November 14, 2013

What's going on in Russia?

Russia is both an old and a new country. After the fall of the Soviet Union in 1991, the wild ride of going from a communist to a capitalist country began. This ride can be seen in chart below which shows the RTSI - the Russian equivalent to the Dow Jones Average. RTSI is short for Russian Trading System Index and consist of 50 stocks. The index was introduced in September 1995. 

RTSI 1995-2013. Source: Yahoo

Those who invested in the index in 1995 are today wealthy, but many sold in 1998 during the the so called "1998 Russian financial crisis," the "Ruble crisis," or the "Russian flu." On 17 August 1998, the Russian government devalued the ruble and defaulted on the domestic debt. The crisis spread through the world and is one of the reasons to why the infamous hedge fund Long-Term Capital Management blew up about a month later. But as you can see from the chart, the RTSI recovered and rocketed up to new highs mainly because of high oil prices. Russia is actually the world's largest oil producer and produces each day 10.9 million barrels of oil. The second largest producer is Saudi Arabia with 9.9 million barrels of oil per day.

Russia is a rich country - Moscow has more billionaires living in the area than any other city in the world. With a total of 74 billionaires, Moscow beats New York City by 3. Despite good potential, Russia has several problems:
  • It has been estimated that there are between 50 000 to 70 000 neo-Nazis in Russia - 50 percent of the world's total. This might seem strange since between 20 million and 40 million civilians and soldiers from Soviet Union died during the Second World War. Russian neo-Nazis's goal is to take over the country by force - and they are preparing for it. The groups operate under the guise of sports clubs where they educate themselves in squad tactics, hand to hand combat, and weapons handling. They are also storing weapons. These groups seem to grow and the reason is probably the estimated 3 million illegal immigrants (they are mainly from former Soviet states). 55 percent of residents in Moscow think that migrants are the most important problem.
  • A Russian lawmaker argued that the dollar will collapse in 2017, so in November 2013, he submitted a legislation to ban dollar deposits and transactions at Russian banks. The holder of a dollars would need to spend the money or convert it into another currency. Other laws proposed by the same political party include laws to forbid pregnant women to leave the country, limit news that no more than 10 percent of news were about bad news, and revoke citizenship from woman who married foreigners.
  • The above law will probably not become a law. On the other hand, the same thing was said of a July 2013 law that bans the distribution of "propaganda of non-traditional sexual relations" to minors. The law was written as protection of children, but critics argued that the it's written so broadly that it's in effect "a complete ban on the gay rights movement and any public expression of homosexuality." One activist was arrested because he held a sign at a children's library that said "Being gay is normal."
  • China's "one child per family" policy in combination with the cultural preference for male children has resulted in that China has approximately 30 million surplus men between age 25 to 40 who will never find a partner. In Russia, Women outnumber men by approximately 10 million.
  • Russian alcohol consumption is twice the critical level set by the World Health Organization. Even the most stringent parents allow their kids to consume some alcohol. What children drink is called kvass and it typically contains up to 1 percent alcohol. But Russia has begun to improve:
    • The tax on beer has increased and beer is now classified as alcohol. Until 2012, anything containing less than 10 percent alcohol was considered "food."
    • The vodka price has doubled. Over the past decade, beer sales in Russia have risen more than 40 percent while vodka sales have fallen by nearly 30 percent.