Why Russia Will Halt the Ruble’s Slide and Keep Pumping Oil

Submitted by Marin Katusa  –  Casey Research

The harsh reality is that U.S. shale fields have much more to fear from plummeting oil prices than the Russians, since their costs of production are much higher, says Marin Katusa, author of The Colder War: How the Global Energy Trade Slipped from America’s Grasp.

Russia’s ruble may have strengthened sharply Wednesday, but it’s plunge in recent days has encouraged plenty of talk about the country’s catastrophe, with some even proclaiming that the new Russia is about to go the way of the old USSR.

Don’t believe it. Russia is not the United States, and the effects of a rapidly declining currency over there are much less dramatic than they would be in the U.S.

One important thing to remember is that the fall of the ruble has accompanied a precipitous decline in the per barrel price of oil. But the two are not as intimately connected as might be supposed. Yes, Russia has a resource-based economy that is hurt by oil weakness. However, oil is traded nearly everywhere in U.S. dollars, which are presently enjoying considerable strength.

This means that Russian oil producers can sell their product in these strong dollars but pay their expenses in devalued rubles. Thus, they can make capital improvements, invest in new capacity, or do further explorations for less than it would have cost before the ruble’s value was halved against the dollar. The sector remains healthy, and able to continue contributing the lion’s share of governmental tax revenues.

Nor is ruble volatility going to affect the ability of most Russian companies to service their debt. Most of the dollar-denominated corporate debt that has to be rolled over in the coming months was borrowed by state companies, which have a steady stream of foreign currency revenues from oil and gas exports.

Alasdair Macleod on CrossTalk: Dumping the Dollar

Switzerland ‘Fights’ The Russian Problem, But Russia’s Problem Is As Brazil

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Indonesia has been here before, playing a key role in fomenting the Asian “flu” in 1997 and 1998. As it turned out, the slide in the rupiah last year, caught up in the taper drama of US “dollar” tightening, was just the initial phase of what looks to be shaping up as a protracted “dollar” problem. It never gets treated that way, as most commentary focuses locally ignoring the wider disruption. That was why in 1997 most people were shocked and surprised by the “unexpected” appearance of a currency crisis that spread far and wide – because it wasn’t a crisis of currencies so much as a “dollar” event under the nascent eurodollar surge.

That has become the dominant theme yet again as the latest problems in global currencies are being blamed on local issues. Russia is the epicenter at the moment, providing everyone else with cover to blame the Russians.

Indonesia’s rupiah halted a slide that pushed it to the weakest level since the Asian financial crisis after the central bank intervened to stem losses.
The rupiah closed up 0.1 percent at 12,680 per dollar after dropping as much as 1.9 percent earlier, prices from local banks compiled by Bloomberg show. It fell 1.9 percent yesterday, recording its lowest finish since August 1998. In the offshore market, one-month non-deliverable forwards rose 0.8 percent to 12,980 after declining 5 percent in the last two trading days…
“That’s a regular thing they do,” he [Wiling Bolung, head of balance-sheet trading at PT Bank ANZ Indonesia] said in Jakarta. “The Russian ruble was the main trigger” for the rupiah’s losses, Bolung said, adding that it was an “over-reaction by some people.”

That was a sentiment echoed, as you would expect, from official channels once the government rushed to reassure.

Finance Minister Bambang Brodjonegoro said today that, while it’s concerning, the current situation with the rupiah is temporary.

It’s easy to lose track of the rupiah as it is not one of the majors, but “temporary” is not a description that fits; at all.

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Fed Calls Time On $5.7 Trillion Of Emerging Market Dollar Debt (AEP)
• Bankers See $1 Trillion of Investments Stranded in the Oil Fields (Bloomberg)
• Oil Could Fall To $30 A Barrel: Emirates Boss (CNBC)
• Oil-Led Slump Spurring Fastest Investor Exit Since 2008 (Bloomberg)
• The Fracturing Energy Bubble Is the New Housing Crash (David Stockman)
• Yellen Makes It Clear That Fed’s Patience on Rates Has Limits (Bloomberg)
• Putin Says Russia Mustn’t Waste Reserves on Ruble as Economy Sinks (Bloomberg)
• Putin Predicts Economy Will Recover In Two Years (WaPo)
• Western Nations Want To Chain The Russian Bear And Have It Stuffed: Putin (RT)
• Can Anybody Find Me … A Central Banker To Love? (Dmitry Orlov)
• Traders Betting Russia’s Next Move Will Be to Sell Gold (Bloomberg)
• Greece Faces Crisis On Rising Prospect Of Snap Election (CNBC)
• EU’s Greek Drama Needs A Final Act (Bloomberg ed.)
• $1.3 Trillion In Secret Cash Sneaked Out Of China In The Last 10 Years (Quartz)
• Dark Pools in Spotlight as EU Moves to Bolster Markets (Bloomberg)
• Uruguay Takes on London Bankers, Marlboro Mad Men and the TPP (Truthout)
• Swiss National Bank Imposes Negative Interest Rate (Bloomberg)
• The Fed Is Sitting On a $191 TRILLION Time Bomb (Phoenix)
• 2014 Warmest Year In Europe Since 1500s (FT)
• ‘Vast Stores’ Of World’s Oldest Water (BBC)

Continue reading: Debt Rattle December 18 2014 – The Automatic Earth

How The Fed Masterfully Punk’d Algos Into A Stock Buying Frenzy

Submitted by Tyler Durden  –  ZeroHedge

Something unexpected took took place yesterday: as we showed just after the FOMC statement hit, while the “hawks” had been pre-advised by the unofficial Fed mouthpieces to watch for instances of the word “patient” as a signal of shift in monetary policy by Yellen, the “doves” were looking for just one thing: any instance of the phrase “considerable time.”  Or rather the Doves’ algos, because if the Fed had maintained its “considerable” language it meant the coast was clear to bid up risk to the moon.

So what happened: in a completely unexpected twist, the Fed used not only the much anticipated “patient” phrase, but – in what many speculated was a hint to the word-scanning algos that the coast was all clear to buy – it also added the “considerable time” phrase within the same paragraph. To wit:

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

Financial Market Manipulation Is The New Trend: Can It Continue?

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

A dangerous new trend is the successful manipulation of the financial markets by the Federal Reserve, other central banks, private banks, and the US Treasury. The Federal Reserve reduced real interest rates on US government debt obligations first to zero and then pushed real interest rates into negative territory. Today the government charges you for the privilege of purchasing its bonds.

People pay to park their money in Treasury debt obligations, because they do not trust the banks and they know that the government can print the money to pay off the bonds. Today Treasury bond investors pay a fee in order to guarantee that they will receive the nominal face value (minus the fee) of their investment in government debt instruments.

The fee is paid in a premium, which raises the cost of the debt instrument above its face value and is paid again in accepting a negative rate of return, as the interest rate is less than the inflation rate.

Think about this for a minute. Allegedly the US is experiencing economic recovery. Normally with rising economic activity interest rates rise as consumers and investors bid for credit. But not in this “recovery.”

Is Russia Being Driven Into the Arms of China?

Submitted by Mark O’Byrne  –  GoldCore

The “isolation of Russia” idea is one which has been receiving a lot of traction of late. Russia’s recent economic woes have sometimes been covered with barely contained glee despite the hardships that average Russians may have to endure if the rouble continues to collapse … not to mention the inevitable geo-political backlash.

Reuters image of the over 50% drop in the Rouble against the U.S. dollar

Russia has become isolated from its western neighbours on account of the putsch in Ukraine which led to the predominantly ethnically Russian Crimea seceding from Kiev through a democratic process.

European governments slavishly adhere to U.S. imposed sanctions. So from a western elite point of view, Russia is indeed isolated.

Whether antagonising Russia is damaging to Russia is a moot point. Certainly in Russia’s current straits the bankrupt west is in no position to help. European farmers are suffering from loss of export markets while Europe is still dependent on Russian natural gas.

The EU’s Ghost Airports

Submitted by Pater Tenebrarum  –  The Acting Man Blog

The Good, the Bad and the Plain Crazy

The EU Commissariat has just made an announcement that is both good and bad. Let us start with the good: According to European press reports, Chief Commissar Barroso left the commission with an inheritance of 452 legislative initiatives, including the “harmonization of standards of maternity protection”, “uniform energy taxation and environmental protection legislation” and “forcing all nations to implement waste recycling” (if you want to know why waste recycling, which superficially sounds like a great idea, is yet another complete etatiste charade, read this article in which Per Bylund deconstructs the recycling myth using socialist paradise Sweden as an example).

Anyway, the new commissariat under JC Juncker has decided to simply strike 83 of Barroso’s initiatives legacy completely, put a large part of it on hold, and instead concentrate only on a handful – 23 to start with. Also, among the things to be tackled is an endeavor to actually cut red tape (we will believe it when we see it). According to the commissariats own words:

“When laws are no longer fit for purpose, or impose too much burden, they will be reviewed and amended to make EU law lighter, simpler and less costly.”

So much for the “good”.

Fed Delivers the Message that Our Economy is Dead

Submitted by Thad Beversdorf  –  The First Rebuttal Blog

I used to get a kick out of the cute little children waiting for the Fed Chair to come and deliver presents or coal.  So giddy and excited from the anticipation of not knowing who Janet thinks were good boys and girls.  Who’s going to be rewarded and who disappointed?  And I don’t know how many people asked me today what the Fed will do.  My answer was “The same f@#*ing thing they always do, nothing.  So stop asking”.

You see if you read some of Stanley Fischer’s early work on the rational expectation model you find that the key to fixing the lack of long term effectiveness to monetary policy is by confusing the working man. The idea being, people will act rationally with the information they are provided and so what typically happens is that people change their behaviour which counters the impact of the policy being implemented.  The solution is to keep us guessing.  And so what they have done for essentially every meeting is nothing.

However, they use the media to talk about all the things they just might do.  And the pundits on television go on and on about all the things that might happen and what the follow on implications will be given those alternatives and then the moment comes and ahhh nothing, damn they fooled me again!  I really thought this time was it gosh golly dang it!.  I guess it was just that this or that was just slightly out of place otherwise they said they were totally gonna do this or that.  So close, but ultimately they are right.  Yep they made the right choice based on all the variables.  They are just swell.

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• Fed Calls Time On $5.7 Trillion Of Emerging Market Dollar Debt (AEP) • Bankers See $1 Trillion of Investments Stranded in the Oil Fields (Bloomberg) • Oil Could Fall To $30 A Barrel: Emirates Boss (CNBC) • Oil-Led Slump Spurring Fastest Investor Exit Since 2008 (Bloomberg) • The Fracturing Energy Bubble Is the New Housing Crash (David Stockman) • Yellen Makes It Clear That Fed’s Patience on Rates Has Limits (Bloomberg) • Putin Says Russia Mustn’t Waste Reserves on Ruble as Economy Sinks (Bloomberg) • Putin Predicts Economy Will Recover In Two Years (WaPo) • Western Nations Want To Chain The Russian Bear And Have It Stuffed: Putin (RT) • Can Anybody Find Me … A Central Banker To Love? (Dmitry Orlov) • Traders Betting Russia’s Next Move Will Be to Sell Gold (Bloomberg) • Greece Faces Crisis On Rising Prospect Of Snap Election (CNBC) • EU’s Greek Drama Needs A Final Act (Bloomberg ed.) • $1.3 Trillion In Secret Cash Sneaked Out Of China In The Last 10 Years (Quartz) • Dark Pools in Spotlight as EU Moves to Bolster Markets (Bloomberg) • Uruguay Takes on London Bankers, Marlboro Mad Men and the TPP (Truthout) • Swiss National Bank Imposes Negative Interest Rate (Bloomberg) • The Fed Is Sitting On a $191 TRILLION Time Bomb (Phoenix) • 2014 Warmest Year In Europe Since 1500s (FT) • ‘Vast Stores’ Of World’s Oldest Water (BBC)

Continue reading: Debt Rattle December 18 2014 – The Automatic Earth