Russian Economy General News: #9

Nibiru wrote:

@Vann, venting out against Putin's supposed failures won't make a difference anyway, Putin is here to stay in power at least until his term finishes in 2024. Besides, its not like Russia had a better alternative to Putin after Yeltsin's disastrous years.

Neutrality wrote:
If we take a look at the international level then Germany would be the best example. Heiko Maas has proposed to create a European banking/payment system that will be independent from the American and thus unaffected by American regulation.

I keep wondering about the following: if you ban one of the biggest economies in the world from using your product (dollar), aren't you basically shooting yourself in the foot by removing a customer?

Companies from the list of Belousov presented projects for ₽6 trillion

According to Andrei Belousov, we are talking about projects for 6 trillion rubles. "This one is a multiplier of 6 trillion rubles. for 500 billion rubles., In my opinion, not bad ", - said the presidential aide

GunshipDemocracy wrote:
Well looks like after 63 years under US occupation Germany has its change to get free...I would'n be wise not to follow it

indeed arrogance of power I guess. In US there are surely bright analysts but no brain damaged politicians want to listen to them. They are exclusuve and omnipotent.  Yes the whole finctial world since 1945 was built around USD.  Nevertheless wall is cranking but the more US politician shake the more cracks pops up there...

Ihave read an interview with Song Hongbing (currency wars) about Russia/China and challenging US dollar dominance. I remember one thing: Russia/China have to build a parallel financial world   gradually. Then switch. Otherwise dumping US bonds (China) and switchign crude reveues (Russia) might end up worse for them than for US.


Then I've checked:
China for years is building Reminbi parallel systems, Asian/BRICS bank, CIPS (funder 2015) has even syntax of SWIFT just in case, futures for crude in reminbi... Russia is switching national currencies and now even has to consider it fo crude for Rubles...

step by step...

Neutrality wrote:

GunshipDemocracy wrote:
Well looks like after 63 years under US occupation Germany has its change to get free...I would'n be wise not to follow it

Correct me if I'm wrong but isn't this the first time in history, after 1945, that Germany is openly opposing American meddling in their business? This is the first time we're witnessing this AFAIK.

It seems that not everyone in the US administration is this arrogant and narrow minded. I remember Mnuchin not so long ago stating that sanctionning Russian state debt obligations could have a destabilizing effect in global finance.
It could also be that populism has alot to do with it. They could yell about taking the most drastic measures but vote on something (much) less drastic in the end.

These sanctions are slapped on every possible pretext. We have passed the Ukrainian/Crimean reasons a long time ago. Something that we cannot see is being done against American interest and I hope the day will come when we'll know.

GunshipDemocracy wrote:

C'mon reasons always have been the same: to Rule the world.  What else are sanctions against country that dared to say stop? US could bomb Libya or Iraq, but with Russia would be not worh it  so they hit with different components: finance, propaganda, internal subversive actions...

If thy cannot destroy Russia so at least make her weak and technologically backward country. Especially that a new Kondratiev Wave is coming.
So far so good though .  I hope Russia will not only survive but als develops      

Neutrality wrote:

They are also trying to humiliate Russia by ultimatums like letting in foreign chemical weapon specialists to make sure there are chem. weapons present . That kind of talk might scare Iraq or Libya but not a country like Russia.

What's the Kondratiev Wave?

Gazprom and Japanese Mitsui agreed to build a LNG plant in the Leningrad region

Gazprom and Mitsui reached an agreement on cooperation in the Baltic LNG project, within which a liquefied gas plant in the port of Ust-Luga will be built in the Leningrad region. The plant's capacity is 10 million tons of LNG per year with the possibility of expanding to 15 million tons per year. This was announced within the framework of the Eastern Economic Forum.

In his last “State of the Union” speech to MEPs in Strasbourg on Wednesday, the president of the European Commission said it was an “aberration” that the EU paid for more than 80 per cent of its energy imports in US dollars despite only 2 per cent of imports coming from the US. Most of the dollar-denominated imports are from Russia and the Gulf states.

“We will have to change that. The euro must become the active instrument of a new sovereign Europe”, said Mr Juncker, whose five-year tenure as commission president is due to end next year.

Neutrality wrote:

“We will have to change that. The euro must become the active instrument of a new sovereign Europe”, said Mr Juncker, whose five-year tenure as commission president is due to end next year.

Well the Europeans aren't fucking around either. A few days ago I mentioed Germany's foreign minister talking about exactly this. Now his and his French colleague's idea is getting support on the EU level.

Stimulative measures drive growth, and the U.S. economy and stock market have benefited from quantitative easing, lower rates, less regulation and tax cuts. But Jeffrey Gundlach admonished investors that too much stimulus can backfire.

Gundlach is the founder and chief investment officer of Los Angeles-based DoubleLine Capital. He spoke via a webcast with investors on September 11. His talk was titled, “Miracle Grow,” and the focus was on his firm’s flagship mutual fund, the DoubleLine Total Return Fund (DBLTX). The slides from his presentation are available here.

Gundlach, an amateur gardener, said that he often uses Miracle Grow fertilizer to help his plants.

“But if you dump Miracle Grow on plants long enough it burns them out,” he said.

The growth of the deficit has been disconcerting. The deficit growth has been at levels that have historically been used to counter recessions, even though we have been in a nine-year-long period of growth.

The U.S. total debt outstanding and the total S&P return have moved up in tandem.

That has been “miracle growth,” he said.

What’s going to happen when the next recession happens? The deficit could “explode,” Gundlach said.

Let’s look at what Gundlach said the future holds for the U.S. economy and stock and bond markets.

A recession ahead?

Tax cuts, deficits and debt have been responsible for the surges in U.S. growth – as are the threats of tariffs, which accelerated growth forward, according to Gundlach. Real GDP growth, he said, is at 2.9% and may be as high as 3.8% for Q3. Nominal GDP has accelerated as a result of higher inflation.

The last time nominal GDP grew at this rate was in 2004, which led to Fed rate hikes.

Is there trouble ahead? The year-over-year leading economic indicators (LEIs) are growing at 6.9%, matching the level at their peak in 2012-2013. “It’s very likely they will turn negatives,” and there is “no sign of a recession,” he said.

Sentiment surveys are “off the charts” and “have never been higher,” he said. This is the result of decreased regulation, according to Gundlach.

The PMI surveys are extremely strong (manufacturing is at 61.3 and at its highest level in 20 years). This, he said, is the result of “extraordinary” dovish central bank policies from the Fed and other central banks.

But the Fed is now in quantitative tightening (QT) mode. “We’ll see what happens as $60 billion/month of debt is retired, starting in October.”

There are also trillions of corporate maturities in the next five years, both in the U.S. and globally, according to Gundlach. Along with QT, that will lead to a lot of “interesting things” as all that debt needs to be re-floated, he said.

As debt has grown, it hasn’t been reinvested smartly, he said. Net government investment hasn’t grown. One of the positive things is that government capital spending has grown faster than consumption when compared to prior years, according to Gundlach.

Among households, student and auto loan debt has grown at alarming rates, he said. Millennials have been trapped into “lifelong debt problems” as aresult of tuition increases, he said, which have been fueled by debt accessibility.

Home prices are up and home affordability is down, he said, so there has been a slump in housing growth. More than two-thirds of sentiment-survey respondents have said that it is not a good time to buy a home.

Countering Trump’s rhetoric

Gundlach generally stays out of politics in his webcasts. But this time he refuted some of President Trump’s claims.

This is not the “greatest jobs economy of all time,” Gundlach said, contrary to Trump’s claims. Wages growth has not kept up with inflation, except briefly in 2017, according to Gundlach. Wage growth is slowing down, according to data from the Atlantic Fed. Real average earnings growth is negative, with the CPI at 2.95%.

“It’s inflation that’s growing,” Gundlach said.

For the first 20 months of the Trump presidency, there have been 190,000 of new jobs per month. But under the last 20 months of Obama’s tenure, there were 211,000. Not only is this not the greatest jobs economy of all time, it is actually slightly worse than Obama’s presidency, and both periods were late-cycle in the economy, Gundlach said.

Since 1939, despite the huge increase in the population, there were “many, many” times when job growth was vastly higher than under Trump’s presidency, Gundlach said. But, Gundlach acknowledged, a lot of that historical growth happened when demographics were much more favorable than it is now.

The response to the next recession will be some form of universal basic income (UBI), he said. Gundlach cited a program like this in Sweden and noted the recent calls for UBI among socialist Democrats.

The miracle growth markets

Miracle Growth has been thrown at the markets, Gundlach said. As global central banks have pursued aggressively dovish policies, foreign stock market returns have responded in a similar way to those in the U.S.

But global stock markets are down this year, with some real “disasters” in the emerging markets, he said, due to the trade war.

“One of the things we will remember most about 2018 is that incredible divergence between the U.S. and global stock market returns,” Gundlach said.

Inflation has been picking up in the U.S. and internationally. Across the globe, 80% of countries have had rising inflation during the last three months. “We can clearly see that inflation has bottomed out and is heading higher,” Gundlach said. Both goods and services prices have been rising over that period.

We are not having problems getting inflation to the 2% level, according to Gundlach. There is good reason to believe the core CPI will go higher, according to DoubleLine’s proprietary models, the New York Fed’s Underlying Inflation Gauge (UIG) and the ISM PMI (which also is a leading indicator of inflation). Money growth (M2) supply also suggests a move above 3% for inflation, according to Gundlach.

A suicide mission

“It’s bad enough that deficits are increasing this late in the cycle, but we are increasing taxes and raising interest rates,” Gundlach lamented. It is a “suicide mission,” as Gundlach had called it in a previous webcast. If rates are hundred basis points higher, with $7 trillion of debt, there will be $140 billion of additional interest costs, according to Gundlach.

“This will put further pressure on the deficit and create a self-reinforcing cycle of higher debt and higher rates,” he said.

The Treasury could get overwhelmed by a “supply fear” that could lead to much higher inflation, with a tough economy and rising rates, Gundlach warned. “That would be the gateway to universal basic income. Americans would think they were getting something, but it would really be a devaluation of the dollar.”

The dollar’s next big move will be down and it will be lower than it is now by year end, he said. It has recently weakened versus the euro. That will help non-U.S. stock markets. But the dollar has strengthened relative to emerging markets, which has hurt those stock markets.

“The market is telling us the trade war is very bad for emerging markets, especially those with dollar-denominated debt,” Gundlach said.

But, he said, President Trump wants the dollar to be weaker and wants the Fed’s help to make this happen.

U.S. valuations, according to the CAPE ratio, are near 1929-levels. Emerging markets are at half the levels of the U.S., based on the CAPE ratio. It’s really hard to believe that equity markets will hold up. If it gets worse in the emerging markets, then it “has to be a global situation.”

That will happen if the dollar weakens.

Advice to investors

Since May, global markets are down 10% and the U.S. is up 7%. Emerging markets are down 20% over that period, which “looks like a bear market,” Gundlach said. But he does not expect this divergence to continue.

Commodities are at historically cheap levels, but are not going lower, according to Gundlach. “They are a late-cycle play and highly volatile” and they should “stay in the portfolio,” he said.

Gold, at approximately $1,200 per ounce, will increase in price as the dollar weakens. It is a “really good buy” at its current price and has “exhausted its downside,” Gundlach said.

The U.S. 10-year yield (at 2.97%) has been remarkably stable over the last several months. But if nominal GDP growth or the German 10-year yield moves higher – the two have historically been closely tied to U.S. 10-year rates – then it would lead to higher rates. But Gundlach said he does not have high conviction about the future direction of rates.

There is an extremely large speculative position against the Treasury market. Gundlach said that if rates head down, even a little, it could lead to a “stampede” and possibly to a 10-year rate as low as 2.25%. He called this scenario “conjectural” but not impossible.

The 30-year yield (at 3.12%) is nearing the 3.22% level, which Gundlach has previously cited as a threshold that would lead to higher rates, provided there are two consecutive closes above that rate.

Across sectors of the bond market, Gundlach said he is not a big fan of corporate bonds, which are two standard deviations rich, according to the DoubleLine models. Junk bonds are “very highly valued,” he said, but not in imminent danger. Corporate-debt-to-GDP is “horrifically” high, he said, and is inconsistent with tight option-adjusted spreads. Corporate bond yields are also suffering from historically high levels of supply.

With convertible bonds, investors are “basically owning stocks” he said. They are more of an equity investment.

Non-agency mortgage-backed (MBS) securities and floating rate bonds are his favored bond sectors.

Don’t buy Chinese stocks, he said. The financial problems there are “scary” and investors are better off in other Asian markets.

The S&P 500 will end the year modestly lower, he said.

“You want to be globally diversified,” Gundlach said. The U.S. market is sensitive to “just a few stocks.” If you want to increase beta, invest outside the U.S.

“I would not invest in e-commerce stocks,” Gundlach said.

“I would rather sleep at night.”

Sell the dollar, buy the ruble – Russia’s economy ministry suggests

The recent collapse of the Russian ruble is a good opportunity to buy the undervalued currency, Economic Development Minister Maksim Oreshkin said on the sidelines of the Eastern Economic Forum in Vladivostok.

Oreshkin’s advice to Russians is to sell the US dollar and buy the Russian ruble. Since July, the ruble has depreciated by 12 percent against the greenback.

“You know the famous quote from Warren Buffett: ‘Be fearful when others are greedy and greedy when others are fearful.’ When everything is good and everyone is bullish about something, it means, on the contrary, that this asset has little prospects,” Oreshkin told Business FM radio.

In its macroeconomic forecast, the ministry of economic development expects the ruble to cost around 64 per dollar, or about 10 percent stronger from the current level, next year despite the recent sell-off. Oreshkin has confirmed that in the medium term, the exchange rate is expected to strengthen to 63-64 rubles.

On Monday, the ruble collapsed to its lowest against major currencies in 2.5 years on the Moscow stock exchange, trading at 70.34 rubles against the dollar, and 81.67 rubles against the euro.

The key reasons are the US sanctions, which could be strengthened in the near future, and weakening emerging market currencies in Turkey, Argentina, South Africa, India, and other developing economies.

In addition to that, the ruble is a free-floated currency, which means the Russian central bank doesn’t burn through the country’s reserves to prop it up in times of market turbulence.

https://www.rt.com/business/438171-sell-dollar-buy-ruble/

miketheterrible wrote:No.  Not enough countries would trade in it.  If lets say Russia demanded that they get only Rubles for their oil and gas, then it will end up becoming rather strong currency - something Russia doesn't want necessarily.  Strong currency would mean more expensive to do production and development at home.  Instead, they are aiming more at Yuan and Euro currently.

In the offshore on the island of Russian appeared the first resident

During the days of the Eastern Economic Forum in the special administrative region (SAR) on Russky Island in Vladivostok, the first resident was registered. This is reported by RIA Novosti with reference to the head of the Corporation for the Development of the Far East Denis Tikhonov.

They became the company "Finwig Holdings", the sole beneficiary of which is Artem Avetisyan. The company, which is the main shareholder of Vostochny Bank, the main bank in the Far East, was previously under the jurisdiction of Cyprus. According to Tikhonov, this suggests that Russia has created comfortable conditions for the return of capital. The SAR regime, which was created specifically for the return of foreign capital that had left abroad, also attracted interest from several other companies.

Trade turnover between Russia and China to grow to $100 bln in 2018 — Putin

Vladimir Putin expects that the volume of trade turnover between Russia and China in 2018 will reach $100 bln

Borisov announces signing of memorandums on the gas pipeline from Iran to India

MOSCOW, September 14 (Itar-Tass) - RIA Novosti. Intergovernmental memorandums on the Iran-Pakistan-India gas pipeline with the participation of the Russian side are being prepared for signing, Deputy Prime Minister Yury Borisov told reporters after the meeting of the Russian-Indian intergovernmental commission.

"This project requires the signing of relevant intergovernmental memorandums, work is going on in this direction, I think they will be signed in the near future." This will form the basis for the practical implementation of this project, "he said.
In 2017, Gazprom signed a memorandum with Iran on the possibility of participating in the development of four fields. As possible options for gas monetization, Gazprom is considering the Iran-Pakistan-India gas pipeline project, as well as the LNG-Iran LNG plant.



РИА Новости https://ria.ru/economy/20180914/1528580762.html

Gazprom Neft will accelerate the return on investment in projects with Mubadala in Siberia

MOSCOW, September 14. / TASS /. Completion of the transaction to increase the share of Mubadala Petroleum in Gazprom Neft-East to 49% will speed up the return on investment in joint projects in Western Siberia, said Deputy Head of Gazprom Neft Vadim Yakovlev.

"We can talk about a new stage in the development of the enterprise.The tasks that were at the previous stage are involving the development of the main part of traditional reserves and the creation of a gas infrastructure.This is basically done, and the partner's involvement now allows us to accelerate the return of those investments that we For our partner, this is an opportunity to immediately get a return on their investment, because the asset generates a positive cash flow, "Yakovlev said.

On September 5, 2018, Gazprom Neft, Mubadala Petroleum and the Russian Direct Investment Fund announced the closure of the deal and the establishment of a joint venture based on Gazpromneft-East. As a result of the transaction, Gazprom Neft owns 51% of the joint venture, Mubadala Petroleum and RFPI - 44% and 5% respectively. Gazpromneft-Vostok remains a subsidiary of Gazprom Neft and will continue to act as operator of the fields.

Complex geological reserves in Russia are attractive for Arab partners, since they allow to have a stable profitability in a difficult price situation, explained Yakovlev.

miketheterrible wrote:So by November, all Russian banks may be sanctioned. Dunno how US sanctions would affect MiC since they already have full sanctions against Russian military industry as a whole. But this about the banks is where it will get interesting.

"The first is an accelerated transition to settlements without dollars"

The plan to abandon the US currency includes at least three large-scale items: switching to settlement in other units for export-import operations, transferring holdings to Russian jurisdiction and creating a Russian depository to place eurobonds. This is the head of VTB Andrei Kostin told IIC "Izvestia" on the margins of the Eastern Economic Forum (WEF).


VTB Chairman asked Putin to support dedollarization
- Tell us about the plan for dedollarization.

- There are a number of directions.

The first is an accelerated transition in settlements with foreign countries for export-import transactions to other currencies-this may be the euro, the yuan or the ruble.

The second is the translation of legal addresses of the largest Russian holdings in our jurisdiction. According to colleagues who got into April sanctions (on April 6, the US imposed restrictive measures against 26 Russians and 15 Russian companies - Izvestia) to the same Rusal, we realized that registration abroad complicates the fulfillment of further tasks.

Third, we propose to maximally transfer the placement of Eurobonds to the Russian site, to withdraw from the primary depository in the form of Euroclear (an international depository clearing center that serves the OTC international stock market - Izvestiya) and switch to the Russian one. The fourth point: we proposed to license all participants of the stock market in such a way that they all worked under the same rules.

The Bank of Russia will continue the policy of dedollarization

MOSCOW, September 14 (Itar-Tass) - RIA Novosti. The Bank of Russia is already pursuing a policy of dedollarization and will continue it, said the Chairman of the Bank of Russia Elvira Nabiullina.

"As for proposals on dedollarization, I saw it in the press, I did not see detailed proposals, we will certainly see them all." I support the direction of increasing payments in the national currency, certainly, it should go, according to economic expediency, with interests of our exporting companies, but nevertheless this is already happening, and, of course, this is a promising direction, "Nabiullina said at a press conference following the results of the board of directors.

"Undoubtedly, we support, in principle, the policy of dedollarization, and not only we support it, but we carry it out." In recent years, the level of dollarization of banks' balances ... is declining, and we will continue this policy, "she said.