RUSSIAN HEADWINDS MOUNTING

Vladimir Putin may have won the opening battles of his conquest, but he is a long way from winning the
war as the Russian economy suffers the consequences of Putins imperialistic ambitions. Gratitude is a
great gift. It costs nothing and generally leaves a strong impression for those that receive it. However,
gratitude does not seem to be part of Putins lexicon. Nationalism is Putins favorite weapon for
galvanizing support. It is easy to see the effectiveness looking at the polling numbers which show he has
the overwhelming support of the Russian populace. However, for Russias burgeoning lower class,
nationalism does not put food on the table. With basic staples seeing massive inflation, national pride
might shortly take a backseat to worsening economic conditions.
The upper-echelons of Russian society have also suffered under the current political situation as tit-for-
tat retaliatory economic measures impede the ability to do business outside of Russia. However, the
elite are fearful to speak up for fear of retribution from the government especially after watching the
dismantling of Mikhail Khodorkovskys Yukos oil empire and subsequent imprisonment. Capital flight
from Russia is reaching epic proportions as even the rich are feeling pinched by Putins Ukrainian
adventure. Notwithstanding the fear element, sanctions are also crushing private companies ability to
repay debt issued in dollars. The government is also facing a difficult borrowing situation, canceling
tomorrows bond auction as traders anticipate rate increases from the Central Bank to combat the spike
in inflation. A survey of analysts is expecting rates to rise by 200 basis points, from 8% to 10% in the next
90 days. Most investors are unwilling to buy debt ahead of a projected rate increase because it will see
prices of outstanding debt issues decline.
The economic chaos may dent Putins well-conceived plans and harm his vision of rebuilding the Russian
empire. Even though the political situation in Russia remains stable, the divergence in the economic
situation is cause for concern. Disconnecting from the west has already had a substantial impact on the
Russian economy and pressure is mounting with the recent rout in oil prices. The question remains as to
who can hold out longer in this conflict, the east or the west. The Russian economy has shown itself to
be less than resilient, however Europe is also suffering the consequences with manufacturing declining
and deflation creeping into the fray. Expect more losses for the Ruble in the meantime as the Bank of
Russia attempts to stem the slide in the currency. Already over $13 billion has been spent in October
alone. The intervention has largely been an exercise of spitting into the wind as speculators look to
topple the Russian Ruble. The ascending triangle pattern setting up in the USDRUB pair could see an
upside breakout as the Bank of Russia loses control and the Ruble trades at new record lows.
Author Bio - Aside from his role in Business Development, Jay oversees the research and analysis efforts
of Wetrade4you.com. His experience as a trader and banker has built the backdrop for a disciplined and
focused approach to creating informative and relevant market commentary. Before joining
Wetrade4you, Jay's worked as a trader at a hedge fund, focusing on contrarian trading strategies like hft
trading, precious metal investing and mergers and acquisitions analysis.