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Showing posts from December, 2014

Seasonal Shutdown

Well, it only took a few hours from my last comment about the blood in the Russian interbank market, before the first of the Russian banks needed rescuing. An estimated $531 million to rescue National Bank Trust is just the first order of business for the CBR. Clearly there is a huge level of work to do before the Russian financial sector can even begin to recover, even if-for the time being- the oil price seems to have stabilised at around $60/bbl.

After the crash, investors are beginning to put prices on Russian risk- and these are hugely discounted. For some Russian assets, there is simply no bid at all, so although a floor might be visible in some areas, it is still the case that international appetite for Russia is exceptionally low. This is not just because of sanctions, it is also because there is the growing realisation that the economic impact of Putin's aggressive incompetence will be long lasting, and in some sectors the damage is permanent.

Both policy makers and investo…

"Living in another world"

In the early days after the Russian invasion of Ukraine in March, the German Chancellor, Angela Merkel made a widely reported comment that Vladimir Putin was "living in another world". The point being that the statements that were being made by the Kremlin were so completely untrue that they had literally no basis in reality. 

Over the past few months we have started to become used to Russian propaganda: astroturfing, Putintrolls, and all the rest of it, but nevertheless, no matter how vehemently propagated, the Kremlin position remains completely at odds with objective, evidence based truth. The well funded Russian propaganda machine is slick, well presented and almost entirely half truths and whole lies.

According to Peter Pomerantsev, in his book "Nothing is true and everything is permitted: the surreal heart of the new Russia", the kleptocratic cabal that now controls the Kremlin does not believe in truth even as a concept. Instead they believe that anything and …

Putin jumps the shark

Amid the occasionally rambling and bizarre comments from Vladimir Putin's annual press conference yesterday, a couple of critical points are rather obvious. 

Firstly, Putin accepts no responsibility for the crisis that has hit Russia, continuing to believe his own paranoid fantasy of Western economic destabilization.  

Secondly, he intends to double down and continue his aggressive and disastrous policies.

However, despite the current dead cat bounce in the Rouble, there are two things that could rapidly make the economic situation for Russia irretrievable. The first is in the small print of the Rosneft placement that triggered the deep crash in the currency. Essentially the Bank of Russia underwrote the placement of RUR 625 billion at 150 b.p. below Russian sovereign risk price- and since Rosneft had $7 billion to pay on 21st December, the whole placement went into the forex market. The implication is clear: The Russian central bank, in addition to being the lender of last resort to…

The Dark Night of Russian markets

Yesterday the dam finally broke in the Russian markets: the Rouble had a heart attack and fell over 10%. The continued erosion of the price of oil down to $61 is placing Russian government finances in considerable jeopardy at a time when even a relatively small deficit is unlikely to be financed by Western lenders, and the increasing refinance risk on the existing debts of Rossneft and the banking sector is creating still further demands on the Russian public purse.

At 1 am the Russian central bank raised rates by 6.5% to 17%.

Moscow has made a choice to attempt to defend the Rouble from collapse, but the price of that choice will be a deep recession as the economy digests the rate rise shock.

In fact this could prove to be a catastrophic decision.

Russia urgently needs investment capital in order to modernize and diversify its economy: this has been true for some time. It is also recognized by the authorities as a strategic goal. Indeed the decision to impose sanctions on foreign food im…

The unfit leadership of Edward S. Miliband

To say that Ed Miliband does not have a particularly compelling personality is a statement of the obvious. His non-political hinterland is small and mostly pedestrian. The only remotely interesting thing about him is the brutal ambition that led him to betray his brother David- until then widely seen as the more gifted of the two- and drive him out of politics.

Nevertheless his clumsy geekiness could be sold as some kind of a positive- you may not have picked him for your playground football team, but maybe, at least, he has some kind of intelligence.

Not any more.

His latest declarations on the so-called "war on drugs" are not merely pathetically banal, they are almost entirely- indeed dangerously- wrong. They fact that he has only "read about cannabis" marks him out from the large majority of his generation who certainly have inhaled: so indeed the playground geek does actually live up to his stereotype. Despite this lack of knowledge, however, this has not prevente…

Tony Blair... Moral vacuum

Yeah I know, I know, British right wing newspaper tries to stitch up Tony Blair saying he would be happy to work for Vladimir Putin. 

He did not say that, but he hardly said that he would draw the line either.

The idea that Blair had actually done a real job before entering politics is a bit of a rib-tickler too. Being a Barristers Clerk is not exactly the kind of executive experience you really need when your next job is being an MP, then... Prime Minister.

Blair is emerging as one of the most astonishingly un-self aware figures in British political history, the Mr. Pooter of politics.

Tragic, what a missed opportunity. We are still counting the cost today.

By the River of Death

"What is the name of this place,
I asked him.
Valerik, he answered me.
And translated into your language,
That would be... River of Death."

Lermontov

In a short while Vladimir Putin will make his state of the nation speech in the St. George's Hall of the Kremlin.

Perhaps in the chandeliered magnificence of this room, the Russian President may feel safe. He may make a rousing and grandiloquent speech making the case for Russian greatness. Perhaps he might offer an olive branch to the West that he has spent the past year excoriating, more likely he will add to the litany of grievance and envy he clearly feels.

Perhaps in the end it might not matter.

A few hours ago Chechen militants launched an attack against local police in Grozny. This is the second attack in a couple of months, but it comes at a very significant time for the situation in Chechnya.

Several of the most prominent figures in the ISIS rebellion in Iraq/Syria are of Chechen origin. There are swirling rumours about flig…

Russian meltdown

I make little apology for returning to the subject of Russia. The crisis in Ukraine is rapidly becoming a crisis in -and for- Russia.

The third term of Vladimir Putin, began with a constitutional sleight-of-hand to allow the job swap between Dimitri Medvedev and Putin to take place- and we can date the breakdown of Russia quite precisely from the announcement of this cosy arrangement on 24th September 2011.

Since that time the political atmosphere has darkened dramatically. As I have noted several times, Russia has already fallen 61 places in Transparency International's Index of corruption perceptions since the beginning of Putin's first term, but the breakdown of all rule of law has been confirmed by a series of extra-legal decisions taken in the past few months. The gap between rich and poor is now on most measures the widest in the world, and the ruling elite now comprises merely a few ten of individuals wielding astonishing power and wealth against an increasingly impoveris…

The SNP have Forgotten Nothing and Learned Nothing

On September 19th 2014- a scant two months ago- we learned that Scottish voters had voted to reject the idea of Scotland as "an independent country" by a margin of well over 10%.

Apart from Vladimir Putin who, to be fair knows a thing or two about ballot rigging, the vote was universally recognized as a free and fair expression of the will of the Scottish people.

The result came after an extremely heated and divisive debate, with accusations of bias and corruption on both sides.

To my mind the No vote came from the result of many factors, but the most important was that the economic argument made by the separatists was so weak.

There might be a case for establishing Scotland, like Estonia, as an ultra-nimble free market economy; however the argument made was the exact opposite: that Scotland could only preserve its bloated and inefficient state sector through separation. This argument was self-evidently untrue, and as it became clear that separation would indeed require major ec…

It is still the economy...

As George Osborne rises to speak in the House of Commons this afternoon, I am sure that he will be feeling a little rueful. The Conservatives have talked tough on the deficit, but the reality is that many of the cuts they proposed were quietly rescinded when it became clear that they were often counter-productive. The crisis in British government finances can not be easily tackled by the piecemeal approach that both the Tories and Labour have set out. The problem lies in the the deep structure of the British tax code, which is unwieldy and expensive to administer and deeply unfair in its application. Without a wholesale -even revolutionary- change in the tax code, the nibbles here and there that he will set out today will not change the direction of travel for the UK.

Despite much positive news- and the resilience of the UK economy is the object of some envy internationally- the fact is that the structural deficit can not be eliminated without drastic tax simplification and large scale…