13/2015 - 06:34 | 5779756 Gavrikon
Gavrikon's picture

Marry a Russian girl, and move there.  

Thu, 02/12/2015 - 17:25 | 5777659 ClowardPiven2016
ClowardPiven2016's picture

craigslist

Fri, 02/13/2015 - 00:41 | 5779333 tarabel
tarabel's picture

Boo-yah. Point for you, my man.

Thu, 02/12/2015 - 16:22 | 5777391 Fun Facts
Fun Facts's picture

"Standard & Poors Slashes Russian Credit to Junk, but Why?"

possibly the ZWO war on Russia

Fri, 02/13/2015 - 00:44 | 5779338 tarabel
tarabel's picture

 

 

Well,, they are confiscating the monthly proceeds of their national pension plan and forcing private firms to sell their fx to the state. Might have something to do with it.

Not that Illinois et al are looking too good either.

Thu, 02/12/2015 - 16:00 | 5777271 LostAtSea
LostAtSea's picture

The S&P has absolutely no credibility now that they are so obviously controlled by the us.gov, not after Timmy had his tantrum about getting downgraded and the followup lawsuit by us.gov. So yea, the S&P downgrade means absolutely nothing. It's about as significant as if Kerry had said it.

 

Thu, 02/12/2015 - 15:27 | 5777094 Denaliguide1
Denaliguide1's picture

maybe S&P is trying to pull its bacon out of the fire for past sins against the US Treasury, downgrading US Debt AUG 5, 2011 from AAA to AA+.  The Treas takes it hard when someone treats them like they treat others.

QUID pro QUO,  Cui Bono

Thu, 02/12/2015 - 15:15 | 5777020 10mm
10mm's picture

No, this action is not warranted. It's supported by design.

Thu, 02/12/2015 - 16:16 | 5777356 DutchR
DutchR's picture

"Standard & Poors Slashes Russian Credit to Junk, but Why?"

 

Wargames

Thu, 02/12/2015 - 13:27 | 5776330 NOTW777
NOTW777's picture

$RSX was 12ish mid December, now pushing mid 17s and green on the day

Fri, 02/13/2015 - 06:29 | 5779751 ebworthen
ebworthen's picture

S&P downgraded Russia because if they didn't the D.O.J. and S.E.C. would fine them a couple billion for "treason".

Thu, 02/12/2015 - 15:17 | 5777036 disabledvet
disabledvet's picture

Best performing market YTD no doubt.

 

Sweden has negative rates right now btw.

 

Russia is at 15%.

 

Talk about a spread.

 

Interesting that oil and natural gas are 100% not correlated right now.  Every time the oil complex surges (like today) natural gas gets crushed and vice versa.

Thu, 02/12/2015 - 20:28 | 5778479 Paveway IV
Paveway IV's picture

By junking Russian credit, many intenational funds and pensions are forced to sell any they have. Their charters do not allow anything less than investment-grade securities.

It's another useless effort to ruin Russia economically. I would bet that there are plenty of willing buyers at these artificially discounted prices, but that's just speculation.

Isn't there any international bond guys left here that can speak to this? I would think this unfortunate sort of politics is a damn gift to them (presuming they don't believe S&P).

Fri, 02/13/2015 - 00:45 | 5779344 tarabel
tarabel's picture

 

 

That's a useful observation there and one I hadn't thought of.

Thu, 02/12/2015 - 20:47 | 5778538 Bossman1967
Bossman1967's picture

now I thought we had a peace deal with Russia and Ukraine and USSA gonna lift restrictions? guessing we don't like the deal

Thu, 02/12/2015 - 16:08 | 5777308 TheReplacement
TheReplacement's picture

So can I borrow from Sweden and loan to Russia?  That would be a killer deal.

Thu, 02/12/2015 - 17:14 | 5777598 LostAtSea
LostAtSea's picture

Replacement:

Yes, I'm sure there is an FX trade for that. Example: Sell CHF/USD, Buy RUB/USD. You'll get interest deifference at the overnight rate.  Of course, you'll be holding Russian Rubbles, which may or may not decline in value.  The Western powers may have outlawed Russian currency transactions. Check with your local mofia gov. laws for details.

Thu, 02/12/2015 - 18:22 | 5777991 p00k1e
p00k1e's picture

"The Western powers may have outlawed Russian currency transactions"

That's how we serfs get hit every time.

“Buy when there’s blood in the street’.

Buy Rubles and the U.S. government will outlaw us having them.  It happened with Krugerrands…

Thu, 02/12/2015 - 19:57 | 5778380 LostAtSea
LostAtSea's picture

Krugerrands are illegal? When did that happen?

Thu, 02/12/2015 - 22:21 | 5778834 p00k1e
p00k1e's picture

"Trading with the Enemy Acts".

 

Coobah is another example.  One day you have private ownership in a foreign land, the next you don't.

“The Krugerrand was introduced in 1967 as a vehicle for private ownership of gold. Unusual for bullion coins, the Krugerrand was given the status of legal tender[3] or currency. To this end, it was minted in a more durable copper-gold alloy. Despite the coin's legal tender status, economic sanctions against South Africa for its policy of apartheid made the Krugerrand an illegal import in many Western countries during the 1970s and 1980s. These sanctions ended when South Africa abandoned apartheid in 1994.”

Wikipedia

Thu, 02/12/2015 - 21:35 | 5778676 Self-enslavement
Self-enslavement's picture

#workwillsetyoufree

Fri, 02/13/2015 - 01:58 | 5779465 tarabel
tarabel's picture

 

 

A dead rich uncle will set you freer.

Do NOT follow this link or you will be banned from the site!