02/27/2022 — Knee Jerk, Russian Style
It appears that the last round of financial sanctions heaped upon Russia may have spurred some of its citizens to go into a small cash panic. I only discovered this as I watched the overnight S&P markets open in quite a frenzied fashion. At 5PM CST they promptly dropped about 120 points in a few minutes. It happened in a straight-down plunge and jarred the senses enough to make me wonder if I was getting a bad feed, had stale data, or if someone (I’m looking at you Russia) had chosen to use non-conventional weapons on a NATO member.
With a bit of internet sleuthing, I discovered that many Russians have been withdrawing currency and seeking to acquire dollars as the Ruble likely heads for some tough times. Although one must always exercise caution when trusting the internet for just about anything, there were some very clickable pictures that appear to come from bonafide sources.
I guess it’s just the beginning of an everyday, old-fashioned Russian run on the banks. I can’t admit to knowing much about Russian culture. I know there’s a lot of drinking, hockey plays a big part in national pride, and I loved playing with their little nesting dolls when I was younger. Other than that, I know very little of what’s fun over there, so maybe this is just another Monday in Moscow.
More likely, this behavior reflects the fear of the average Russian watching their currency stripped of its punch and thus their banks stripped of their trust. In that context, the massive immediate sell-off makes sense from the vantage point that any more uncertainty thrown into the world markets will rattle some cages. Being long a few futures, I didn’t love watching it either.
Taking a longer look at the problem, I don’t actually think that this in and of itself should cause long term issues for the American market. If anything, I feel that the pressure on the Russian financial system could finally push its citizenry into taking more drastic measures against its government — which I feel would be pleasing to the American investor. There is very little appetite this side of the pond for engaging in a bullet exchange with our Cold War frenemies. We’d much prefer to have the Russian people fight each other in their own streets, thank you very much.
What does this mean for short term markets? Tough to say, but it looks like they have already bounced back a bit and stabilized somewhat. Judging by recent trends, there should be some more pain when Europe opens in a couple hours, and then probably again when America gets a taste of this new source of volatility. I certainly wouldn’t be loading up and getting long any sort of growth product here, but it feels like if one has the time and bankroll to weather a couple bad days, it would be best not to panic just yet.
Perhaps this helps to end the Ukrainian fiasco faster than we had hoped. If that is the case, it might allow us to get back to another pressure point, that being the impending interest rate hikes. Those are not going away anytime soon. For 14 years that problem has been lying dormant, waiting to awaken and push us back into some financial normalcy. Eight years ago Russian played this game with Ukraine, and although they successfully annexed parts of their neighbor, the struggle was brief and the roiling of our financial markets was limited. Let’s hope history repeats itself so we can get back to business and not fall into conflict.
I’m not panicking yet. Yet.