Russian Economy General News: #1

As Sa'iqa wrote:Do you know the statistics how much of Russian GDP is based on oil exports?

As Sa'iqa wrote:Why has Russia failed to diversify it's economy?

TR1 wrote:Because it is far easier for some people to make dat oil money then to make investments for gain in the long run.

Though there have been positive developments. And the economy as a whole is huge compared to what it was 20 years ago.

Why has Russia failed to diversify it's economy?

But what will happen if prices drop? (gas prices are already falling)

Finis Russiae?

GarryB wrote:

But what will happen if prices drop? (gas prices are already falling)

Finis Russiae?

What if they go up?

Will Silicon Valley in the US stop working on computer technology because they are too focussed on IT?

Diversification is good because it is resilient, but it requires investment and there is no guarantee that what you diversify into will make any where near the money what you are good at will earn you.

Russia right now is investing in its military and indirectly also shipbuilding, aviation, and an enormous range of other technology areas. It is investing in Skolkovo, it is investing in Aerospace... in fact I would say they are probably not investing enough in oil and gas and are a little reliant on foreign partners for that in some places.

For the Russians, the trade in oil -- and to a lesser extent natural gas -- earns the country 70% of its $515 billion in annual export revenue and accounts for 52% of the federal budget, according to the U.S. Energy information Administration.

Austin wrote:Irrespective how the crisis gets resolved ....... Russia needs to stop pegging its Rouble against USD and gradually move towards Euro &  China.

China is planning to float its currency in 2015 ......so it makes sense for Russia to peg its rouble against Yuan and Euro .....just keep a small percentage in USD as they do right now for British Pound.

IF my stastics are right Russia exports $450 Billion of Oil/Gas yearly ....... delinking it to USD would be good for its own economy knowing that it can be prone for sanctions from US.

Ok got some stastics from CNN Money
http://money.cnn.com/2014/03/03/news/economy/russia-oil-prices/

For the Russians, the trade in oil -- and to a lesser extent natural gas -- earns the country 70% of its $515 billion in annual export revenue and accounts for 52% of the federal budget, according to the U.S. Energy information Administration.

so it comes to around $360 Billion in Oil and Gas Revenue  delinking it to USD and linking it to Euro and Yuan in years ahead will be a good move.

magnumcromagnon wrote:

Austin wrote:Irrespective how the crisis gets resolved ....... Russia needs to stop pegging its Rouble against USD and gradually move towards Euro &  China.

China is planning to float its currency in 2015 ......so it makes sense for Russia to peg its rouble against Yuan and Euro .....just keep a small percentage in USD as they do right now for British Pound.

IF my stastics are right Russia exports $450 Billion of Oil/Gas yearly ....... delinking it to USD would be good for its own economy knowing that it can be prone for sanctions from US.

China floating its currency would be a terrible idea, one of the first things to happen would be a massive collective speculative attack against the Yuan, hedge funds would drive it high in the sky for the purpose of wrecking China's export industry! Before back when Bretton Woods was established we had pegged currencies that didn't float so the world economy was far more stable in the 50's-60's than they were in the 70's,80's,90's,00's. Free floating currencies gave the world currency speculative derivative peddling monstrosities such as the Soro's Quantum Fund which was the leading hedge fund that weakened the Euro in favor of the Dollar:

Hedge funds are ganging up on weaker euro

Some heavyweight hedge funds have launched large bearish bets against the euro in moves that are reminiscent of trades at the height of the U.S. financial crisis.

The big bets are emerging amid gatherings such as an exclusive "idea dinner" earlier this month that included hedge-fund titans SAC Capital Advisors LP and Soros Fund Management LLC. During the dinner, hosted by a boutique investment bank at a private townhouse in Manhattan, a small group of all-star hedge-fund managers argued that the euro is likely to fall to "parity"—or equal on an exchange basis—with the dollar.

The currency wagers signal that big financial players spot a rare trading opening driven by broader market dislocations. The euro, which traded at $1.51 in December, now hovers around $1.3550. With traders using leverage—often borrowing 20 times the size of their bet, accentuating gains and losses— a euro move to $1 could represent a career trade.

If investors put up $5 million to make $100 million trade, a 5% price move in the right direction doubles their initial investment.

"This is an opportunity...to make a lot of money," says Hans Hufschmid, a former senior Salomon Brothers executive who now runs GlobeOp Financial Services SA, a hedge-fund administrator in London and New York.

Through small gatherings, hedge funds can discuss similar trades that can feed on each other, in moves similar to those criticized in the Panic of 2008.

Then, big hedge-fund managers, such as Greenlight Capital Inc. President David Einhorn, who also was at this month's euro-dominated dinner, determined that the fortunes of Lehman Brothers Holdings and other financial firms were dim and bet heavily against their securities.

In recent weeks, some traders have compared Greece to Bear Stearns Cos., the first major U.S. investment bank to falter in 2008, and Portugal as the equivalent of Lehman, which flailed for months before collapsing.

There is nothing improper about hedge funds jumping on the same trade—unless it is deemed by regulators to be collusion.

Regulators haven't suggested that any trading has been improper. Still, the euro action shows that such loosely coordinated trading is roiling markets.

An SAC manager, Aaron Cowen, who pitched the group on the bearish bet, said he viewed all possible outcomes relating to the Greek debt crisis as negative for the euro, people familiar with the matter say. SAC's trading position on the euro is unclear. Mr. Cowen declined to comment.

George Soros, head of a $27-billion fund manager, warned publicly last weekend that if the European union doesn't fix its finances, "the euro may fall apart." Through a spokesman for Soros Fund Management, he declined to comment for this article.

A Greek finance ministry official declined to comment. A European Commission spokeswoman said the Commission doesn't comment on market rumors, adding that the European Union's executive arm is working toward developing rules to tighten regulation and risk.

Few traders expect the value of the euro to collapse in the same the way that the British pound did in 1992 amid a large bearish bet by Mr. Soros. In that famous trade, which traders say led to a $1 billion profit, selling led by Mr. Soros pushed the pound's value so low that the Britain was forced to withdraw its currency from Europe's Exchange Rate Mechanism, which tied currencies together within fairly narrow trading bands, which then caused the pound to drop even more sharply.

Traders estimate that bets for and against the euro account for a huge chunk of the daily $3 trillion global currency market; that's a far cry from 1992, when global daily volume was just $820 billion.

As in the U.S. financial crisis in 2008, derivatives known as credit default swaps are playing a part in the trades. Some of the largest hedge funds, including Paulson & Co. Inc., which manages $32 billion, have bought such swaps, which act as insurance against a default by Greece on its sovereign debt. Traders view higher swaps prices as warning signs of potential default.

Since January, the prices of such swaps have nearly doubled, reflecting investors concerns about a default by Greece. Paulson had built a large bearish position on Europe, people familiar with the matter say, including swaps that will pay out if Greece defaults on its debt within five years. But someone familiar with the matter said that more recently, Paulson had become bullish on the euro.

In a statement, Paulson declined to comment "on individual positions," saying it "does not manipulate or seek to destabilize securities in any markets."

Late last year, hedge funds bought swaps that insured the debt of Portugal, Italy, Greece and Spain against the risk of default, and began making bearish euro bets. More recently, the hedge funds have sold these swaps to banks looking to "hedge," or protect, their holdings of European government bonds, traders say.

In the past year, the overall value of swaps insuring default against a Greek debt default has doubled, to $84.8 billion, according to Depository Trust & Clearing Corp. But the net amount that sellers would actually pay in a default rose just modestly over the same period, up only 4% to $8.9 billion, the DTCC says. This suggests that banks and others have bought and sold roughly equal amounts of swaps to hedge their positions, traders say.

The bigger bet against Europe these days is playing out in the vast foreign-exchange markets, which offers a plethora of ways to trade.

The focus on the euro began on Dec. 4, when the currency swooned 1.5% following an unexpectedly strong slowdown in the pace of U.S. job losses that buoyed the dollar.

Between Dec. 9 and Dec. 11, some big European and U.S. banks made bearish calls on the euro by buying one-year euro "puts." Puts give the holder the right to sell an investment at a specified price by a set date.

The pressure on the euro began building. The currency fell another 1.3% on Dec. 16, when Standard & Poor's downgraded Greek sovereign debt. Around that time, some large investors like asset manager BlackRock Inc. BLK -0.75%  had bearish bets on the euro, believing that it couldn't sustain the levels at which it was then trading and that Europe's financial recovery would lag that of the U.S., according to people familiar with their position.

The concerns about Greece heightened on Jan. 20, when investors began to worry that the country would be unable to refinance its heavy debt load, causing the euro to fall another 1.3% to around $1.41. By Jan. 22, the cost to insure $10 million of Greek debt against default had risen to $339,000 from $282,000 on Jan. 1.

That same day, Greece announced it planned a five-year, €8 billion ($10.83 billion) bond sale in the coming days. To stave off speculators, Greece and its investment-bank advisors limited what could be allocated to hedge funds, according to a person familiar with the sale.

The sale was completed Jan. 25. But by Jan. 28, the value of the new bond had fallen 3.5%, which left investors unhappy.

At the Feb. 8 dinner in Manhattan, hosted by Monness, Crespi, Hardt & Co., a boutique research and brokerage firm, three portfolio managers spoke about investment themes related to the European debt crisis.

Donald Morgan, head of hedge-fund Brigade Capital Management LLC, told the group he believed the Greek debt crisis is an early domino to fall in a contagion that eventually will hit states, municipalities and all forms of sovereign debt. Greenlight's Mr. Einhorn, meanwhile, who was among the earliest and most vocal bears on Lehman, said he is bullish on gold because of inflation concerns. Mr. Einhorn declined to comment.

Three days after the dinner, the euro was hit with another wave of selling, triggering a decline that brought the currency below $1.36.

Last week, traders from Goldman, J.P. Morgan Chase JPM -0.34%  & Co., Bank of America Corp.'s BAC +0.81%  Merrill Lynch unit, and the British bank Barclays BCS -2.98%  PLC were helping investors place a particularly bearish bet on the euro, traders say.

The trade involved an inexpensive put option that will provide its holder a big payoff if the euro falls to the level of a single U.S. dollar within a year. Known as a "tail-risk" trade because its probability is low, the euro-dollar parity put is a cheap way of ensuring that if the euro sinks dramatically within a year, an investor will generate big returns.

In recent days, the parity trade has been shopped around to banks to see which would offer the best deal. A going price for the extremely cheap bet is around 7% of the amount that a parity-trade would pay off. So for an investor seeking a $1 million bet, the cost is a mere $70,000.

This means that the market currently assigns roughly 14-to-1 odds that parity will be reached. In November, the odds were around 33-to-1, said a person who has seen the pricing for the trade.

http://online.wsj.com/news/articles/SB40001424052748703795004575087741848074392

...Collective speculative currency attacks wouldn't be possible without destroying the Bretton Woods currency pegging system, and massive deregulation of the Securities/Derivatives market, one in particular measure that comes to mind being the repeal of Glass/Steagal law by Bill Clinton. I do agree that Russia should peg it's currency with the Yuan, but not the Euro.

Austin wrote:Irrespective how the crisis gets resolved ....... Russia needs to stop pegging its Rouble against USD and gradually move towards Euro &  China.

China is planning to float its currency in 2015 ......so it makes sense for Russia to peg its rouble against Yuan and Euro .....just keep a small percentage in USD as they do right now for British Pound.

IF my stastics are right Russia exports $450 Billion of Oil/Gas yearly ....... delinking it to USD would be good for its own economy knowing that it can be prone for sanctions from US.

Ok got some stastics from CNN Money
http://money.cnn.com/2014/03/03/news/economy/russia-oil-prices/

For the Russians, the trade in oil -- and to a lesser extent natural gas -- earns the country 70% of its $515 billion in annual export revenue and accounts for 52% of the federal budget, according to the U.S. Energy information Administration.

so it comes to around $360 Billion in Oil and Gas Revenue  delinking it to USD and linking it to Euro and Yuan in years ahead will be a good move.

"The degree of freedom of the American partners to apply some tough measures much more (than EU - Ed.). I think they did not have to go beyond the introduction of individual sanctions, if they go, it means complication of the system of international payments system of trade relations, payments. This means that we have to work those lines, we used to do - that is, to increase the volume of trade with countries that are calculated national currencies, "- said in an interview on Uljukaev" Russia 24 ".

"Why in the relationship with China, India, Turkey, we have contracted in dollars? Why do we need it? We have contracted in national currencies - this also applies to energy and other areas," - says the minister.

"First and foremost it should touch our oil and gas companies that they boldly walked for contracts in rubles and foreign currency of the partner country. I think that now there is an additional impetus to finally finalize this work", - concluded Uljukaev .

According to him, this also applies to reserve management, and investment cooperation: maximum focus on local currency, on the local financial system - this is the normal way.

ST. PETERSBURG, March 13. /ITAR-TASS/. Capital flight from Russia in 2014 may reach $50 billion per quarter if harsher sanctions are imposed on the country over the Ukrainian crisis, Alexei Kudrin, a member of the Presidium of the Russian president’s Economic Council, said.

If the sanctions affect only accounts of certain individuals, enterprises, operations or products, this will be “a mild scenario", Kudrin said at a joint meeting of the presidiums of the Unions of Industrialists and Entrepreneurs of St. Petersburg and the Leningrad Region on Thursday, March 13.

He recalled that Western sanctions against Russia after the conflict with Georgia in 1998 had lasted about three to six months, and then the situation stabilized. “This may last longer now until the sides find some political solution. So we have to understand that there may be a second wave of sanctions,” Kudrin said.

“A key difference between the first and the second waves is the restrictions on currency operations carried out by our institutions in the international markets. This does not mean that operations will stop altogether and banks will have to work through correspondent accounts not at American or European banks but maybe in some other countries. We must understand that such measures were used in a number of instances. In this case, capital flight after the second wave [of sanctions] may reach 50 billion in the first and second quarters,” Kudrin said.

According to Kudrin, the government may help Russian companies, which previously borrowed from foreign banks, obtain loans in Russian banks. “It can use the reserves it has for this purpose. I am not talking about the Reserve Fund or the National Welfare Fund. There are different forms of working with lending institutions, and guarantees are one of them. This range of proposals is being worked out now and may be ready within one to three weeks,” he said.

GarryB wrote:I would think foreign sanctions might make people less inclined to invest or store money in foreign banks and more likely to keep their money close... that means lots of people will likely bring their money home...

National Welfare Fund (NWF) will allocate 450 billion rubles additional seven infrastructure projects. These include railroad Elegest - Kyzyl - Kuragino Ruslan Baysarov project development Moscow airports and nuclear power plants in Finland, says "RBC daily».
Besides them, the pre-approved list includes the Ministry of Economic Development of the Angara-Yenisei cluster grid for BAM and Trans-Siberian Railway. Another two projects worked out by the Russian Direct Investment Fund in the field of communications and energy.


Ministry of Economic Development noted that the projects will continue to act and are treated as they become available. Government decree allows to spend 40 percent of FNB, the volume of which is now three trillion dollars.


Exactly how much money will be allocated to each of the selected projects is unknown. Thus the cost of the project Elegest - Kyzyl - Kuragino estimated at 156 billion rubles, the company expects to receive TEPKO Baysarova of NWF to 40 percent of the funding.
Earlier it was reported that the NWF allocate 150 billion rubles for the modernization program of BAM and Trans-Siberian Railway. The total project cost is 562 billion rubles to the state will have 260 billion.