Russian Stock Market in Freefall

Since the beginning of the year, the Russian stock market has entered freefall.  It started the year at 1550 on the MICEX index and just fell below 1350 as oil prices continue their decline due to low demand in China and the West.

The Russian stock market has lost nearly 15% of its value in just the first quarter of 2013, and there is no end in sight.  As we recently reported, numerous Russian experts now believe that the Russian economy has entered a recession as economic growth has been in freefall for more than two years now, and despite this Russia is also seeing soaring inflation, the classic economic disaster scenario known as “stagflation,” the dragon that killed the USSR.

Russia has no true stock market. Instead, it has an absurd little jester, who dances to the tune called by world oil prices.  It has no mind or life of its own, it simply does what the world oil markets tell it to do.  One cannot invest in Russia, one can only invest in the price of oil. We saw what happened to Russia in 2008 during the global economic downturn:  absolute economic disaster. Things aren’t even that bad this time, but Russia is still headed into recession.

Recession in Russia! You Read it Here First!

One month ago, we reported that Russia would likely enter a recession this year.  It had experienced two consecutive years and two consecutive quarters of declining economic growth, and even state-sponsored media conceded that the only reason it was not already in a recession was the price of oil.

This week the price of Brent crude dropped below $100 per barrel, and not one but two prominent Russian figures announced that Russia has entered recession.

First there was Ksenia Yudaeva, Putin’s representative to the G-20.  She stated: “Frankly speaking, Russia probably already is in recession.”

Then came oligarch Mikhail Prokhorov, owner of the New Jersey Nets.  He stated: “The economy is in recession.”

Moreover, Russia Today admits that global investor interest in Russia has plummeted by a shocking two-thirds in the last month.

You read it here first. Way out in front of the curve, we told you long ago that Russia’s economy had lost its momentum and was headed for the big flush.

But that’s only half the story.  We also told you that Russia’s inflation rate is out of control, which should not be happening as the economy contracts and is a sign of the paralyzing ultimate economic disaster known as stagflation, the illness that destroyed the USSR.

Putin has led his nation once again to the brink of national collapse.

Inflation Ravages Putin’s Russia

Above you see a chart (click it to see full size) depicting Russia’s inflation rate between May 2011 and April 2013. The chart shows that over the last year Russia’s inflation rate has doubled, from 3.6% to 7%. The rate of 3.6% is the lowest Russian consumer inflation during the entire period under review, two years.

Above is the same information for the United States. As you can see, the highest consumer price inflation rate experienced by the U.S. during this period was essentially the same as the lowest rate Russia ever achieved. Currently, the U.S. inflation rate is less than one third the rate Russians are forced to endure.

In the U.S., 3% inflation is something to panic about. It is viewed as an economic disaster.  In Russia, 3% inflation is something to be proud of, because that’s what kind of incredible mess the Russian economy really is.  Look at the scales on the left margin of the two charts. The scale needed to measure Russian inflation during this period is more than double the size of that needed to measure inflation in the U.S.

According to Russian pundit Leonid Bershidsky, economic growth in Russia this year is less than half what it was last year and less than one-third what Putin has publicly proclaimed is necessary for the country. Things are so bad that many Russian economists are beginning to argue that Russia should start spending its reserves in order to stave off economic disaster.  But dumping piles of cash from the reserves into the economy would be like pouring gasoline on a fire. It could cause inflation to spiral out of control.

Oh and, by the way, the wicked one-two punch of failing economic growth and rising inflation is known as stagflation. You know, the thing perfected in Russia by Leonid Brezhnev and which led to the fall of the USSR. Those who cannot remember history . . .

More Horrifyingly Bad Economic News for Putin’s Russia

“A 20-year-old man in Russia has just a 63 percent chance of reaching the age of 60, as compared to a 90 percent chance in the EU.”

“The blue-glass skyscrapers of Moscow City — fragments of Russia’s boom-time dream — are visible from the Kremlin walls, within which there was once hope that those towers could supplant the West’s financial centers. When the sun sets behind them, you can see that many of the offices lie empty. In fact, the real hubs for Russian banking are in other countries.”

“Russia’s long stretch of oil-fueled economic growth could be coming to an end. The greater danger, though, might be President Vladimir Putin’s plans to get it going again.”

“Russia’s labor market is ‘practically illegitimate’, 38 million work in its shadow economy.”

How is the Russian dictator Vladimir Putin responding to this tidal wave of bad economic news? He is liquidating democracy as fast as he can, so he can’t be held accountable.

Bleak Despair for the Russian Economy

In a stunning concession, the state-sponsored propaganda outlet Russia Today has reported that Renaissance Capital, the leading Russian broker of equities, has predicted that Russia could enter a recession in 2013.

The reason for this gloomy outlook is clear: Russia’s growth rate has plummeted from 4.3% in 2011 to 3.4% in 2012 to a projected 2.5% this year; but the latter figure is being handed out by the Russian government itself, and is clearly self-serving.  Renaissance Capital doesn’t find it convincing, and believes that Russia could slip into negative territory before the year is out.

That’s because Russian growth in the first quarter of this year was just 1.4% and this fell to a mere 1% in the second quarter. If this pattern continues through the end of the year, Russia will be flirting with or in recession.

A second stunning admission came from another state-sponsored propaganda outlet, Russia Beyond the Headlines.  It reported:  ”Energy prices were the only reason why Russia avoided a recession trough. Despite all the promises, or, to use the government’s rhetoric, ‘strategic plans’ to reduce oil sales proceeds to 5.6 percent of GDP, its share is still at least double that.”

And the Financial Times completes the picture, noting that even 4.3% growth is far below the level promised by the Kremlin, namely 5%.  So even according to its own data, in the best case scenario the Kremlin will be at a level of economic progress by the end of this that is half what it targeted. In the worst-case scenario, Russia will be mired in catastrophic recession.

And the only thing that will stop recession will be oil prices over which Russia has absolutely no control. That is, Russia’s economic fate is held in the hands of foreigners, not Russian hands.

And the reason for all this is simple:  Vladimir Putin.  Putin has totally failed to wean Russia off what Dmitri Rogozin has called the “needle” of fossil fuel dependence, and he has failed to generate significant growth in any other major sector of the economy. In fact, many areas are a major drag on Russian growth.

The dramatically straight black line shown in the graph above depicts the Russian GDP rate in freefall, descending at the constant rate of nearly 1 point per year. That’s a 20% loss in growth from 2011 to 2012 and a 25% loss from last year to this one.  Even under the government’s own projection, based on this trend next year would be even worse, with growth well under 2%, and recession would be inevitable, particularly if world oil prices decline. If the latter happened severely enough, Russia would instantly head into a major depression.

If not one but two Russian propaganda outlets are willing to admit things are this bad, do you dare imagine how bad they really are?

Putin and the Big Lie

LR/DR publisher/founder Kim Zigfeld’s latest report is up and running on the powerful and influential American Thinker website.  In it, she explores the shocking agreement of the titanic U.S. brokerage house Goldman Sachs to participate in pro-Kremlin propaganda, misleading world investors by skewing information about Russia in a positive light.   Putin needs to rely on such measures because, as we’ve reported many times, his leadership is driving the Russian economy to ruin.

Russian Poverty

In the USA, a person earning $930 or less per month is deemed to fall below the “poverty” level and is considered poor.

In Russia, the figure is $200 per month.

So the poverty income ratio between the USA and Russia is roughly 5:1.

An average American earns about $3,600 per month (about $22.50/hour). The average Russian earns about $770 per month (about $4.80/hour).

So the ordinary income ratio between the USA and Russia is roughly the same as the poverty ratio, 5:1.  The average American poor person has about five times more income than the average Russian poor person, and the average American also has about five times more income.

Of course, nobody in their right mind would suggest that the cost of living in Russia is five times lower than in the United States. In fact, the giant Russian city of Moscow, for example, is routinely ranked as one of the most expensive places to live on the entire planet. Sony TVs, Levi’s jeans, Big Macs, VWs, they all cost pretty much the same no matter where you go.

So, to the extent that the cost of living in the USA isn’t five times higher than Russia, the Russian definition of “poverty” is much too miserly compared to that of the USA.  Of course, by defining poverty in a miserly way, the Russian government gets to claim that fewer Russians are living in poverty than there actually are, making itself look better.

And in fact, most reasonable people accept that the Kremlin sets the “poverty” level artificially — indeed, ludicrously — low in order to make itself look good, by magically erasing the number of poor people, with the stroke of a pen.

But even by miserly Russian standards, Moscow Times reporter Howard Amos reports that the condition of poverty in Russia is worsening. Statistics show that there are now 400,000 more Russians living in poverty, as the Kremlin defines it, than there were in 2007.  There has been no decline in “poverty” as the Kremlin defines it in more than five years.  As has been pointed out, three times more Russians live on less than $7 per day than have ever traveled abroad.

Russia is a poor country, and getting poorer. No amount of Kremlin sleight of hand can change that. And the day of reckoning is coming fast and soon.

Putinomics Continues to Grind Russia into Pulp

In Putin’s Russia, a dog’s life

The Putin economy continues its slide into oblivion.

Last year Russia set a horrifying new record for capital flight. Well over $80 billion fled Russia for foreign shores. Amazingly, in the first three-quarters of this year Russian capital flight is $1 billion more than it was during the same period last year.

Retail spending is also rapidly declining in Russia, and with it GDP has begun to drop as well.  Poor agricultural performance has led to soaring food prices, so Russians can’t afford as much consumer spending, and brutal new Kremlin taxes have begun to undermine their disposable income as well.  Automobile sales are dropping faster than expected, and polls show that two-thirds of Russians have no personal savings at all, so they are helpless in the face of economic crisis.

Even more bad news comes from Norway, which has begun serious efforts to push Russia’s leading economic engine, Gazrpom, out of the German market.  Germany is only too happy to oblige, as its Chancellor recently traveled to Russia and expressed German revulsion over the neo-Soviet state that Russia’s KGB dictator Vladimir Putin is building.  Putin’s response to the horrific pressure being placed on the central engine of the Russian economy has been the Soviet solution:  nationalization and centralization, a hopelessly doomed scheme from a desperate, incompetent leader.

A flood tide of recent reporting shows how corruption continues to ravage Putin’s Russia, with Vladimir Putin setting the national example by grabbing every asset he can get his hands on and building himself a network of personal palaces that would be the envy of the old Tsars themselves.

Putin himself admits that the Russian economy is headed for dire straits, and he is laying the groundwork to blame it on the country’s WTO admission, apparently hoping the public will forget he was its architect.

Putin is incapable of reform. He’s unqualified to do so, and even if he were qualified he is not motivated to change a system that provides him unchecked power for life.  As in Soviet times, Russia continues its march towards destruction.

Russian Economic Meltdown?

Over on the massive Pajamas Media megablog, Kim Zigfeld reviews recent economic data from Russia which shows the country on the verge of a major financial meltdown.   Who can be surprised by this, when Russians blithely hand unlimited power for life to a proud KGB spy with no hint of business or economics training or acumen, who plagiarized his way to a university degree and spent his career being a thief and a thug?

Putin earns $120,000 per year, while the average Russian earns $8,000.  So Putin’s salary is fifteen times the Russian average.  Barack Obama earns $400,000 while the average American earns $46,000.  So the disparity between presidential and popular income in Russia is nearly double what it is in the U.S. Americans earn nearly six times more than Russians, yet they bear half the burden Russians do in compensating their chief executive.  And that’s to say nothing of Russia’s infamous corruption, of course, which makes Putin and his administration far more expensive still.

Isolated, Impoverished, Backwards Russia

You already knew that Russia has an utterly pathetic, puny level of Foreign Direct Investment in its economy, roughly half that of tiny nations like Netherlands and Belgium, and that its level of FDI has been falling consistently under Vladimir Putin.

Maybe you even knew that things were so bad that the Russian Kremlin is actually bribing foreign investors to sink their cash into Russia.

But you still didn’t know how bad things really are. Because Ben Aris of the Financial Times reveals:  ”Russia has a woeful record when it comes to investment. According to a paper about to be released by Aton, a leading Russian investment bank, some 70 per cent of all foreign direct investment into Russia comes from offshore havens – meaning it is Russian flight capital returning home.”

You read that right:  70% – seventy percent! – of all money Russia counts as FDI is in fact just money that is brought back to Russia by Russians in connection with capital flight, that is, money that’s now needed for spending purposes and is recovered from its hiding place. In other words, it’s an illusion!  So the true level of new money sent to Russia by foreigners who believe they can make more money in Russia than other places is so tiny that it’s barely measurable, comparable to a backwater like Chile or South Africa.

This is what Russians have given themselves by choosing proud KGB spy to govern them:  isolation, impoverishment and backwardness, for the foreseeable future.