Ads 468x60px

About Me


Darren Winters is a self made investment multi-millionaire and successful entrepreneur. Amongst
his many businesses he owns the number 1 investment training company in the UK and Europe.
This company provides training courses in stock market, forex and property investing and since
the year 2000 has successfully trained over 250,000 people.


Friday 5 December 2014

Financial Warfare


The economic hit men have gone to work.

The Russian ruble has suffered its steepest one-day drop since the default crisis in 1998 as capital flight accelerates with rouble losing as much as 40 percent of its value against the USD since 2014.

The engineered crash in oil price is beating the living daylights out of the rouble.

In fact, the rouble has been in free fall since the kingpin of OPEC, Saudi Arabia, with 25 percent of the world's oil reserves, voted last week to continue flooding the market with oil, despite slowing world economic growth. A move which defies economic logic and was most likely done under US duress. Again it underscores how politics rather than economics is the overriding influence in big decision making.

Why this offensive against Russia? Is it a crime to want an alternative system to US dollar hegemony? To move away from the interests of the Empire?

So what are the rules of the game? Is it our game or no game? If that is freedom, the coffee sure does taste funny. But you are not supposed to sit under an apple/olive tree and think too much, you'll lose the plot. Put your blinkers back on old horse, just focus on making profits and consuming. The horse must run or it will go hungry, whack, it will be too poor to keep warm in winter, whack, it will be left to die on a hospital bed unless it can afford private medical care, whack. So the whipped horse keeps running. Aspirational consumerism maybe dead in the water, with the growing masses of new poor once belonging to the now impoverished middle class. So maybe the only thing left to keep the horse blinkered and whipped into running on a race track owned by his master, is the fear of poverty and hardship.

Russia is another example of what happens when there is a potential rival with an aspiration to design a new racetrack, not that it would make much difference for the horses that run on it. But the sole proprietor of the racetrack doesn't like competition, so the rival is taken out, or forced to fight back.

So OPEC, Saudi Arabia's, last week decided to keep pumping oil and flood the market not only sent oil prices tumbling, it also sent the ruble sharply lower. Within just a matter of hours the rouble lost nine percent of its value. This was no coincidence, it’s financially engineered.

The Russians were forced to roll out their big Calvary with the Russian central bank swinging into action a massive currency intervention program. It was the only option left to stop a rout on the rouble and prevented a collapse. But they lost a lot of ammunition doing so.

“They must have spent billions”, said Tim Ash, at Standard Bank.

With the currency in free fall and capital out flows accelerating, there were no foreign buyers.

After all, who wants to pump capital in when it’s likely to be worth much less sometime in the future?

At this rate the Russian will be selling the family silver just to support the currency, it's a game that they cannot win in the long run.

It is extremely rare for a major country to collapse in this fashion, and the trauma is likely to have political consequences. "This has become disorderly. There are no real buyers of the rouble. We know that voices close to President Vladimir Putin want capital controls, and we cannot rule this out," said Lars Christensen, at Danske Bank.

The recent devastation in rouble is a self-feeding problem.

Firstly, the collapse in value of the currency is like a rocket ship that could take inflation to the moon.

Already, devaluation is causing prices to spiral upwards in the shops. The finance ministry said it expects inflation to reach 10pc in the first quarter of 2015.

There is already a notable shift in consumer behaviour which is causing people to rush out and buy computers, cars, washing machines etc., as consumers prefer to hold fixed assets rather than a depreciating local currency. With most of these goods foreign made, it puts further downward pressure on the rouble. If the vicious circle continues it might lead to hyperinflation, which would destroy a currency, bearing in mind that a store of value is what gives fiat currency value.

Secondly, the other knockout blow, a battered rouble could have a credit default.

Russian companies and bodies have more than $680bn (£432bn) of external debt. When the rouble loses value the cost of servicing that debt also becomes more expensive. In an economic environment of higher risk, foreign capital becomes even more scarce and expensive.

"Funding problems are increasing dramatically. We think Russia is now flirting with systemic problems,” he added. 

Russia is also haemorrhaging capital. Net capital outflows have accelerated since the rouble’s recent devastation and many are wondering whether capital control might now be on the table. “Some Russian banks have already started limiting withdrawals of dollars and euros to $10,000, an implicit lock down for big depositors,” according to the telegraph.

Will Russia fight back in this financial warfare game?

They could ally with China who owns a sizable amount of US treasuries debt and persuade them to dump it on the market. That would cause treasuries price to collapse and rates to rise. The US has nearly 18 trillion US dollars of debt, which would become unbearably expensive to service in an environment of high interest rates. But why would the Chinese shoot themselves in the foot and destroy the value of their investment?

Another option might be to jack-up the price of gold on the Chinese gold exchange, which is traded in Chinese Yuan, which would suck-in “hot” capital from the west, thereby reducing even further the liquidity of the western financial system, thereby triggering a credit squeeze.

It will be interesting to see how this one plays out. 

Meanwhile, the Russian stock market is trading at 0.5 percent of book value, that's cheap, might even fall lower.



0 comments:

Post a Comment

 
Blogger Templates