What to do when your creditor invades? Beyond its occupation of Crimea, Russia remains a lender to Ukraine — even as IMF teams ponder the Kiev government’s financial sustainability. Mitu Gulati, a law professor at Duke University, considers both sovereigns’ options.
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If you take the blue pill, the story ends. You wake up in your bed and believe exactly what the statistics tell you to believe. You take the red pill — you stay in Wonderland and I show you what the statistics just can’t see.
What we’re talking about is hidden debt. The debt that’s out there but which we can’t currently see or assess. That is, dark debt which as yet hasn’t been factored in or priced into asset prices that influence our financially abstracted version of reality.
We have of course been here before. During the subprime crisis unexpected sums of dark debt emerged from off-balance sheet bank liabilities, SIVs and such the like. The impact, as we all now know, was immense.
But there’s a very good reason to suspect that “dark debt” hasn’t gone away entirely. It may, as it turns out, still be lurking out there somewhere. Still skewing our perception of reality as it always did. Read more
Vladimir Putin’s gave his first official address on the Ukraine crisis on Tuesday.
Among the key points made (via Reuters, and emphasis on our favourite snap):
RUSSIA’S PUTIN SAYS USE OF FORCE IN UKRAINE IS A CHOICE OF LAST RESORT
PUTIN SAYS RUSSIA RESERVES RIGHT TO USE ALL OPTIONS IF THERE IS LAWLESSNESS IN EASTERN UKRAINE
RUSSIA’S PUTIN SAYS THOSE CONSIDERING SANCTIONS SHOULD THINK OF THE DAMAGE THEY MAY INCUR
RUSSIA’S PUTIN SAYS ALL THREATS AGAINST RUSSIA ARE “COUNTERPRODUCTIVE AND HARMFUL”
PUTIN SAYS RUSSIA READY TO HOST G8, BUT IF WESTERN LEADERS DON’T WANT TO COME “THEY DON’T NEED TO”
Depends on how confident you are that the market and economists can predict Putin’s next move, we suppose. Read more
Clear enough where Russian assets are concerned at least… the CBR has
gone to war just hiked by 1.5 percentage points to put a stop to the rouble’s tumble.
The central bank did not mention Ukraine in its statement, but said the decision to raise rates was aimed at preventing “risks to inflation and financial stability associated with the recently increased level of volatility in the financial markets”…
Moscow doesn’t send tanks into revolting former vassals any more. It sends dollars.
For anyone who decides to follow the money when it comes to Ukraine’s split between the EU and Russia, the consequences can sometimes be grimly surreal when it gets to the prosaic matters of bond finance. Read more
On the eve of the Sochi opening ceremony, FT Alphaville is pleased to present this guest post by Jorge Mariscal, emerging markets chief investment officer at UBS Wealth Management…
As it hosts this month’s Winter Olympics in Sochi, Russia will spend more time entertaining the world than educating it about the Russian economy. But financial market conditions mean it must also use the Games as a platform to prove some serious economic points.
This year, a tidal wave of capital outflows has engulfed emerging market currencies. Although Russia is stronger than the average developing nation, its currency and stock market have underperformed emerging market averages, with declines of 7.3 per cent and 11.6 per cent in US dollar terms, respectively. Against this backdrop, Russia needs to use the Games as a platform to advertise its resilience and competitiveness to investors. Otherwise, contagion from weaker countries risks sweeping it up. Read more
We’re coming to the end of a… multidirectional week for EM rates and currencies. BNP Paribas’ strategist here also pokes the media in the eye for “vying to produce the most bearish story on emerging markets…”
So we should note this dose of bullishness from the French bank: Read more
On 16 November 2009 Sergei Magnitsky died in prison in Russia. Shortly before his arrest and imprisonment he had been investigating a substantial tax fraud committed against the Russian Federation by a criminal gang. I shall refer to this tax fraud as the Hermitage Fund fraud.
Beyond this short summary, many of the facts in issue between the parties are unknown or controversial, and are subject to stark divisions of opinion…
So began Mr Justice Simon’s judgment in Pavel Karpov v William Felix Browder & Hermitage Capital Management Limited & others on Monday. And the rest is very much worth reading. Read more
Russia has plenty of places with snow. But when it come to picking a spot to host the Winter Olympics, they chose here — Sochi — one of Russia’s warmest cities.
It’s a Friday. In August. Why not sit back and let the FT’s Charles Clover entertain you with this highly amusing and informative glance into preparations for the 2014 Winter Olympics, and Russia’s psyche. After all, the boss is probably on a beach somewhere and not all of one’s attention is needed to man the fort, right?* Read more
This is something we should have already picked up on. Russia’s central bank has its own LTRO going on and it had its first auction on Monday. Twas a little disappointing.
First, a catchup from Nomura: Read more
Kinda strange that markets should get all a-jitter just as the Cyprus crisis is moving towards a resolution.
Simon Derrick of BNY Mellon asked on Friday: “The red pill or the blue pill.” The answer — choose reality — seems pretty obvious, but let’s first run through Derrick’s handy re-cap…
What’s the problem?
After that resounding no vote, what’s in the stars for Cyprus today?
Martina Stevis and Michalis Persianis write in the WSJ that there are short term ideas — basically, Cypriot and European officials are discussing capital controls for when banks are due to open next Tuesday.
Meanwhile the IMF is coming up with a plan to merge Cyprus’ two biggest banks into a ‘bad bank’, a source told the pair. The IMF wouldn’t be drawn on that.
Where does the ECB stand in all this? Read more
The hunt for an accurate Russian exposure figure to Cyprus continues.
Here’s Danske Bank’s Vladimir Miklashevsky with the best estimate we’ve seen yet (our emphasis): Read more
Paul Krugman thinks the Cyprus bailout is all about the Russians.
As he noted in his New York Times blog:
You can sort of see why they’re doing this: Cyprus is a money haven, especially for the assets of Russian beeznessmen; this means that it has a hugely oversized banking sector (think Iceland) and that a haircut-free bailout would be seen as a bailout, not just of Cyprus, but of Russians of, let’s say, uncertain probity and moral character. (I think it’s interesting that Mohamed El-Erian manages to write about this thing, fairly reasonably, without so much as mentioning the Russian thing.)
Quick. Someone grab a samovar! Russian liquidity it is on-tap.
In fact, Russia’s recent liquidity operations have been so substantial, they almost make Chinese efforts look puny in comparison. Read more
So Russia is getting its wallet out again. This is from the FT on Monday:
Russia is setting aside up to $40bn for this year and next to shore up the economy in case the crisis in the eurozone escalates and spreads, and is dusting off a plan that would allow the government to recapitalise the country’s banking system. Read more
Thursday’s Opec meeting is expected to be a cracker. Supply is relatively abundant right now, but Saudi Arabia wants the quota raised. Iran, Venezuela, and a bunch of other Opec members fearful for their export receipts definitely do not want that.
The FT’s Guy Chazan writes that it’s expected to be a tussle that Saudi and its Gulf state allies will lose, despite their considerable power within the cartel. The point, some industry watchers maintain, is just to send a message that Saudi’s got this: that is, it won’t let high oil prices worsen the risk of a global slowdown. A message it probably sees as very necessary as the Iranian sanction deadline draws nearer, and the world economy looks more fragile. Read more
Last November John Hempton wrote an amusing post arguing that Ben Bernanke’s problem was that the Fed’s credibility was too high, thus creating a liquidity trap, and to solve this Bernanke should do something crazy like appear on television wearing a Hawaiian shirt and smoking a spliff.
John Kay’s latest FT column looks at the problem of credibility, although more in a fiscal than a monetary context. As he points out, we frequently hear now that credibility is the problem besetting heavily-indebted governments. Credibility is seen as a kind of panacea but Kay points out it’s only a very recent concept in economics: not in Keynes, not in Smith, not in Marshall. It dates back to a 1979 article by Finn Kydland and Edward Prescott, he says, who won a Nobel economics award for their work on the subject. Read more
In this quad of graphs, can you spot the odd one out?
On a pretty gloomy Tuesday morning generally, Russia’s headline RTS index is taking a particularly severe beating.
Be it protests, the threat of a ratings downgrade (Fitch got nervous yesterday) or otherwise, something has spooked investors and Monday’s gains have been well and truly reversed. Whatever post-election-Putin-stability-bounce existed has disappeared. Read more
Police and demonstrators clashed and hundred of arrests were made in central Moscow on Monday night during protests against widespread fraud in Sunday’s election of Vladimir Putin to a third term as Russia’s president, the FT reports. Police said the protest, which began peacefully, numbered 14,000, while organisers claimed 20,000. When police tried to clear Pushkin Square at 9.45pm, a group refused to leave and scuffles broke out. Among those arrested was Alexei Navalny, the charismatic anti-corruption blogger who has become one of the main opposition leaders, though he was later released. Earlier, Mr Navalny led the crowds in a roaring chant as he denounced the elections as falsified and illegitimate. “It was a difficult day yesterday, many were disappointed. But what did you expect from this band of swindlers and thieves? They have been stealing from the country for the last 12 years. Yesterday they stole from us again.”
Russia’s opposition has vowed to continue protests alleging widespread irregularities after a tearful Vladimir Putin claimed victory in an election that will see him return for a third term as president, the FT reports. With more than 90 per cent of votes counted on Sunday night, the tally for the former spy who has dominated Russian politics for the past dozen years stood at 65 per cent. That represents a comfortable victory with no need to go into a second round of voting. Later blaming the wind for the tears in his eyes, Mr Putin wasted no time in declaring victory, addressing thousands of Russian flag-waving supporters at a victory rally outside the Kremlin walls. “I promised we would win. And we did win!” Mr Putin said, to cheers from his supporters. “We won an open and honest battle.” “It was a very important test for all of our people, a test of political maturity and independence. We showed that no one can force anything upon us,” he added.
Vladimir Putin has claimed victory in Russia’s presidential elections, although the opposition has denounced the fairness of the vote and vowed to continue protests, reports the FT. ”We have won in an open and fair fight,” Putin told crowds gathered in Moscow, breaking into tears during his speech, the WSJ says. “I promised you we would win. We have won. Glory to Russia,” he added. Activists said that irregularities were rife in the election, including video evidence of “carousel voting”, or voters being driven to different polling stations to cast more than one ballot, the FT adds. Mr Putin will be president until 2018. He can then run for another six years.
Russia’s economy grew by 4.3 per cent last year, benefiting from a surge in agricultural output and robust consumer spending, as well as record-low inflation. Yet the country is seeing signs of a slowdown in manufacturing, suggesting that it may experience a significantly tougher 2012, according to the FT. The jump in gross domestic product surprised economists who had predicted an increase of 4 per cent, Reuters said on Tuesday, and came after a particularly strong second half. Full-year GDP growth would likely have been a full percentage point lower if Russia had not seen such a dramatic turnround in the agricultural sector, which suffered on the back of a devastating drought and forest fires a year earlier, according to Vladimir Tikhonov, chief economist at Otkritie Capital.
One of Russia’s richest tycoons said on Monday he would run for president against Vladimir Putin in next year’s election, prompting speculation that the Kremlin may be trying to contain growing public dissent in its “managed” democracy, the FT reports. Mikhail Prokhorov, 46, the third-richest man in Russia and owner of the New Jersey Nets basketball team, returned to the political fray after thousands of middle-class voters demonstrated at the weekend over alleged vote-rigging in parliamentary elections. Mr Putin’s announcement in September that, after four years as prime minister, he would return to the presidency next year, has fanned middle-class anger. According to the Wall Street Journal, State television, which typically gives little coverage to opposition figures, led its 6 p.m. newscast with Mr. Prokhorov’s announcement, highlighting his assertion that he was doing it without high-level blessing.
One of Russia’s richest tycoons said on Monday he would run for president against Vladimir Putin in next year’s election, prompting speculation that the Kremlin may be trying to contain growing public dissent in its “managed” democracy, the FT reports. Mikhail Prokhorov, 46, the third-richest man in Russia and owner of the New Jersey Nets basketball team, returned to the political fray after thousands of middle-class voters demonstrated at the weekend over alleged vote-rigging in parliamentary elections. Mr Putin’s announcement in September that, after four years as prime minister, he would return to the presidency next year, has fanned middle-class anger. Mr Prokhorov’s decision to run came as Alexei Kudrin, the former finance minister, said he would support the creation of a liberal party as an alternative to Mr Putin’s United Russia party. The timing fuelled speculation that the politicians were not acting independently but had received a nudge of encouragement from the Kremlin.
It seems like more or less anything can be deemed an asset class these days.
Here’s the latest one from Citigroup analysts: ‘Carbs’. No that’s not McDonalds and Coca Cola, but Canada, Australia, Russia, Brazil and South Africa, i.e. the world’s top commodity players. Read more