Shades of Bush’s “Mission Accomplished”
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After (kinda) imposing supposedly draconian sanctions, Biden claimed a quick victory when the Russian ruble tanked in the financial markets.
Perhaps, a premature end zone dance by the “Big Man”.
Here’s where we stand now.
True, immediately after the initial round of sanctions were announced, the ruble — which was trading around 80 rubles per dollar — devalued to about 150 rubles per dollar.
Said differently: Before the sanctions, $1 could “buy” about 80 rubles. Soon after the sanctions were announced, $1 could buy 150 “devalued” rubles.
Yep, started to look like rubble.
But, not so fast…
After about a month, the ruble was right back where it was pre-sanctions — trading at about 80 rubles per dollar.
Now, it’s trading at 63 rubles per dollar …
English translation: The ruble has gained value (vs. the U.S. dollar) since the sanctions were initiated.
How can that be?
Couple of reasons offered up by pundits:
- Many of the sanctions were announced but still haven’t been fully activated. For example, Germany is still dragging its feet on oil sanctions.
- Some large countries aren’t on the sanctions’ bandwagon … think China and India, which are now buying Russian oil at a discount
- Putin has gone big time on currency manipulation … e.g. boosting interest rates, restricting bank withdrawals, and…
- And, Putin has started requiring that oil and gas sales be transacted in rubles (not dollars or euros)
The last point is particularly problematic since countries that are dependent on Russia for oil and gas … are still buying oil and gas from Russia at historically high rates.
A couple of teaching points:
> Until the U.S. re-ramps domestic oil & gas production — to satisfy domestic & foreign demand — the bad guys will continue to rake in the dollars (err, rubles)
> Putin may be crazy … is certainly evil and ruthless … but he’s not stupid … so he shouldn’t be under-estimated … on the battlefield and in the financial markets.
So, whose economy is taking the hit — our’s or Putin’s?
The Homa Files 