She's watching central banks of course.
And over the course of the last 24 hours she's highlighted some points regarding the Russian economy that may be of interest to our readers.
First up, from Politico.eu, August 14 (last night CET), she takes a look at the big picture:
Russia expected to hike interest rates to curb ruble’s slide
The central bank has called an emergency meeting for Tuesday as currency hits a 16-month low versus the dollar.
Russia's central bankers are expected to hike interest rates at an emergency meeting on Tuesday to respond to an accelerated weakening of the ruble and a deteriorating economy, as the war against Ukraine and sanctions bite hard.
The big paradox for policy experts in Moscow is that the currency is plummeting just as oil prices — Russia's export lifeblood and budgetary mainstay — have risen. Prices for Russian Urals grade crude are rallying beyond an internationally agreed price cap of $60 per barrel, but the ruble spiked to more than 102 to the dollar on Tuesday. That's almost half the value it fetched in June 2022, when it traded at 54 to the dollar....
....MUCH MORE
The bolding is mine.
And this morning:
Russia lifts rates to 12 percent to boost ruble
The highlight of the currency vs. oil price is very intriguing and understanding that goes a long way toward understanding Russia's economy and government and the war in Ukraine.
The underlying facts are that Russia is balancing three legs of a trilemma stool, adjusting one leg, then another in an attempt to find an equilibrium.
The Governor of Russia's central bank, Elvira Nabiullina knows the oil price-currency interplay.
Here's the introduction to a 2018 post:
If you think having Donald Trump question the Fed head for raising rates is playing rough, just imagine working for Vlad Putin as his popularity drops.
Considering the hand she's been dealt, the chief of the Russian central bank, Ms. Nabiullina, should have garnered a couple more Euromoney Central Banker of the Year awards to sit next to the one she received in 2015.
Seriously, since she took over in 2013 oil prices collapsed, then doubled, the annexation of Crimea led to the first set of sanctions, the rouble fell 50%, the U.S. Treasury threatened Russian banks with exclusion from SWIFT, the second set of sanctions on companies and oligarchs led to the retraction of multi-billion dollar credit facilities which had to be replaced internally and a couple other things that I'm having trouble remembering.
And all the while Vladimir is looking over your shoulder....
That was one of many posts that we gathered in 2020's "Russia's Central Bank Gamed This Scenario Out Years Ago, Did Yours?".
But the invasion of Ukraine introduced a competing factor she had to deal with.
It is in Vladimir Putin's war-making grand strategy interest to have a weak rouble.
It is in Vladimir Putin's politician/policy strategy to have stable prices.
The latter is self-explanatory for any government that depends on the voter for any cover of legitimacy. The former is not so apparent but just as real:
Russia is receiving hard currency for the oil and (for the most part) paying for the war in roubles.
....There were three contributors to the move in the stock price:
1) A high-grading mining strategy proposed by a young engineer, Don McLaughlin in the late '20's began bearing fruit in the form of higher recoveries. Mr. McLaughlin went on to the presidency of the company.
2) A flight to safety after the October 1929 stock market crash.
3) The Gold Reserve Act of January 30, 1934 raised the price of gold 69%, from $20.67 to $35.00 (conversely devaluing the dollar by 41%).
3a) Homestake was thus paying salaries and other expenses in devalued dollars.
This combination of more gold produced, higher price per ounce and lowered expenses (in real terms) was what moved the stock, not some inherent magic in gold.....
....On Thursday we posted: The Great Deleveraging (and what it means)
Deleveraging is Deflationary. Ignore the talk of any immediate Inflationary effect. That comes later. Anyone telling you to buy gold now is a fool, a liar, a knave or a nut. The time for AU will come but it is most assuredly not now.
Gold promptly went up 5%.
Gold is not a
hedge against deflation. Over the years goldbugs have come to believe
it is, based on the performance of Homestake Mining's stock during the
Great Depression. Here's an example from Gold Eagle:
Gold Stocks did well during the Great Crash and aftermath… indeed exceedingly well. Please note that from August through October 1929 Homestake Mining did decline in value, but no where near the percent plunge in the general stock market. And by yearend Homestake was again creeping up in price. For the first few months of 1930 the gold mining industry proxy was relatively flat. However, from mid-year on Homestake began to increase in value as the DOW and DJUA rapidly and relentlessly melted away. During the next five years the Gold Mining Industry's surrogate soared in value - while stock prices were decimated by the Great Depression.
It is relevant to observe that Homestake's price appreciation was not a market anomaly, but was consistent with its growing annual earnings per share and increasing cash dividend payout. Yearly E.P.S and cash Dividend payout data may be seen in the above Homestake chart. While nearly all industries revenues and earnings dwindled, the gold mining industry thrived. Homestake's E.P.S. increased from $4.19 in 1929 to $32.43 in 1935. During the six desolate years of the Great Depression, the gold mining industry's proxy enjoyed an E.P.S. growth rate of 41% COMPOUNDED ANNUALLY. Furthermore, while the banks paid a paltry 1% in "earned" interest on the meager savings of those few hapless souls who still had money, Homestake share holders were indeed enriching themselves. The 1929 cash dividend of $7.00 increased to a cash payout of $56 PER SHARE BY 1935. Consider for a moment the awesome investment significance of it.
Had an investor the foresight and guts to buy a share of Homestake in the throes of the 1929 Crash, he would have gotten it for about $80. During the next six years while stock values worldwide were melting away - and preciously few companies were able to pay even a declining trend of dividends - Homestake soared relentlessly to $495 a share by yearend 1935 - THAT'S NEARLY 520% CAPITAL APPRECIATION (34% compounded yearly increased value). And during the six depression years of international economic suffering, Homestake paid out $128 in cash dividends. In 1935 alone, the gold mining proxy paid a $56 cash dividend per share - which represented 70% of the 1929 Crash Price of the stock!
Many market analysts and financial students erroneously suggest that US president, Franklin Delano Roosevelt's action of increasing gold's value in 1934 from $20.67 to $35 an ounce was the prime reason for Homestake's stellar performance during the Great Depression. NOT SO. Please observe the Homestake chart again. Homestake's stock price was rising strongly much before FDR's decision to stimulate fallen commodity prices by increasing gold's value. Nevertheless, gold's price hike did indeed add more impetus to Homestake's dynamic performance, while world economies continued to struggle in the morass of deflation.
To put the relative market performances of the stock market vis-à-vis gold mining shares into proper perspective, please view the following two charts superimposing the DOW with Homestake and the DJUA with Homestake. There is absolutely no room for mis-intepretation - THE ONLY PLACE TO BE IN DEFLATION WAS IN GOLD STOCKS.
That
is rather enthusiastic and more accurate than most analyses, at least
he focuses on the equity rather than the metal. But the focus is still
wrong.
After the mine closed in 2002 I went out to Lead to answer the
question "Is gold an asset you want to own during deflation?" I was
quite possibly the last person with access to the company records from
the '30's. The skeleton staff that Barrick had in place for the shutdown
were literally boxing documents for the archivists as I sat there.
There were three contributors to the move in the stock price:
1)
A high-grading mining strategy proposed by a young engineer, Don
McLaughlin in the late '20's began bearing fruit in the form of higher
recoveries. Mr. McLaughlin went on to the presidency of the company.
2) A flight to safety after the October 1929 stock market crash.
3)
The Gold Reserve Act of January 30, 1934 raised the price of gold 69%,
from $20.67 to $35.00 (conversely devaluing the dollar by 41%).
3a) Homestake was thus paying salaries and other expenses in devalued dollars.
This
combination of more gold produced, higher price per ounce and lowered
expenses (in real terms) was what moved the stock, not some inherent
magic in gold.
A good explication of gold's valuation is Roy Jastram's study of the purchasing power of gold, "The Golden Constant:
The English and American Experience, 1560-1976". The main point is that
gold tends to retain purchasing power over long periods of time. A
secondary point is at apparent varience with my conclusion. Jastram says
that gold's purchasing power increases under deflation.
The apparent contradiction is resolved by the knowledge that during his period of study, gold was money. During deflation, any unit of money increases in purchasing power. No one backs their money with gold, that link is broken.
Friday and yesterday's flight to safety move up has been largely reversed, today, gold is down $29.30. From Kitco....
[we wrapped up with]:
....Gold will shine but not until the printing presses have overcome the contraction in credit/money.
In
the meantime, if you are of a mind to invest for the Apocalypse, buy
some bullion silver coins or Silver Eagles. The lower valuation should
make buying a fifty pound sack of flour easier than it would be with an
ounce of gold.
