The trouble keeps adding up for Russia
Today's Financial News - Posted December 8, 2008
Russia is getting itself in more and more trouble every day. Earlier today, Standard and Poor’s decision to cut the country’s debt rating poured salt on soar wounds. The situation looks to get worse long before it gets better.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): For Russia lately, when it rains it pours. Not only have plummeting oil prices destroyed the country’s economy, but virtually nobody paid attention to its semi-aggressive war games last month. Even worse, Putin swears he will not be running for president anytime soon. Ford, Volkswagen and Renault are cutting their Russian production. And now the country’s currency gets a public smack in the face.
There is no doubt, the country will be glad to see 2008 come to an end.
Out of all of the horrific economic events taking place in Russia these days, none is more intriguing than Standard & Poor’s move it made earlier today. The company cut Moscow’s debt rating to just two notches above the dreaded “junk” status.
Thanks to a huge outflow of cash from Russia’s once-monumental reserves, the country’s debt is starting to join the ranks of failing companies like Ford (NYSE:F) and General Motors (NYSE:GM). The news is only going to make the situation worse for the Kremlin.
No relief in sight
If oil prices remain where they are today, or fall even lower, the next few years are going to be very painful for Russia. With its cash reserves quickly dwindling and its borrowing costs on the rise, Russia is in a financially tough spot.
It has been nearly a decade since Russia was in such dire financial problems and was forced to default on its debt while watching the value of the ruble plummet. The current government is doing its best to assure its citizens that situation will not occur again anytime soon.
So what are the country’s options to pull it away from the grasp of economic calamity?
If you know, I am sure Putin and Medvedev would love to hear them.
The country’s options are to find a new natural resource to dig out of the ground and sell to its neighbors at a premium or raise the rates on the oil and natural gas it is producing now. Unlike the United States, it cannot borrow its way out of trouble. And it cannot follow China’s lead and produce its way out.
We saw a preview of what is in store last August when Russia raised its hackle in Georgia. Over the next few months, we are bound to see increased hostility in Eastern Europe. Moscow will not be able to stand back and watch its neighbors take advantage of plummeting natural gas prices. It will take aggressive action.
For investors, that means big-time profit potential. This is a subject we have been discussing a lot at Hot Stock Confidential. In fact, we are already seeing the action boost our portfolio. If you would like to read our thoughts, click here.
These are interesting times for Russia. Unfortunately, this looks like just the beginning of the story.
Next Article: Argon ST (STST) may hold the key to future earnings in a war-weary world
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