Russia is on the brink of crisis

Every now and then you spot some data that pops out at you and just looks… odd.

As I was recording the video for Fink Ultimate subscribers on Wednesday, this happened.

It has happened a handful of times before.

Once when we looked at Evergrande WAY before its collapse started to occur…

Another tends to be when we have our alpha on coffee to do with soil moisture in a certain part of the world which leads to price increases…

The key question as always with this Friday piece we have launched is, ‘why isn’t the media talking about this?’

In my view, this is going to be a story that changes things considerably.

We all know there is a war going on.

I am less inclined to focus on the war here and more on the important economic affects and whether there are spill overs…

Because let me put it bluntly — Russia is in a whole heap of trouble.

We can take a simple look at Russian GDP since 2014, when they first invaded Crimea to see the issues…

Growth since the first invasion has averaged about 1%…

That is shockingly bad, and for an economy that has entered wartime, not really what you want to see, namely because here have been so many men mobilised to the battlefield who are now not working in the real economy…

Because war is expensive (Russia has spent in the region of $190 and $220bn on the war since invasion day in 2022)…

And because 5m Russians no longer live in Russia since.

Which leads me to the shocking data I saw pop up on my news terminal on Wednesday…

At first glance this doesn’t look too bad…

But we need to add some context here.

Check the previous revised GDP print vs Wednesday’s MISS…

3.5% vs 2.4% (expected was 2.8%)…

That is… bad.

Couple this with real wages being 8.1% with expected at 6.0% and that’s a double whammy of bad…

Now add in the above about the mobilisation of troops and 5m people having left Russia, most of whom would be wealthy Russians and businessmen and you’re left asking whether there will be any remnants of a nation soon.

If we dig into the country’s balance sheet, things get even stickier and is why I need you to pay attention.

I’ll say this very precisely…

RUSSIA’S NATIONAL WEALTH FUND RESERVES ARE GOING TO RUN OUT NEXT YEAR.

Yes, their current deficit is costing them about $40bn a year, and they only have about $100bn left.

This wealth fund is there to make up for shortfalls in the economy… such as when they’re spending too much because of war.

But an issue is if this runs out then Russia can hardly issue bonds to finance themselves and higher taxes are going to do nothing but quell any sort of economic bounce.

We can see an economy in crisis just by looking at the bond market too.

When your 10 year bond is yielding more than the Great Financial Crisis you should probably be concerned…

By the way, if the above isn’t making sense with regards to bonds and rates, we’re going to do quickfire webinar on the basics of macroeconomics and answering the big question… whether it’s useful as an investor!

This will be on Wednesday October 17th at 7.30pm (BST).

Click below to add to your calendar!

Naturally one of the largest components of Russian economic decline has been sanctions on European gas.

Yes, there are questions as to whether it is sent via other states — is Germany purchasing ‘Kazakh gas’, which is really Russian gas, just declared as from Kazakhstan…

But regardless, the decline is pretty large to just be some administrative error…

With Saudis also abandoning their $100 oil target, what might this do to Russian oil as well? A further revenue strangle would not be great for the country’s books.

And this is likely reflected in the nation’s stock exchange too, MOEX.

See, most of the firms on the MOEX (Moscow Exchange) are energy related — if you’ve ever looked at technical analysis then you’ll know a market not being able to obtain its prior high is a BAD thing…

And that’s exactly what has happened with the MOEX.

And we can see similar problems with the currency too.

USDRUB is ticking up strongly of late, and the situation might arise where the ruble’s price might have to be defended…

But defended with what?

Russia's international reserves are composed of several elements:

Foreign Exchange: The largest component at $396.302 billion.

Gold: Valued at $188.814 billion.

Special Drawing Rights (SDRs): $23.659 billion.

Reserve Position in IMF: $4.940 billion.

But remember that half of these reserves are effectively sanctioned while including them in official figures…

There is likely one solution to this, and it is that they concede.

But do we think that’s going to happen?

Not a chance.

A peace deal might be in the offering, but what might that look like?

The kicker for me as to how badly they’re doing is that they’ve had to import missiles from North Korea…

No bueno.