It’s really hard to get good information out of the Ukraine-Russia War, or should I say the Russian Invasion of Ukraine since Ukraine didn’t really want a war. A friend of mine pointed me to this chart of the Russian Ruble vs the US Dollar. You can see when the war started and when sanctions started. It’s the dip, or downward red line in the price.
Of course, Russia had prepared for some stress by stockpiling currency. But, clearly they didn’t do enough. However, Putin has cultivated his network of oligarchs which worked like a shadow banking system. They bought the ruble.
That gave him time to negotiate with China.
Again, it is really hard to know what is going on inside Russia, and at the front of the war. I think the world assumed it would be over quickly and watching Ukraine put up a fight against an oppressive aggressor is refreshing.
Not refreshing enough for me to want to join the fight mind you.
Markets always will give you a hint at the real story behind the scenes. Seeing the ruble rally against the dollar and hit highs in value might tell you a lot. Especially since the dollar is rallying against virtually every other currency.
I guarantee you that US politicians that are upset about the trade deficit impacting GDP numbers will start yapping and fretting about a strong dollar. Blame always goes someplace else, even though our current stagflationary environment is a direct cause of their policies.
The US Dollar/Japanese Yen (dollar first, so a rise in value shows strength)
The Euro/US Dollar (euro first so a drop in value signals dollar strength)
US Dollar / British Pound
There's more to the Russian economy than the ruble. It's an important indicator, but the real effect of the sanctions should be longer term as the Russian economy tries to replace the goods that require western technology. Of course, because it's the Biden administration we can assume these sanctions probably won't work, at least not the way they were sold to the public.
Allow me to totally disagree.
1. Look at volume - it is a complete head fake. Nobody wants the Ruble. Any demand is purely manufactured by Russia.
2. The Gazprom Bank - Putin demand for Ruble trades for oil & gas is a complete head fake.
Gazprom Bank sets up an account into which the European buyers pay Euros or USD (as per the contract) and then Gazprom converts the payments into Rubles at some fictitious rate that props up the Ruble thereby giving faux credence to the Putin "demand" that the Europeans violate their contracts and pay in Rubles.
It is a complete and total fiction.
[This is an attempt to get foreign currency while propping up the Ruble. Notice they did not demand Rubles, they demanded fake accounts so they could get foreign currency and head fake the Ruble.]
3. Russia is scrambling to sell their oil & gas to India and China - limited pipeline transmission capabilities and a 30% haircut on price plus the cost of ship borne transportation and the inability to obtain insurance on cargoes.
We want Russian oil to be a 40% discount to market.
4. Russia is going bankrupt -- "Gradually, then quickly" as it is cut off from the world banking system, tech, and capital. Two months in, they are already bleeding through inventories and staring at bare shelves.
High interest on non-existent loans, high inflation, high unemployment, no access to capital, and no internal consumer debt -- no Amex, Visa, MC, PayPal, ApplePay, GooglePay.
Consumer spending is going to disappear as the credit float evaporates.
5. Right now, the only substantial source of income is energy -- as the west removes its head from its ass and cuts off Russian energy, this will eventually strangle Russia.
6. Every sovereign debt payment - principal and interest - is an adventure. They are in technical default with a credit rating equal to Cuba and Argentina.
Russia planned to make these payments with their overseas foreign currency holdings that are now inaccessible. In six months, they are tapped out.
7. Russia/Putin planned for this. What they did not plan for was a protracted war. A protracted war gives the US a chance to whip the Arsenal of Democracy into shape and to grind down the Russian army while they struggle to makeup personnel, equipment, and ammo losses.
Amateurs debate tactics, whilst the pros discuss logistics. The west is winning the logistics war. Give Ukraine the best damn weapons we have -- let them kill as many Russians as they can, fewer for Nato to face.
8. While nobody wants a nuclear exchange, the US has 8-10 Boomers with 20-24 tubes each with a dozen MIRV warheads (2-400 KT each) at sea every minute of every day. Our stuff works. Do the bloody math. They know this.
Stay the course. This is like 1942 in WWII. Stay the course and keep applying pressure.
JLM
www.themusingsofthebigred.com