Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Stock Market Bull Trap? January 22 Top Likely - 19th Jan 19
After the Crash, the Stock Market Made a V-shaped Recovery. What’s Next - 19th Jan 19
David Morgan: Expect Stagflation and Silver Outperformance in 2019 - 19th Jan 19
Why Brampton Manor Academy State School 41 Oxbridge Offers is Nothing to Celebrate! - 19th Jan 19
REMAIN Parliament Prepares to Subvert BrExit with Peoples Vote FIXED 2nd EU Referendum - 19th Jan 19
Gold Surges on Stock Selloff - 18th Jan 19
Crude Oil Price Will Find Strong Resistance Between $52~55 - 18th Jan 19
Stock Market’s Medium Term is No Longer Bullish. It is Now Mixed - 18th Jan 19
SPX and Gold; Pivotal Points at Hand - 18th Jan 19
Fable Media Launches New GoWin Online Casino Affiliate Site in UK - 18th Jan 19
The End of Apple! - 18th Jan 19
Debt, Division, Dysfunction, and the March to National Bankruptcy - 18th Jan 19
Creating the Best Office Space - 18th Jan 19
S&P 500 at Resistance Level, Downward Correction Ahead? - 17th Jan 19
Mauldin: My 2019 Economic Outlook - 17th Jan 19
Macro Could Weaken After US Government Shutdown. What This Means for Stocks - 17th Jan 19
US Stock Market Indexes Reaches Fibonacci Target Zone – Where to Next? - 17th Jan 19
How 2018 Was For The UK Casino Industry - 17th Jan 19
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19
How Unrealistic Return Assumptions Are Ruining Your Stocks Portfolio - 10th Jan 19
What’s Next for the US Dollar, Gold, Stocks & Bonds? - 10th Jan 19
America's New Africa Strategy - 10th Jan 19
Gold Mine Production by Country - 10th Jan 19
Gold, Stocks and the Flattening Yield Curve - 10th Jan 19
Silver Price Trend Forecast Target for 2019 - 10th Jan 19

Market Oracle FREE Newsletter

Bitcoin Analysis and Trend Forecast 2019

Emerging Giants Russia, China, Brazil and India Looming Collapse 2009

Economics / Emerging Markets Jan 12, 2009 - 01:54 PM GMT

By: Money_and_Markets

Economics

Best Financial Markets Analysis ArticleI hope you've had a great start to your New Year! At the same time, however, I trust you are not counting on the latest holiday rally in the stock market — or the most recent incarnation of the Obama rescue package — to transform 2009 into a positive year for the economy.

The reasons: In addition to the massive wealth destruction I told you about two weeks ago and the continuing debt collapse I've been warning you about for many months now, the overseas engines of global growth are also collapsing.


This does not negate my long-term view that certain overseas economies offer great future opportunities. But it does represent a major short-term threat to U.S. investors, U.S. companies and the U.S. economy as a whole.

The undeniable reality: The debt crisis that first appeared in the U.S. subprime mortgage market … then precipitated a Wall Street meltdown … and has now driven the American economy into its sharpest decline since the Great Depression … has now spread to the entire world.

It is driving the economies of Western Europe and Japan into an unprecedented tailspin. It threatens the economic — and potentially political — stability of Russia, China and several emerging market nations. And it's setting the stage for a global depression of epic dimensions.

Here are some of the most vulnerable major economies …

Russia Smashed by Oil Price Collapse

Never in modern history has the success or failure of a major emerging economy been so dependent on one single commodity! And never before has that commodity fallen so far and so fast as Russian crude oil!

Russia does have other resource and revenue sources. But in just the past six months, Urals crude, Russia's primary export blend, has plunged from a high of nearly $141 per barrel to a low of a meager $32.34 — a 77% crash that's pounded Russian stocks like a sledgehammer and sliced through the Russian economy like a serrated sickle.

The big dilemma: To balance its federal budget, Russia must get a minimum of $70 per barrel for its crude oil. But at $32 and change, it's getting less than HALF that amount. The entire country is losing money hand over fist.

No wonder Russia's stock market has plunged 72%, forcing 25 separate stock exchange shutdowns!

Transneft, the Russian oil transporter, is down from $2,025 in January 2008 to a recent low of $270. Gazprom, the natural gas monopoly, has lost more than two-thirds of its market capitalization since May. Meanwhile, Lukoil fell from a May peak of $113 to a recent low of $32.

Russia's oil-driven real estate bubble is also collapsing. That's why Russian construction and real estate giant Sistema-Hals lost more than 94% of its value last year alone … why PIK Group, another major construction giant, collapsed by 96% … and why the entire RCP Shares Index of Russian developers has sunk 92% since its record high in June 2007.

Ford, Renault and Volkswagen are halting production at Russian assembly lines. Unemployment is likely to surge to 10% and beyond. Massive amounts of foreign capital are fleeing the country.

In a desperate attempt to stem the tide, the Russian government has devalued the ruble 11 times since November, and thrown a quarter of its foreign currency reserves at the raging debt crisis. But it's still not enough. Russia's primary source of revenues — energy exports — is in shambles; and unless crude oil prices could somehow DOUBLE in a big hurry, Russia's economic and financial decline cannot end.

Standard & Poor's has cut Russia's long-term debt rating for the first time in nine years, citing dangerous outflows and a “rapid depletion” of currency reserves. And more downgrades are in the offing. Even a major debt default is not unthinkable.

The biggest danger: Political upheaval and social unrest.

Even before this crisis, Russia's middle class earned less than $500 per month. Now, with the devastating plunge in oil revenues already in place, those numbers are falling to even lower levels. For a nation with a cost of living that rivals that of the U.S., Western Europe and Japan, the last thing the Russian people needed was a depression. Yet that's exactly what they're getting.

I visited Russia last year before the collapse in oil prices. I spoke to a variety of professionals and people on the street. And I stayed with friends who work in government jobs.

From everything I had read, I had anticipated signs of greater prosperity. Instead, I was surprised to see how little average citizens had benefited from the recent years of rapid economic growth.

Yes, they have more access to a wider variety of goods that were scarce during the Soviet era. But most professionals — such as teachers, doctors, nurses and government employees — are still living on the edge of poverty.

Equally surprising is the popular disgust and disdain for the government. Public opinion surveys and press reports may indicate broad support for the Kremlin's foreign policy, and they seem to be accurate. But support for domestic policies is another matter entirely.

My view: Any major disappointment with respect to pocketbook issues could lead to major political changes, the outcome of which is largely unpredictable.

China Far More Vulnerable Than Expected

China's extraordinary expansion of the past decade fueled booms in global trade, commodities and emerging markets. It was a major growth engine that turbo-charged Australia, Brazil, Southeast Asia and even Japan.

Now, however, that engine is grinding to a screeching halt. Indeed, when historians look back to major pivot points of this global economic crisis, they will undoubtedly point to the abrupt end of China's boom.

Many of us assumed that because China's economy was growing so quickly — at a breakneck pace of 10% or more per year — it could easily afford to slow down by a few percentage points and still be in far better shape than most other economies.

But now I seriously question that theory. Indeed, more often than not, companies, industries and entire nations that enjoy the biggest booms are also vulnerable to some of the biggest busts. Instead of a mere slowdown, as many still seem to expect, China's economy could suffer a wholesale collapse.

Exports, which still represent two-fifths of the Chinese economy, are already sinking fast. And the domestic economy, much of which depends directly or indirectly on the revenues flowing from exports, is also beginning to sink.

Warning signs are everywhere: Stocks, down 60% just in the last 12 months; imports, down 17.9% in November alone; foreign investments to China, off 36.5% last year.

In response, the government has slashed interest rates and pledged a $582 billion stimulus package. But that's mere pocket change compared to China's trillions in vulnerable exports. Moreover, it has done little to help millions of small- and medium-sized businesses which are already shutting down and laying off millions.

A big problem: 45% of the Chinese government bailout is earmarked for the cement and housing industry. Meanwhile, cash-flow problems are sweeping through the entire economy, downing airlines, manufacturers and property companies.

Airlines like China Southern and China Eastern, for example, have been losing money hand over fist. China's auto sales are plunging. Its shipbuilding industry is in a tailspin. And its real estate market is collapsing.

Next, expect surging unemployment … mass reverse migrations from urban centers to the countryside … spreading popular unrest … and a major challenge to authority. Chinese leaders have already admitted that an economic downturn would test their ability to govern. Now, that downturn is here — and the ultimate test, on the near horizon.

Meanwhile …

India , also heavily dependent on foreign demand for its goods, is suffering its worst export slump in recent memory. Overseas shipments plunged 12.1% in October and another 9.9% in November, forcing companies like Tata Motors, India's biggest truck maker, and Hyundai Motor to cut output, fire workers and shut down factories.

Brazil , which was growing at a record pace until the third quarter, has suddenly frozen in its tracks. Much of the foreign money it counted on has vanished, leaving acute capital shortages in its wake. Auto sales have gone dead, leaving biggest-ever inventories of unsold cars. Credit, abundantly available just a few months ago, is now gone.

Japan has been slammed by its worst recession since World War II … with stock prices plunging to new 18-year lows … industrial output suffering the largest monthly drop since records were kept … Toyota reporting its first loss in 70 years … layoff victims filling tent parks … and worse.

Everywhere from Argentina and Mexico to Australia, New Zealand and even the once-rich Middle East, the worldwide debt crisis, the bust in commodities and the sharp slowdown in global trade are transforming massive booms into instant recessions.

It's happening fast and it's accelerating. Government rescue programs aren't nearly enough to turn the tide. And it's another key reason you must approach 2009 with great caution.

Stick with safety. Don't veer from the course I have laid out for avoiding the dangers. Wait for the truly big price declines ahead before reinvesting!

Good luck and God bless!

Martin

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Ilya Bakharev
10 Apr 09, 07:52
Analysis on Russia

what is said here is complete rubish, i stoped reading at the chapter about russia already, just plain and simple provocation and propaganda. Where did u see Russian people unhappy with the government? It is the best government they had for years and years. U also speak about poverty, well yes everyone knows that only a small range of people have actually benefited from recent growth, but guess what? An average russian person couldn't care less.

You judge people from american perspective. For an average russian person, prosperity is not their top priority in life, they haven't been brain washed by american dream and strive for money. More over, if you analysed great depression of 30s, u would know that devaluation of curency helped cure the crisis than, america, europe japan, all did it sooner or later and were able to recover. Also, the oil prices went this only only due to panic, as we can already see they started to recover.

But it really it was the "disgust" to government part, which gave you out for being clueless in the subject, I shall repeat again, Russian people respect and follow it's government more than ever these days, and it's truly is a great goverment if u simply look at the statistics starting 2002.


Olga Bayeva
19 Nov 09, 06:15
Russian People

Ilya, you are overly patriotic. "An average russian person couldn't care less"? Of course they care, those doctors and teachers that live on $500 a month, when Moscow for example is one of the most expensive cities in the world! Russia is one of the richest country (in terms of natural resources), yet the level of poverty in our country utterly shocks me.

If Russian people "respect its government more than ever these day", then why do we have such low number of those who vote for the president? Russian people do not believe in its government. Well who can blame them, when it is so corrupted.


Mark Gan
21 Apr 10, 21:59
interesting to hear from the Russians

Good to hear first hand from the Russians! It's obvious to anyone who reads and thinks about things is that Governmental corruption is the base cause for the predicament the world is in right now. Here in the usa people are still in denial of how bad it really is. Everyone is narcotized by sports and television. Scratch through the thin veil and you see fear and panic. Not pretty.


Mahiyavanshi Singh
06 Dec 10, 10:12
Kuchi

I think that you need to include Iran and Turkey in the list as well.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules