Russia as a Lehman/LTCM Moment today.
Posted: February 28th, 2022, 7:58 am
Summary of some news:
Russian central bank assets frozen (640bn). Other Russian banks blocked from swift.
Ruble has just dropped 43% so far against the dollar Monday morning (37% vs euro).
Russian central bank has raised rates from 9.5% to 20% this morning.
Russian market dropped 45.5% intraday last Thursday.
Russia has just banned foreign people/organisations from selling Russian assets 'to prevent a fire sale'.
Rumours of queues at banks/ATMs in Russia / bank run.
BP instant writedown of 25 billion on Rosneft (and I suspect further writedowns on individual joint field projects).
Norway Pension Fund bailing out of all Russian investments as of today.
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compscidude thoughts, 07:58am Monday.
1) I think this is likely a Lehman Brothers / LTCM type moment (i.e. 15/8/2008, 08/1998) but with a former superpower instead of a bank. Suddenly no one knows what everyone else is exposed to, how risky it will be to lend to them, what will be paid back, if it will ever be paid back. There's a chance of a 2008 rerun at high speed.
2) I would expect the central banks will want to flood the market with liquidity to try to prevent point (1) before it happens. Unfortunately coinciding with Quantatitive Tightening and rate rises in the opposite direction already scheduled and urgently needed with inflation at 8% vs rates <1%. This could be quite the shitshow. Central bank policy 2021-2022 is going to look totally bizarre and insane in hindsight.
3) The shortages of gas/oil/minerals/food etc that result from the war are going to drive inflation up a few more % globally. Ukraine produces 90% of semiconductor grade neon, about 15% of wheat, oats, barley for example, and lots of natural gas. Russia - minerals, oil, gas, rare earths used in chips.
4) A flood of money will also potentially drive up inflation even faster.
5) Re: the BP writedown. They are fools for not doing a firesale last week when they were being urged by UK politicians. I would expect similar writedowns like BP's to be seen from UK mining firms, TotalEnergies SSE, etc. during the day / rest of the week.
6) I would not be shocked to see massive drops in UK banks in the next 30 minutes after open due to banking panic globally, plus I would assume they are up to their waists in Russian dealings.
7) Coincidentally, mentioning LTCM. They collapsed suddenly in 1998 *specifically* because of out-of-model movements in Russian debt / debt default.
8) Meanwhile, the Chinese mega bond crisis e.g. Evergrande continues to rumble slowly along in the background....
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[1] https://www.investopedia.com/terms/l/lo ... apital.asp
[2] https://en.wikipedia.org/wiki/Bankruptc ... n_Brothers
Russian central bank assets frozen (640bn). Other Russian banks blocked from swift.
Ruble has just dropped 43% so far against the dollar Monday morning (37% vs euro).
Russian central bank has raised rates from 9.5% to 20% this morning.
Russian market dropped 45.5% intraday last Thursday.
Russia has just banned foreign people/organisations from selling Russian assets 'to prevent a fire sale'.
Rumours of queues at banks/ATMs in Russia / bank run.
BP instant writedown of 25 billion on Rosneft (and I suspect further writedowns on individual joint field projects).
Norway Pension Fund bailing out of all Russian investments as of today.
-------
compscidude thoughts, 07:58am Monday.
1) I think this is likely a Lehman Brothers / LTCM type moment (i.e. 15/8/2008, 08/1998) but with a former superpower instead of a bank. Suddenly no one knows what everyone else is exposed to, how risky it will be to lend to them, what will be paid back, if it will ever be paid back. There's a chance of a 2008 rerun at high speed.
2) I would expect the central banks will want to flood the market with liquidity to try to prevent point (1) before it happens. Unfortunately coinciding with Quantatitive Tightening and rate rises in the opposite direction already scheduled and urgently needed with inflation at 8% vs rates <1%. This could be quite the shitshow. Central bank policy 2021-2022 is going to look totally bizarre and insane in hindsight.
3) The shortages of gas/oil/minerals/food etc that result from the war are going to drive inflation up a few more % globally. Ukraine produces 90% of semiconductor grade neon, about 15% of wheat, oats, barley for example, and lots of natural gas. Russia - minerals, oil, gas, rare earths used in chips.
4) A flood of money will also potentially drive up inflation even faster.
5) Re: the BP writedown. They are fools for not doing a firesale last week when they were being urged by UK politicians. I would expect similar writedowns like BP's to be seen from UK mining firms, TotalEnergies SSE, etc. during the day / rest of the week.
6) I would not be shocked to see massive drops in UK banks in the next 30 minutes after open due to banking panic globally, plus I would assume they are up to their waists in Russian dealings.
7) Coincidentally, mentioning LTCM. They collapsed suddenly in 1998 *specifically* because of out-of-model movements in Russian debt / debt default.
8) Meanwhile, the Chinese mega bond crisis e.g. Evergrande continues to rumble slowly along in the background....
-----
[1] https://www.investopedia.com/terms/l/lo ... apital.asp
[2] https://en.wikipedia.org/wiki/Bankruptc ... n_Brothers