Monday, December 29, 2014

Sometimes Politician Knows Better

March 18, 2014. Russia just annexed Crimea. All G-7 countries condemned the move and promised more sanctions. First sanctions were small and weak. That same day, Jay Carney, Obama's chief spokesman, literally said: "I wouldn't, if I were you, invest in Russian equities right now. Unless you're going short."
I remember big noise on CNBC. Several pundits, including Jim Cramer, said that it's not for a politician to predict any market, including stock market. Several financial companies predicted serious (15-20%) growth for the year for Russian stocks. Well, let's see. I'm using Market Vectors Russia ETF (RSX) as a proxy for Russian stock market.
March 18. RSX closed at $23.51
Today, December 29. RSX closed at $14.61. 38% Drop.
QED. Sometimes politicians know better. Russian market was a toast even before sanctions. GDP growth for the year was expected at 0.5%. After the sanctions, there is no growth. For the year 2015, Russian officials predict GDP drop in range of 3-5%.
Why politicians know better? At least in this case? Because they saw that Putin declared the war on Western World. Western World in extended sense, including Australia and Japan. In other words, country with GDP 2% of the total world GDP declared the war on countries with about 55%. Sanctions moved this war from war of words to the war of economics. Can't you predict the result?

Full disclosure: I don't have any positions, long or short, in RSX or any other Russians stocks.

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