I like to buy when there is blood in the streets, when nobody else wants it. We are getting closer to the bottom with the Ruble. I am not saying back the truck up just yet, but investors should start watching closely; there will be a buying opportunity at some point in the not too distant future.
The macroeconomic and geopolitical situation is currently driving the Ruble’s value. Their actions in Ukraine and Putin’s sabre rattling have spooked the markets. The problem is that the Russian economy is most likely in recession already. Today, Moody’s downgraded Russia’s credit rating to just above junk and the bad news is piling up. The price of crude oil now has a low eighties handle. This is hitting the Russian budget and currency reserve stockpile hard. Moscow’s budget is balanced at a $115 price point for crude. We are obviously no where near that and most likely will not be for some time. The American shale revolution and general global economic slowdown will see to that.
The Kremlin spent $13 billion in the last week intervening in the currency market. There will also have to be injections of capital into some Russian corporations who cannot rollover their funding since the west cut-off any refinancing past thirty days for some. So although $500 billion in reserves sounds like a lot, the Russian Central Bank’s vaults could quickly be drained. Russian bond yields are also rising. Markets are a forward looking indicator and currently they are foreshadowing a serious decline in Russian gross domestic product. This has hammered the RUB which hit an all-time low recently of 41 to the USD. Only a few years ago, we were looking at 28. It’s really an astoundingly large move in a very short time. For this reason, I think the market may overshoot. The bad news can’t go on forever. Either the Kremlin will start making nice or the current government will be removed. The Kremlin at this point is shooting themselves in the foot and hurting Russia much more than the West is doing via sanctions. Putin is a master at escalation and de escalation. I would expect some deescalation soon. If we get a crescendo of selling of the Ruble, that’s when I’d back the truck up. So keep your eye on the Ruble.
- Todd Wood is a former emerging market debt trader with 18 years of Wall Street and international experience. He is also an author of historical fiction thriller novels. His first of several books, Currency, deals with the consequences of overwhelming sovereign debt. He is a contributor to many media outlets and is a foreign correspondent for Newsmax TV. LToddWood.com
