The Annotated History Of Russian Crises Since 1860

While the current episode of Russian geopolitical and economic turmoil may seem significant, the following chart from Goldman Sachs shows the tempestuous time the nation has had over the past 150 years…

 

click image for large legible version

 

And here are Goldman’s thoughts on Russia and The West now and into 2015…

Where we stand now:

Currency distress has taken center stage in Russia, with the ruble down 40%+ against the US dollar since early August. Already under fundamental pressure from sanctions and lower oil prices, the currency experienced a sharp sell-off this week in what we would characterize as a crisis of confidence. After the USD/RUB exchange rate depreciated by 10%+ on December 15 alone, the Central Bank of Russia (CBR) responded with a 650bp midnight rate hike. Despite the unexpected move, the ruble has remained weak. The currency’s high volatility – part of which was likely driven by retail deposit outflows – and the sharply higher interest rate environment introduce risks to the health of Russia’s banks.

The sharp currency movements come on the back of shocks to the Russian economy from geopolitics (Russian capital outflows and sanctions that limit foreign inflows), falling oil prices, and sharp tightening of domestic financial conditions. Russian economic growth in the first three quarters of the year nevertheless stood at 0.8%yoy, indicating the economy’s resilience. The weakening of the ruble served as an important channel for the macroeconomic adjustment, keeping ruble-denominated oil prices relatively stable and shielding local balance sheets from more intense stress. However, the CBR’s large rate hike now makes it likely that FX distress migrates to domestic balance sheets.

The conflict in Ukraine remains far from resolved. The eastern Donetsk and Luhansk regions are still under rebel control, having declared independence on the back of controversial referendums held in May. Presidential elections later brought pro-Western Petro Poroshenko to power, though voting did not take place in parts of the east. Large-scale violence subsided after a ceasefire in September, but sporadic clashes have continued.

Diplomatic relations between Russia and the West remain strained, and economic sanctions against Russia appear likely to remain in place in 2015. President Obama is due to sign into law new sanctions legislation, although this is unlikely to result in any meaningful escalation of sanctions, in our view. In fact, there have been growing signs in the past several weeks of a renewed push toward diplomatic negotiations over the conflict in Ukraine. Meanwhile, deals between Moscow and Beijing on natural gas and currency-swap lines have reinforced expectations for the Kremlin to pivot eastward.

In response to Western sanctions, Russia introduced bans on food imports from the United States, Europe, Canada, Australia, and Norway for one year. This ban has had greatest effect on fresh product exports from Europe but little impact on the more tradable and storable agriculture products, such as wheat (of which Russia is a large exporter). As expected, the ban triggered a sharp rise in Russian food inflation. Of course, the worst-case scenario of Russia halting energy exports to Europe has not come to fruition, and exports of base metals and palladium have also been maintained. Following an agreement over gas debt payments, Russia also reportedly restarted gas flows to Ukraine on December 8.

Despite limited direct exposures to Russia, increased uncertainty resulting from the conflict weighed on investor sentiment in Europe and was one of several factors behind a deterioration of European economic indicators in 2Q14.

What to look for in 2015:

A highly uncertain Russian economic picture. Since the CBR’s decisive rate hike, we have placed our forecasts for rates, FX, growth and inflation on hold. There is a high likelihood of further measures to arrest the ruble’s fall – including a tightening of liquidity that leads to higher front-end rates, FX interventions and, in more extreme scenarios, there could be a risk of capital controls and bank holidays. Meanwhile, sustaining the CBR’s current policy stance for some months is likely to come at the cost of a sharper economic contraction, forcing pain onto local corporate and household balance sheets. The domestic banking system is now the most important place to watch for signs of broadening stress. And in the event that contingent liabilities in the banking sector are taken onto the sovereign balance sheet, pressure could migrate to sovereign credit.

Persistent tensions between Moscow and the West, with a highly uncertain path to resolution of the conflict over Ukraine.

Subsiding negative influences on the European economy, contingent on the conflict being contained.

Still little impact on Russian commodity production and exports. Russia may be able to keep oil production flat during 2015: lifting costs for conventional projects are low, and the cost structure is more resilient than that of other producers as Russia has a local service industry that generates ruble-denominated operating costs. Further out, Western sanctions combined with weaker market conditions may pose a downside risk to oil production. In terms of natural gas, a 2009-style disruption to European gas flows appears unlikely this winter, but in the current tense geopolitical climate there is still a risk that the deal breaks down. And as far as agricultural commodities, we continue to believe that sanctions impacting Russian agricultural exports are unlikely given their large size and the potential humanitarian aspect of such a move.

Average:

List of Banks owned by the Rothschild Family

“Give me control over a nations currency, and I care not who makes its laws” – Baron M.A. Rothschild

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ROTHSCHILD OWNED BANKS:
Afghanistan, Bank of Afghanistan,
Albania, Bank of Albania,
Algeria, Bank of Algeria,
Argentina, Central Bank of Argentina,
Armenia, Central Bank of Armenia,
Aruba, Central Bank of Aruba,
Australia, Reserve Bank of Australia,
Austria, Austrian National Bank,
Azerbaijan, Central Bank of Azerbaijan Republic,
Bahamas, Central Bank of The Bahamas,
Bahrain, Central Bank of Bahrain,
Bangladesh, Bangladesh Bank,
Barbados, Central Bank of Barbados,
Belarus, National Bank of the Republic of Belarus,
Belgium, National Bank of Belgium,
Belize, Central Bank of Belize,
Benin, Central Bank of West African States, (BCEAO),
Bermuda, Bermuda Monetary Authority,
Bhutan, Royal Monetary Authority of Bhutan,
Bolivia, Central Bank of Bolivia,
Bosnia, Central Bank of Bosnia and Herzegovina,
Botswana, Bank of Botswana,
Brazil, Central Bank of Brazil,
Bulgaria, Bulgarian National Bank,
Burkina Faso, Central Bank of West African States, (BCEAO),
Burundi, Bank of the Republic of Burundi,
Cambodia, National Bank of Cambodia,
Came Roon, Bank of Central African States,
Canada, Bank of Canada – Banque du Canada,
Cayman Islands, Cayman Islands Monetary Authority,
Central African Republic, Bank of Central African States,
Chad, Bank of Central African States,
Chile, Central Bank of Chile,

China, The People’s Bank of China,

Colombia, Bank of the Republic,
Comoros, Central Bank of Comoros,
Congo, Bank of Central African States,
Costa Rica, Central Bank of Costa Rica,
Côte d’Ivoire, Central Bank of West African States, (BCEAO),
Croatia, Croatian National Bank,
Cuba, Central Bank of Cuba,
Cyprus, Central Bank of Cyprus,
Czech Republic, Czech National Bank,
Denmark, National Bank of Denmark,
Dominican Republic, Central Bank of the Dominican Republic,
East Caribbean area, Eastern Caribbean Central Bank,
Ecuador, Central Bank of Ecuador,
Egypt, Central Bank of Egypt ,
El Salvador, Central Reserve Bank of El Salvador,
Equatorial Guinea, Bank of Central African States,
Estonia, Bank of Estonia,
Ethiopia, National Bank of Ethiopia,
European Union, European Central Bank,

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Fiji, Reserve Bank of Fiji,
Finland, Bank of Finland,
France, Bank of France,
Gabon, Bank of Central African States,
The Gambia, Central Bank of The Gambia,
Georgia, National Bank of Georgia,
Germany, Deutsche Bundesbank,
Ghana, Bank of Ghana,
Greece, Bank of Greece,
Guatemala, Bank of Guatemala,

Guinea Bissau, Central Bank of West African States, (BCEAO),
Guyana, Bank of Guyana,
Haiti, Central Bank of Haiti ,
Honduras, Central Bank of Honduras,
Hong Kong, Hong Kong Monetary Authority,
Hungary, Magyar Nemzeti Bank,
Iceland, Central Bank of Iceland,
India, Reserve Bank of India,
Indonesia, Bank Indonesia,
Iran, The Central Bank of the Islamic Republic of Iran,

Iraq, Central Bank of Iraq,

Ireland, Central Bank and Financial Services Authority of Ireland,
Israel, Bank of Israel,
Italy, Bank of Italy,
Jamaica, Bank of Jamaica,
Japan, Bank of Japan,
Jordan, Central Bank of Jordan,
Kazakhstan, National Bank of Kazakhstan,
Kenya, Central Bank of Kenya,
Korea, Bank of Korea,
Kuwait, Central Bank of Kuwait,
Kyrgyzstan, National Bank of the Kyrgyz Republic,
Latvia, Bank of Latvia,
Lebanon, Central Bank of Lebanon,
Lesotho, Central Bank of Lesotho,

Libya, Central Bank of Libya,

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Uruguay, Central Bank of Uruguay,
Lithuania, Bank of Lithuania,
Luxembourg, Central Bank of Luxembourg,
Macao, Monetary Authority of Macao,
Macedonia, National Bank of the Republic of Macedonia,
Madagascar, Central Bank of Madagascar,
Malawi, Reserve Bank of Malawi,
Malaysia, Central Bank of Malaysia,
Mali, Central Bank of West African States, (BCEAO),
Malta, Central Bank of Malta,
Mauritius, Bank of Mauritius,
Mexico, Bank of Mexico,
Moldova, National Bank of Moldova,
Mongolia, Bank of Mongolia,
Montenegro, Central Bank of Montenegro,
Morocco, Bank of Morocco,
Mozambique, Bank of Mozambique,
Namibia, Bank of Namibia,
Nepal, Central Bank of Nepal,
Netherlands, Netherlands Bank,
Netherlands Antilles, Bank of the Netherlands Antilles,
New Zealand, Reserve Bank of New Zealand,
Nicaragua, Central Bank of Nicaragua,
Niger, Central Bank of West African States, (BCEAO),
Nigeria, Central Bank of Nigeria,
Norway, Central Bank of Norway,
Oman, Central Bank of Oman,
Pakistan, State Bank of Pakistan,
Papua New Guinea, Bank of Papua New Guinea,
Paraguay, Central Bank of Paraguay,
Peru, Central Reserve Bank of Peru,
Philip Pines, Bangko Sentralng Pilipinas,
Poland, National Bank of Poland,
Portugal, Bank of Portugal,
Qatar, Qatar Central Bank,
Romania, National Bank of Romania,
Russia, Central Bank of Russia,

Rwanda, National Bank of Rwanda,
San Marino, Central Bank of the Republic of San Marino,
Samoa, Central Bank of Samoa,
Saudi Arabia, Saudi Arabian Monetary Agency,

Senegal, Central Bank of West African States, (BCEAO),
Serbia, National Bank of Serbia,
Seychelles, Central Bank of Seychelles,
Sierra Leone, Bank of Sierra Leone,
Singapore, Monetary Authority of Singapore,
Slovakia, National Bank of Slovakia,
Slovenia, Bank of Slovenia,
Solomon Islands, Central Bank of Solomon Islands,
South Africa, South African Reserve Bank,
Spain, Bank of Spain,
Sri Lanka, Central Bank of Sri Lanka,
Sudan, Bank of Sudan,
Surinam, Central Bank of Suriname,
Swaziland, The Central Bank of Swaziland,
Sweden, Sveriges Riksbank,
Switzerland, Swiss National Bank,

Tajikistan, National Bank of Tajikistan,
Tanzania, Bank of Tanzania,
Thailand, Bank of Thailand,
Togo, Central Bank of West African States, (BCEAO),
Tonga, National Reserve Bank of Tonga,
Trinidad and Tobago, Central Bank of Trinidad and Tobago,
Tunisia, Central Bank of Tunisia,
Turkey, Central Bank of the Republic of Turkey,

Uganda, Bank of Uganda,
Ukraine, National Bank of Ukraine,
United Arab Emirates, Central Bank of United Arab Emirates,

United Kingdom, Bank of England,

United States, Federal Reserve, Federal Reserve Bank of New York,

US-FederalReserveSystem-Seal_svg_

Vanuatu, Reserve Bank of Vanuatu,
Venezuela, Central Bank of Venezuela,

Vietnam, The State Bank of Vietnam,
Yemen, Central Bank of Yemen,
Zambia, Bank of Zambia,
Zimbabwe, Reserve Bank of Zimbabwe,
Bank For International Settlements, (BIS),

As Russia Dumps A Record Amount Of US Treasurys, Here Is What It Is Buying


Last week we commented that based on TIC data, while “Belgium’s” unprecedented Treasury buying spree continues, one country has been dumping US bonds at an unprecedented rate, and in March alone Russiasold a record $26 billion, or 20% of its holdings.

So as Russia is selling record amount of US paper, what is it buying? For the answer we go to Goldcore which tells us that

Russia Buys 900,000 Ounces Of Gold Worth $1.17 Billion In April

The Russian central bank has again increased its gold reserves by another 900,000 ounces worth $1.17 billion in April.

Russia’s gold reserves rose to 34.4 million troy ounces in April, from 33.5 million troy ounces in March, the Russian central bank announced on its website yesterday. The value of its gold holdings rose to $44.30 billion as of May 1, compared with $43.36 billion a month earlier, it added.

The following is a summary from Bloomberg of the April data template on international reserves and foreign currency liquidity from the Central Bank of Russia in Moscow:

Russia’s gold & foreign exchange reserves remained virtually unchanged at USD 471.1billion in the week ending May 9. Russia’s reserves have fallen since the crisis began but remain very sizeable. The reserves include monetary gold, special drawing rights, reserve position at the IMF and foreign exchange.

The 900,000 ounce purchase is a lot of physical gold in ounce or tonnage terms but as a percentage of Russian foreign exchange reserves it is a very small 0.24%.

Gold as a percentage of the overall Russian reserves is now nearly 10%. This remains well below the average gold holding as a percentage of foreign exchange reserves of major central banks such as the Bundesbank, Bank of France and the Federal Reserve which is over 65%.

The Russian central bank has been gradually increasing the Russian reserves since 2006 (see chart above). On average they have been accumulating 0.5 million troy ounces every month. Therefore, the near 1 million ounce purchase in April is a definite increase in demand.

This was to be expected given the very pronounced geopolitical tension with the U.S. and west over Ukraine. Indeed the TIC data shows that Russia has been aggressively divesting themselves of U.S. Treasuries.

Russian holdings of U.S. Treasuries fell very sharp, by nearly $50 billion, between October and March 2014 or nearly a third of Russia’s total holdings. Over half of the plunge came in March, when $26 billion was liquidated as western sanctions were imposed. TIC Data for April won’t be available until June and will make for very interesting reading.

Especially given the mysterious huge U.S. Treasury buying that is being done by little Belgium. This has analysts scratching their heads and has aroused suspicions that the Fed and or the ECB may be behind the huge Belgian purchases.

Russian Gold Reserves in Million Fine Troy Ounces – 1995-2014 – Monthly Chart (Bloomberg)

Russia has already made their intentions regarding gold very clear. Numerous high ranking officials have affirmed how they view gold as an important monetary asset and Putin himself has had many publicised photos in which he very enthusiastically holds large gold bars.

On May 25th 2012, the deputy chairman of Russia’s central bank, Sergey Shvetsov, said that the Bank of Russia plans to keep buying gold in order to diversify their foreign exchange reserves.

“Last year we bought about 100 tonnes. This year it will be less but still a considerable figure,” Shvetsov told Reuters at the time.

The World Gold Council reported yesterday that central bank purchases were 70% above their 5-year quarterly average, led by Iraq and Russia. The Eurozone actually became a net buyer thanks to Latvia joining the single currency union, adding its gold to the Eurozone reserves as part of the Euro treaty.

Russia may be planning to give the ruble some form of gold backing in order to protect the ruble from devaluations and protect Russia from an international monetary crisis and the soon to return currency wars.

Russian central bank demand and indeed global central banks demand is set to continue as macroeconomic, monetary and geopolitical uncertainty is unlikely to abate any time soon. Indeed, it may escalate substantially in the coming months as we move into the next phase of the global debt crisis.