Crimea never pays

March 3, 2014

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“The markets are punishing Russia much more swiftly than the diplomats”, writes Jason Karaian of Russia’s invasion of Crimea, which began Friday. Today, MICEX, Russia’s main stock index, fell 11.3%. Russia’s central bank reportedly sold $10 billion of reserves and raised its overnight rate to 7% (from 5.5%) to support the ruble. The currency nevertheless fell 2.5% against the dollar today, to a record low of 36.5 rubles/dollar.

Gary Greenberg, head of emerging markets at Hermes Fund Managers, told Reuters’ Sujata Rao that “the market’s assessment is that the Russian government is willing to sacrifice both the country’s economy and its international standing in order to bolster its pretensions for a Eurasian union”.

Sober Look argues that a war probably won’t be too bad for Russia’s economy: a weak ruble and high oil prices (which are likely coming for Europe) will reduce imports and increase the value of exports. The result? “The nation’s current account will improve. Putin’s economic advisers will not be losing any sleep over the current geopolitical tensions”.

Timothy Ash at Standard Bank disagrees. “It is complete tosh,” he writes, “to think that all this aggressive action by Moscow in Crimea, and jingoism at home, and the prospect of international isolation, will have no effect on the Russian economy”. Ash points to capital flight, weakening asset prices, and sanctions from the West as potential problems for the Russian economy.

Capital Economics’ Julian Jessop says that Europe and the West face two major economic issues: a disruption in the Russian oil supply to the EU and the cost of a potential Ukrainian bailout, which he predicts would cost hundreds of billions of dollars long-term. Russia is a major oil supplier to Germany and the Netherlands, and supplies much of Western Europe’s natural gas. Thus, Jessop says, both Russia and the West would be hurt economically by sanctions, making them unlikely to happen. — Shane Ferro

On to today’s links:

New Normal
Why big companies are hoarding cash – Mohamed El-Erian
“Higher education is becoming a caste system” – Suzanne Mettler

What did — and did not — happen during the collapse of the biggest bitcoin exchange – Emin Gün Sirer
“Inequality’s impairment of economic growth may dwarf its more apparent social costs” – Daniel Altman
What it’ll take to build a truly stable electronic currency – Robert Shiller

Ukraine and the west: a guide to international law – Brussels Blog
A primer on recent Ukrainian history – Timothy Snyder

The Oracle
A quick-and-dirty guide to Warren Buffett’s annual shareholder letter – Dan McCrum
Does Berkshire have trouble finding use for its own capital? – Cullen Roche

“It’s almost biblical. There is a time to reap and there’s a time to sow”, says guy who just earned $546 million – Will Alden
Carl Icahn begins a letter to eBay shareholders with an epigram from himself – Shareholders’ Square Table
“Why would anyone want to trade foreign exchange?” – FT

Why Puerto Rico is the anti-Argentina – Reuters

Obamacare effects help push up income, spending – WSJ

The economy and the gender-norm challenge – Cardiff Garcia

“Apple’s annual acquisition spending pace has been neck and neck with Google” – Apple Insider

Abenomics: what could go wrong – Fistful of Euros

Degrees of Angry
“If housing prices fall, ‘they’ll not get just a little angry, they’ll get tremendously angry’” – NYT

1 in 3 nursing homes patients are harmed by some form of mistreatment – ProPublica

The UK’s housing crisis: “when the present is intolerable and reform appears impossible, something has to give” – Guardian

Why Comcast’s chief lobbyist isn’t technically a “lobbyist” – Philly Inquirer

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