foreign investors running for the exits ... Russia, Ukraine, Hungary, Romania ...
(snip)"Russia's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.
The cost of insuring Russian bonds against bankruptcy rocketed to extreme levels yesterday. Spreads on credit default swaps (CDS) reached 1,123, higher than Iceland's debt before it sought a rescue from the International Monetary Fund.
Moves by Hungary, Ukraine and Belarus to seek emergency loans from the IMF have now set off a dangerous chain reaction across Eastern Europe.
Romania had to raise overnight interest rates to 900pc on Wednesday to stem capital flight, recalling the wild episodes of Europe's ERM crisis in 1992. The CDS spreads on Ukraine's debt have topped 2,800, signalling total revulsion by investors.
Rating agency Standard & Poor's issued a downgrade alert on Russian bonds yesterday, warning that a series of state rescue packages worth $200bn (£124bn) could start to erode the credit-worthiness of the state.
S&P said Russia's budget was likely to slip into deficit in 2009 as result of the dramatic slide in oil and metal prices this autumn, and cautioned that "the ongoing concentration of the financial system in state hands" had become a political risk.
Russian companies must roll over $47bn of foreign loans over the next two months, and a further $150bn or so next year, a task that has become close to impossible as investors flee Eastern Europe.
President Dmitry Medvedev said yesterday that disaster could still be kept at bay. "We can avoid a banking, forex or debt crisis and get through today's difficulties. Russia has not yet got in this difficult situation. It must avoid this," he said.
Hans Redeker, currency chief at BNP Paribas, said markets no longer believe Russia is strong enough to guarantee the estimated $530bn of foreign debts accumulated by its companies during the break-neck expansion of the oil boom. "The surge in Russian CDS spreads is paralysing the whole system. The government can offer very little help to the banks at this point because its own sovereign debt is in question," he said.
"This crisis is starting to look like the Black Wednesady in 1992. Unless we see an extension of central bank swaps in dollars and euros to Eastern Europe within days to stop this uncontrolled process of deleveraging, this could get out of control and do serious damage to Western Europe. We could see the euro fall to parity against the dollar by next year," he said."(snip)
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All that can be said is 'Vladimir, what comes around goes around'. Your recent choices in Georgia, Syria etc. have convinced foreign investors that you can't be trusted. They are now 'picking up their marbles' and going home ! Unfortunately, those same foreign investors are also pulling their 'marbles' out of bordering countries that you may decide to also 'invade' in the defense of 'Russian citizens' living in those bordering countries.
Of course, one of the side effects will be that the US dollar and the Swiss Franc are increasingly being seen as the only 'safe harbor' currencies for a lot of the now 'homeless' foreign investor money. This implies that these currencies will continue to strengthen in terms of international exchange rate. But with business profits sagging badly due to the economic recession, odds are that this 'homeless' foreign investor money will wind up flowing into gov't bonds and money markets rather than stock shares. This further implies that US and Swiss interest rates paid on those bonds and money market investments will decline (while interest rates to BORROW US dollars and Swiss Francs will remain high).
Re: foreign investors running for the exits ... Russia, Ukraine, Hungary, Romania ...
Vladimir is preparing a surprise in the form of a gold-backed ruble, according to rumors...
Re: foreign investors running for the exits ... Russia, Ukraine, Hungary, Romania ...
^^^ this actually goes hand in hand with similar rumors coming from the Persian Gulf countries about a Gold Dinar.