EU Bank Losses

Source: www.theoslotimes.com/

The recent massive losses of some of Europe’s largest banks is alarming, particularly at a time when European Central Bank (ECB) is pulling at maximum on the expansive monetary policy lever in what may be a futile attempt to alleviate yet another looming credit crunch.

Portugal’s largest listed bank, Banco Espírito Santo, is currently tinkering on bankruptcy after reporting a shattering first half loss of 4.8 billion USD, shares in the bank collapsed by 50 percent on Thursday. Banco Espírito Santo’s historic loss has wiped out the bank’s €2.1 billion capital cushion and leaves its solvency ratios well below those demanded by regulators. The Portuguese bank is now scrambling to raise more capital to stem off a potential bankruptcy. Most of Banco Espírito Santo’s 4.8 billion USD losses have been attributed to bad loans made to the Santo family business Empire, which has been collapsing since early July when one of its companies failed to pay a loan. Moreover, three Espírito Santo holding companies have filed for bankruptcy protection, since then. The requirements to build more financial robust contingency measures, to weather future losses, has also been cited by the Bank as contributing to the Banks massive first half losses. The bank said that at least €856 million was needed to cover possible losses on credits granted without proper internal clearance. Indeed, reckless lending has been made by its banking unit in Angola, called Banco Espírito Santo Angola, more commonly known as BESA, when it made loans equivalent to 220 percent of its deposits. The end result being that the Angolan taxpayers had to cough up €4.2 billion in guarantees in December. Banco Espírito Santo has made little reference in its recent earnings report on how it proposes to mop up the mess it created in Angola. However, it did say that it might have to lose majority control of BESA as part of a planned capital increase. Referring to the Angolan situation a spokesman for the bank said that it would, “reach a solution that meets the interests of the Angolan authorities and that which safeguards Banco Espírito Santo’s interest and those of its shareholders.”

Source: www.periodistadigital.com/

The Espírito Santo family has had a strong hold over Portugal’s economy for more than a century. Following
a Portuguese left wing revolution in 1974 supported by the military, resulting in the family’s assets being nationalized, the Espírito Santo family had managed to rebuild their empire. But family fortune has been reversed in recent years with the latest failed commercial activities. Additionally, last week, Ricardo Espírito Santo Silva Salgado, the family patriarch and former head of Banco Espírito Santo, was arrested in connection with money laundering and a tax evasion investigation resulting in the former bank’s boss being ordered to pay €3 million in bail.

Both the Portuguese central bank and Banco Espírito Santo have reassured shareholders and depositors that the required funds can be raised from private investors. Moreover they are reiterating that depositors’ money was guaranteed and that the bank’s distress should not have a negative impact on the broader financial system. Portugal has contingency cash reserves of approximately €15 billion at its disposal, according to the credit rating agency Moody’s, including €6.4 billion of unused money that had been earmarked to rescue its banks as part of an international bailout negotiated in 2011.

But with Banco Espírito Santo’s share so low analysts now believe that the bank might be vulnerable to a hostile takeover bid.

Over the Pyrenees to France, big losses were also reported on Thursday, July 31. The French banking giant, BNP Paribas, posted a net quarterly loss of 4.3 billion Euros ($5.75 billion) for the second quarter of 2014. However, these losses were not related to bad loans. Indeed, the BNP Paribas trading results had recorded an exceptional expenditure of 5.95 billion Euros for the second quarter. This was linked to breaching US economic sanctions, which resulted in record penalties being imposed on BNP Paribas. The US accused the French bank of moving billions of dollars through the American financial system on behalf of Cuba, Iran, Myanmar and Sudan, all under economic sanctions. BNP Paribas had pleaded guilty in June for breaching US sanctions and agreed to pay 6.6 billion Euros as a penalty, if the case didn’t go to court.

However, excluding US penalties imposed on the French bank for breaching the sanctions, BNP Paribas managed to record a quarterly profit of 1.9 billion Euros, which is up 23.3 percent on the same period a year ago. But, the fine has already had a negative impact on the bank’s second quarter results and it will also lower its contingency reserves. The penalties are not only substantial, they are a record amount imposed on any bank, but they also include a one year ban on certain dollar clearing transactions. A spokesman for the bank said BNP Paribas still had enough cash set aside with central banks and capital to absorb any potential future losses. Additionally, Mr. Bonnafé, CEO for BNP Paribas, said the bank had already paid the entire $8.97 billion fine to U.S. authorities, using its large liquidity pool—cash set aside with central banks and assets accepted as collateral by central banks. 

It was also reported that BNP Paribas had acknowledged using regional banks overseas to process more than $20 billion in financial transactions linked to companies and government agencies in Sudan—at a time when the nation was engaged in what the U.S. and others call genocide. 

The French bank has agreed to set up internal supervisors to ensure that the bank complies with international US sanctions.

Regarding the recent Argentinean sovereign default it’s worth noting that Argentina has remained cut off from the global financial markets. So an Argentine debt default may not be so damaging to the global financial markets this time around. Furthermore, the likely amount of debt default of approximately a few USD billion is significantly less than last times non-payment of its 82 USD billion debt. Therefore, Spanish bank exposure is relatively small this time around. Nevertheless, the Spanish banks have their own big problems; a huge mortgage subprime crisis, turning banks into real-estate agents and high loan defaults where one in four of the work force remains jobless.

Which Trading Platform?

Where there is muck there’s brass and I guess that’s applicable to trading platforms too.

Looking beyond the bells and whistles of the most commonly deployed trading platforms used by traders in the market today and instead perusing over some of the recent reviews and it becomes fairly apparent that traders are overall disappointed with what is available. Admittedly bad news travels faster than good news, particularly in the globally interconnected world. Obviously, nobody is jumping with joy when they see money slip through their fingers, more so professional traders. But you would be side stepping the issue to assume that these reviews/complaints are just about traders who are sore losers, blaming the trading software for their losses. After all, when you get numerous traders complaining about the same problems with the same software trading platforms offered by their brokers, then we could assume that there might be something in it.

Let’s start with FXCM, which happens to be the world’s leading FOREX online trading and Contract for Difference (CFD) broker. Generally speaking the reviews for FXCM are sadly in the dumps. While many traders would agree that on the surface FXCM is excellent. The broker has friendly staff that are customer orientated. They tend to provide good quality educational resources and the paper trading demo platform is well designed, clearly laid out and excellent to use. Most traders have reported no real issues with funding their account, or moving funds out of their trading accounts. Moreover, there didn’t seem to be any problems with the trading platform, no unexplained slippage while buying and selling. However, the problem arises where it really matters, in the price dealings. There is a general consensus amongst traders that a movement against your position usually moves faster than price movements in your favor. 

FXCM get quotes from a number of banks, but some traders have complained that they are offered rates least favorable to them. Instead the broker takes the most favorable rate and the difference between the most and least favorable rate represent their profit, making it easy for FXCM to cream the profits from traders. Apparently only 23 percent of trades are profitable with FXCM. 

Other complaints from traders concerning FXCM platform is that executing orders tends to be frustrated during heavy volume trading hours, which often leaves traders unable to lock in their profits or cut their losses during a fast market. In some instances the software platform frustratingly froze when trying to execute orders. A number of traders have complained about seeing price gravitate towards their stop losses, then mysteriously spiking up. One trader complained that sometimes FXCM can actually hit his stop losses from as much as 20 price interest points (PIPS), which measures the amount of change in the exchange rate for a currency pair. Other complaints concerning the FXCM platform include, in some instances, inaccurate charts. The FX rates don’t always correspond to the true market exchanges rates, instead quotes using FXCM platform tend to favor the broker at the expense of the trader. Another complaint was the lengthy time it takes to open an account after funds have been sent. In one case a trader sent 25,000 USD into his trading account from a joint account, so the funds were not accepted, nor were they sent back to him after two weeks had elapsed. 

But by far the broker with the worse review was the Danish Bank, Saxo Bank. The help desk was rated rude, unhelpful and arrogant by most traders. Many traders reported strange things happening with their stop losses and margins. “What they do with stops, is they wait and see if the price bounces up, and then they trigger the stop,” claimed one trader. But while operating a “bucket shop,” doing pseudo-brokerage is illegal in many states in the US it is perfectly legal in the EU. An Information Technology professional, who specifically develops software systems for banks, decided to put the Saxo Bank software to the test. This insider made some interesting revelations. He argued that his motive for trading was purely to test the system, not to make a profit. However, whatever strategy he applied just didn’t work. He believed it had nothing to do with his trading strategy; instead it was the software that was programmed deliberately to work against him. He claimed that the software was engineered to “intelligently” wipe out balances from traders’ accounts, through either lost connections, screen jam, not enough margin, price moves against his position until the trader changes his bet or panics. Furthermore, he added that Saxo Bank has a different approache for different types of clients, which is determined when the applicant declares his profession and trading experience at the time when he opens the account with them. Indeed, there are a number of lawsuits against Saxo Bank and their license is now under threat.

CMC Capital markets was also heavily criticized for similar problems, frozen screens, running stops, wide margins and dealing prices not reflecting the real market. Furthermore, their next generation software has also been given the thumbs down. Referring to the next generation software platform, one trader said, “It allows them to tinker with the 'rules' more easily - they'll change spreads and margin requirements suddenly.”

They are also starting to charge "Price data feed" for shares on 01 Dec 2012. 

However, the trading platform with the best review was Finexo, which was set up in 2003 by veterans of the global financial industry and is one of world’s fastest growing online Forex brokers. Generally traders are happy with the platform fast executions and excellent customer service.

It is no surprise that Finexo is one of the fastest growing online brokers in the world. Indeed, what research is suggesting is that the market is crying out for decent software trading platforms. But just as choosing the right execution broker, which deploys a fair platform to execute trades online is important for traders so too is having at your disposal a comprehensive analysts and trading package. WinWay TradingExpert Pro, was developed by a successful trader, Darren Winters, for specifically traders in mind. The trading software package contains a complete array of analysis tools, thereby sharpening your trading decisions, making them timelier; more decisive, quicker and right on the money. Certainly, the WinWay Trading package software, combine with a fair play online execution broker, are critical partners to making your trades more profitable.

Sovereign State VS Hedge Fund

It has been dubbed as the financial case of the decade, involving a Latin American sovereign state, the Republic of Argentina versus NML Capital LTD hedge fund, led by billionaire hedge fund manager Paul Singer.

The story goes something like this; you have a group of bond holders who reckoned that there was a killing to be made by purchased Argentinean sovereign debt just after it had collapsed in 2001.  This relatively risky investment strategy may sound wolf like but if it played out in your favor it could also be extremely lucrative for those cashed up and well connected.  The idea is to hunt for distressed debt and buy it (in this case sovereign Argentinean debt) on the secondary market at or near the point when the debtor is very weak or in imminent danger of default, at a huge discount, then sue the debtor for a larger amount than the purchase price.

So that is precisely what Mr. Singer and his pack of wolves did and they are now arguing that Argentina should cough up and pay back in full the 1.5 billion USD debt. But that isn’t the way the South American state sees it. On the other side of the fence Argentina is contending that NML Capital LTD, is immorally profiteering from a debtor in financial distress.  The country is arguing that NML Capital should have restructured the debt in 2005-2010 just like the other bond holders had done. Argentine President Cristina Fernandez, known for not mincing her words and always ready to tap into populace opinions is calling the hedge fund managers “vultures,” and flat right refusing to pay as a matter of principle.  But perhaps this could be partly due to the fact that if Argentina where to agree to pay NML it may also open the floodgates for the country to pay their other bond holders to the tune of 15 billion USD. This would certainly be an unwelcomed scenario for Argentina’s fragile economy, which it cannot afford.

Nevertheless, the US Supreme court has recently ruled in favor of NML Capital. Argentina’s final appeal has been refused by the Court, which has ordered Argentina to pay back the 1.5 billion USD within 14 days. Moreover, the US Supreme Court ruled 7-1 that bondholders could now force Argentina to reveal where it owns property around the world, making it easier to collect on the unpaid debts. This could even expose its embassies and military ships to seizure if the government doesn't pay, according to Justice Ruth Bader Ginsburg. Drumming the sound beats in favor of the US Supreme Court’s ruling a NML spokesman said: “America’s highest court has spoken. Now it is time for Argentina to honor its commitments to its creditors, which would benefit both Argentina’s economy and its international standing.”

Nevertheless, responding to the US’s highest court in the land ruling Argentine president Kirchner appeared on national TV stating, 'What I cannot do as president is submit the country to such extortion.' The financial consequence of such a stern posture by the head of the Argentine state was both immediate and predictable.  The cost of insuring Argentine bonds against default rocketed, and the value of Argentina's currency plunged to 12 pesos to the dollar on the black market and shares on Buenos Aires Merval stock exchange index fell by a whopping 6 percent and they were down again 4.92 percent on Friday, June 20.

There are now a number of options available for Argentina; it could obviously honor its commitment and pay the bond holders. But this is unlikely to happen since it would be keen to avoid a floodgate scenario with it’s other bond holders.

Alternatively, Argentina could try and renegotiate the debt. A likely obstacle here could be a piece of legislation called “the lock law”, which prohibits offering a better rate to the debt holders who did not accept the restructured rates.  Alternatively, Argentina could try and reroute payment to exchange holders outside the US, thereby circumventing US ruling, but as cited in the FT this would be logistically difficult to do.  The final option is that Argentina could default on its debt. This would not be a feeble matter, since the last time Argentina defaulted was in 2001 on 82 billion USD sovereign bonds, which happened to be the largest in history. The following events occurred; the Argentina President resigned; the peso was devalued, unemployment rocketed and riots broke out with more than 53 percent of Argentines falling below the poverty line. It took four years for the economy to recover. 

It’s worth noting that Argentina remains today cut off from the global financial markets. So an Argentina debt default may not be so damaging to the global financial markets this time around.  Furthermore, the likely amount of debt default of approximately a few USD billion is significantly less than last times non-payment of its 82 USD billion debt.

Bearing this in mind, the consequence of another Argentina default, while it may rattle Mr Singer and his pack, it is unlikely to result in a major global financial disruption. However, the US Supreme Court’s ruling could be a floodgate case for next time a country runs into financial difficulties and is unable to pay back its debts. Investors may have little or no incentive, or even be under a fiduciary obligation not to participate in any future debt restructuring scheme. While the court’s ruling is a boon for holdouts it has also made striking a debt restructuring deal a lot harder for debtors. Argentina’s next payment is due on June 30.

Ukraine vs Gazprom.

Ukraine’s deadline to cough up 1.9 billion USD, part of its 4.5 billion USD debt with Russia’s energy giant, Gazprom, lapsed at 0600 hours on 16 June . The fallout has been immediate with the central gas tap supplying the Baltic nation being promptly turned off. “Gas supplies to the Ukraine have been reduced to zero,” said the Ukrainian Energy Minister Yuri Prodan. Surely, a shivering prospect for Ukraine had it not been due to the fact that the northern hemisphere is entering summer. The Ukraine will now only receive supplies if it pays upfront for the gas, according to a spokeswoman from Gazprom.

Like two titan fighters in a boxing ring, in one corner Russian State energy Gazprom is making its case crystal clear, calling on Kiev to pay off at least one installment of 1.95 billion USD (representing slightly less than half of the total 4.5 billion USD debt or face a blow), and instigating a cut to supplies unless upfront payment is made. In the other corner, Ukraine’s national gas company, Naftogaz is claiming that Gazprom’s fighting below the belt, arguing that the latter has already been overpaid to the tune of billions of dollars. So currently we have Gazprom filing a lawsuit at the Stockholm arbitration court to try to recover the debt, meanwhile in the same court Ukraine's Naftogaz is also filing a counter claim to recover 6 billion USD in what it said were overpayments. Moreover, the Ukrainians are arguing in their corner that they want to pay $268.5 per 1,000 cubic meters of gas, which is the price it had been offered when Viktor Yanukovych the former Ukrainian Prime Minister briefly led the Ukraine from 2002 to 2004. On the ropes and as a sign of possible weakness, Ukraine offered to pay 326 USD last week for an interim period until a deal was reached.

But Gazprom snubbed at the latest offer from the Ukraine and insisted on sticking to the 2009 contract amount of $485 per 1,000 cubic meters. Furthermore, in an attempt to try and strike a deal Gazprom offered to waiver export duties, which would have pulled the price down by about 20 percent to $385 per 1,000 cubic meters, which is pretty much what Russia charges the other European countries. However, the Ukrainians decided not to tango, claiming that the waiver of Russian duties could be retracted at any time and thereby used as a stick to threaten the Ukraine to either come under Moscow’s orbit, or literally pay the consequences.

This game isn’t new to the Ukraine, indeed in the past few years Russia has twice shut off its gas to the Ukraine. Since the Ukraine’s independence from Russia 21 years ago its relationship with Gazprom has been rocky, to say the least. In short, some Ukrainians views Gazprom as an enabler of corruption using intermediary to buy the political classes, although many Ukrainians also believe that the blame lies on their side of the border.

During 2009 the Ukraine received Gazprom gas through a notorious intermediary company called RosUkrEnergo (RUE) registered in Switzerland. RUE, then a monopoly supplier of gas to the Ukraine was able to extract huge monopoly profits by selling the gas at a vastly inflated price to the Ukraine, some believe prices were inflated by as much as 50 percent. This arrangement provided a secret fund to buy Ukrainian politicians. It was dubbed a criminal scheme,” by the Ukraine’s former head of intelligence Oleksandr Turchinov, who then was later fired for investigating it.

In 2009 the then Ukraine Prime Minister, Tymoshenko managed to shake off RUE and buy Russian gas directly from Gazprom but he paid a huge price. Indeed, the Ukraine was paying a markup of 60 percent above a reasonable price for its gas, according to analysts and the inevitable consequence of that was that the Ukraine was falling into ever increasing debt. The Ukraine gas debt was ballooning by 12 billion USD annually. Some Ukrainian officials nervously pointed out that this was Putin’s plot to try and get the Ukraine into an impossible debt spiral, and then use the debt to coerce them to joining a Russian custom union, which would encompass Belarus and Kazakhstan.

For Europe the fear is that any reduction in supply to the Ukraine could indirectly affect Europe, which gets approximately a third of the gas it needs from Russia. Half of the gas entering Europe from Russia is transited through Ukrainian pipe lines.

Previous price disputes led to the “gas wars” in 2006-2009 with Russia accusing the Ukraine of steeling its gas that was destined for Europe. Nevertheless, Gazprom then did reassure European customers: "The gas for European consumers is being delivered at full volume and Naftogaz Ukraine is required to transit it," Gazprom spokesman Sergei Kupriyanov told reporters. In view of the fact that Europe is approaching summer, when gas demands are lower and there are some reserves, the Ukraine may clean this time and not upset its European neighbors by siphoning the gas from their pipe lines.

But perhaps Gazprom is Russia’s Trojan horse. If this is the case then the price of Russian gas is more determined by Moscow’s political agenda, rather than the laws of supply and demand. With Europe heavily hooked on Russian Gas prices are likely to remain high. It’s in Russia’s strategic interests to keep it that way as the higher the price of gas the more leverage Putin has to manipulate Europe’s foreign policy and moreover, continue empire building in the East. The game sounds familiar: get states into an impossible debt spiral, and then coerce them under your orbit. Alas, this is how sovereign states are invaded in the 21 century.

Travel Money - Buy now if you can Afford it!!

Sterling has enjoyed a strong run so far this year and has reached 5 year highs against a number of currencies in some of the more popular destinations for British tourists. The question ahead of the summer break for holidaymakers is, will this last or should they be buying their holiday cash now? Those who are cautious may want to take advantage of the rates currently on offer as they are likely to be higher now than when they bought the holiday, however there is a strong chance that sterling will appreciate further.

To illustrate these rises, in the last 12 months, the British Pound is up by 25.77% against the Turkish Lira, up 21.83% against the Brazilian Real, up 16.44% against the Australian dollar, up 20.21% against the Thai Baht, up 18.66% against the Malaysian Ringgit, up 17.77% against the Canadian Dollar, up 4.44% against the New Zealand Dollar, up 10.11% against the US Dollar and 3.87% against the Euro.

The strong UK economy relative to other major economies is providing support to Sterling with investors able to achieve a good return from buying the pound.

According to the Organisation for Economic Co-operation and Development (the OECD) UK GDP growth is estimated to reach 3.2% this year whilst America is estimated to reach 2.6%, Australia 2.6%, Canada 2.5% and Europe 1.2%. As a result of the improving economic picture in the UK speculation continues as to how soon the Bank of England will begin to raise interest rates. When interest rates in the UK do rise there is likely to be even more demand for sterling especially as this would be the first move higher by any Western nation. To date New Zealand is the only country to raise rates.

The debate on the likely date for an interest rate rise was in focus again this week following the release of the Bank of England’s latest quarterly inflation report which showed contrasting outlooks for interest rates, growth, inflation and unemployment.

It is advisable to always shop around for the best currency deal for your holiday as early as possible. Foreign exchange rates available from banks on the high street or travel agents can usually be beaten if you are prepared to pre-order by telephone or online, and the currency can even be delivered to you free of charge. The Post Office usually has reasonable rates too and also offers a Prepaid Travel Money Card if you pre-order from them on which you pay zero commission. 

The Prepaid Travel Money Card is accepted in 210 countries and also offers purchasers the ability to check the balance and top up the card via the internet, SMS, or a smartphone app. The card is used like a debit card wherever MasterCard is accepted and can also be used to withdraw currency at ATMs, although there is usually a charge for cash withdrawals. It is secure in that it has no direct link to your bank account should it be stolen.

Similar cards are available from other providers such as Travelex, Caxton, FairFX and Lebara. It is worth using a comparison site to check the various conditions, fees and charges. These cards allow you to buy foreign currency when the exchange rate is favourable as well as being flexible enough to allow you to top them up as and when the funds are available to you.

One place to avoid exchanging currency at all costs is the airport, unless it has been pre-ordered. The commission fees are extremely high at airports because they know that they have a captive audience!

It is advisable to take sufficient cash with you to cover your entire trip, as using cash machines in other countries usually incurs a surcharge and some banks charge a fee for withdrawing money in foreign countries.

Using credit and debit cards abroad to make purchases in shops and restaurants can also be useful. It is best to make these payments in the local currency, known as dynamic currency conversion, where possible. If you are given the option to pay in sterling or the local currency it is best to choose the local currency, as, even though you will know exactly how much you are going to be charged in Sterling, paying this way usually results in a much poorer exchange rate provided by the retailer than the one you are likely to receive from your card company.

It is not advisable to take out foreign currency on a credit card as most providers will charge cash advance fees as well as immediate interest which can be at a rate exceeding 20%.

If you know you will be renting a car on your holiday it is usually cheaper to make the booking early and to sort out the insurance before you leave the UK. If you are likely to rent a car abroad several times a year there are stand-alone insurance policies available to waiver excesses. It can also be expensive to hire a sat-nav system abroad or to buy one when travelling so if you already own one then it may be a good idea to take it with you.

Planned excursions whilst you are away can often also be purchased in advance from the UK in many instances. Discounts may be available for larger parties if there are a group of you travelling together.

Another way of ensuring that your travel cash goes further is to book an All Inclusive holiday. These are particularly good for people on a tight budget. Sometimes such holidays also include kids clubs and daily entertainment in the booking cost as well as the food and drink.

A final piece of advice is to always inform your bank prior to travelling abroad. If they have not been warned that you will be using your cards abroad they may well block its use in order to prevent fraud. Let them know which countries you intend to visit and for what length of time just in case your card is cloned and used after you return home. Your bank should also be able to give you a 24 hour helpline telephone number should you run into any problems with your card whilst you are away.

Darren Winters

The Ukraine Crisis part2

The Ukrainian crisis continues to remain vivid on investors’ radar as fatalities on both sides regretfully increase. “We are as close to civil war as you can get,” declared Russian Foreign Minister Sergei Lavrov, early this week and in the same breath he urged both sides to find a peaceful solution.

But with both the US and Russia pointing the blame at each other for stirring up the conflict between the Ukrainian government supporters and pro Russian activists there appears to be no respite in sight to this ongoing crisis.  The USA is pushing its EU allies for greater sanctions against Russia but with the EU’s economy having emerged recently from a severe recession and in a fragile state there is no real appetite for this. Europe’s powerhouse, Germany is not keen on any meaningful sanctions, as it is heavily reliant on Russian oil and gas.       

                                                                                       

Meanwhile, the British are calling for a diplomatic solution to the crisis, bearing in mind that at the centre of Russian oligarch wealth lays British tax havens and multimillion pound London properties. So the British too don’t want to slay the goose that lays the golden egg, certainly not in this fragile economic environment.

Russian leader Putin has probably worked out that he is dealing with the weakest western elite in a generation and he might just be testing how far he can push the redline.  First it was Georgia, then Crimea and still no clear redline from the West so Russia may just keep pushing on for more territory.

Moreover, it is not only Russian expansionism that’s ruffling the USA feathers. Since 2007 Russia has been working on a plan, an Independent Ruble system, a financial system based on Russian resources, its own economy and backed by its own gold reserves.   In other words, a Russian economy independent from the US dollar and the whims of speculators.      “Russia, at its present stage of development, should not be dependent on foreign currencies; its internal resources will make its own economy invulnerable to political wheeler dealers,” said a Russian central bank official.

But Putin may be just too ambitious for Russia, a threat to US supremacy and the powers to be in Washington may think it’s time to topple him. So the economic assault on Russia has begun.

Already capital outflows, money leaving Russia has amounted to approximately $50bn since the start of 2014, this full year figure could be as high as $130bn, according to a Goldman Sachs report.  This net capital outflows in the first quarter alone was more than during the whole of 2013, according to a recent report from Alfa Bank.

On the foreign exchange market the repatriation of foreign capital from Russia represents investors selling Rubles and buying either dollar or euro assets, depending on where they reinvest their funds.                                                                      Additionally, in a climate of geopolitical uncertainty the Russian public is also flocking to what they perceive to be safe haven currencies. For example, the demand for USD rose 48% in March compared with the prior month, while interest in buying euros rose 50%.

The resulting outcome of capital outflows from Russia has been the inevitable depreciation of the ruble, due to the fact that there have not been inflow of capital entering Russia equal to, or greater than the amount leaving Russia.  So the negative net inflow of capital has caused the ruble to topple in value against a basket of currencies. The ruble has already depreciated 6.5 per cent against the US dollar this year

Russia’s economy is heavily reliant on the exports of it natural resources namely its oil and gas, which are priced in rubles. Moreover, about 50 percent of the Russian population is sucking on the state’s teat, employed either as civil servants, teachers, public health care worker, pensioners and people on benefits, all of whom rely totally on the state’s income.  A devaluation in the ruble means less income earned to pay for its large public sector.  A crash in the value of the ruble would see Putin’s budget explode. Perhaps Putin’s great danger is that he may have been budgeting for oil at over 150 USD a barrel at a higher ruble exchange rate to finance public spending   

Furthermore, the private sector is relatively underinvested and internationally uncompetitive. The Russian economy is not in a buoyant state. In 2013, Russia’s economic growth slowed to 1.3 percent, its weakest pace since Putin came to power in 2000.

Russia’s Central Bank would not want to raise interest rates in an attempt to support the ruble because this would choke private business investment by making borrowing costs more expensive, which would not be desirable.

Instead, in a desperate attempt to support the currency the Russian Central Bank decided to sell a record $11.3 billion in foreign currency to buy rubles. But it yet remains to be seen if this policy, in the long run, will be enough to halt the tide in the falling ruble. Will the Central Bank throw in the kitchen sink by selling off their gold reserves to support the ruble?  

If so this could result in downward pressure on gold prices.  

As if a depreciating ruble was not enough to worry the Central Bank, the collapse in demand for Russian debt, bonds has result in falling Russian bond prices on the secondary market and simultaneously pushed up bond yields. Secondary market bond volumes have fallen on the Moscow exchange by 43 percent.

Losses are raking up on funds heavily exposed to Russian assets. Moscow-based Prosperity Capital Management which has $3.3 billion in assets under management fund has fallen 16.2% this year.

As one hedge fund manager put it, “It's a very fast world now," said Nicolas Rousselet, head of hedge funds at Swiss-based investment firm Unigestion.  Funds have a position for "one hour, and you take it off."

Darren Winters