From Russia, With Love

Is Russia on the brink?

Source: Jeremy Nichol

Ever since oil prices collapsed folks have wondered when Russia would follow. After all, falling oil prices have led to a fall in the Ruble. In 1998, the Ruble’s collapse caused a financial crisis. Isn’t another one just around the corner?

Well, this isn’t your father’s Russia. Back then Russia was running twin fiscal and current account deficits. They had to borrow just to keep their economy going. When the Ruble fell, their debt became unsustainably expensive. Default and economic collapse were all but inevitable.

Value of Ruble in Dollars. Source: Bloomberg

By contrast, until recently Russia has run a budget surplus. Their public debt is less than 20% of their economy—and most of that is denominated in Rubles. They’ve also been running a trade surplus, so they have substantial foreign reserves. Since Putin came to power in 2000—just as oil started rising—most Russians credit him with fifteen years of economic expansion, following decades of stagnation and decline.

The current use of economic sanctions to pressure Putin to give up his military adventurism is a dangerous game. As their economy stalls, he could use additional foreign escapades to distract the public from problems at home.

Russia is like a homeless man with a machine gun. They’re not a major power. But it would be a mistake to ignore them.

Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

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By |2017-07-17T12:23:06-04:00January 29th, 2015|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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