Ruble, You Can't Make This Stuff Up

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Includes: ERUS, RBL, RSX, RSXJ, RUSL, RUSS
by: Paulo Santos

Summary

Assets sometimes move for the most fantastical of reasons.

Such is the case with the ruble today, and thus ruble denominated equities.

This time the reason for the move is probably better than the latest 007 movie. It also makes for a good buying opportunity.

Ruble The ruble is down ~4% today. Nothing new, given what's been happening to crude. However, today the ruble is down 4% not because of crude, but for a much more specific affair.

You see, back in Britain, a report was published. This report focuses on the role Putin might have had in the death of Alexander Litvinenko. Basically, while not conclusively saying Putin ordered the murder, it says that it is likely Putin would have had to approve it.

The Report

Now, the report reads like a 007 novel. Litvinenko starts out at the KGB, then gets dismissed from FSB (the successor to KGB) after publicly criticizing it. Litvinenko flees Russia for the UK, where he supposedly joins the MI6 and also helps the Spanish secret service on inquiries into Russian activity.

Furthermore, Litvinenko starts a campaign against Putin through books and media articles, including:

  • Allegations of corruption
  • Allegations of false flag events like the bombings of apartment buildings in Russia by supposed Chechen terrorists in 1999 and possibly the 2002 Moscow theater siege
  • The whole thing culminates with an article containing the direct accusation that Putin is a pedophile

People associated with the campaign die left and right. It turns into a complex story, involving even more personal treasons, law changes to supposedly aid in his killing, diabolical killing methods, etc.

The fact is that reading it, you do find a lot of people with motives to see Alexander Litvinenko dead. While subjective, I'd say that the main interests in seeing this outcome would actually be inside FSB's hierarchy. Why? Because the whole process doesn't just include the death of Alexander Litvinenko - a Putin critic - but also the deaths of several related persons which were not Putin critics (but were potential exposers of the supposed FSB false flag attacks).

Anyway, for anyone loving his spy novels, you can't get any better or more realistic than reading the full 328-page report (linked above and here for good measure).

The Relevance For Us As Investors

The whole thing would just be a very interesting curiosity, if it hadn't made the ruble move more than nearly anything else recently. The RUB is down 3-4 (~4%) against the dollar on this very news, and there's little doubt that this is what caused it since there was no appreciable move on crude this time.

Risk Of Further Sanctions

The main rationale for being negative on these news is that they could be accompanied by further sanctions and harm to Russia's economy. The logic for further sanctions would be the murder having been committed in UK territory.

This isn't likely, there are nowadays literally hundreds of deaths per year happening at the behest of the major secret services. Sure, nearly all are against mid-eastern terrorists and perhaps some against Iranian scientists, and it's certainly not a Western custom to go around killing enemy spies or people that publish articles and books on your leader being a (possible) pedophile. But the two together? A possible foreign spy publishing grave accusations against the leader of a powerful nation like Russia, a nation that's not known for its light touch?

Anyway, my take is that this will blow over. This happened 10 years ago already, and there are no reports of it having been repeated on foreign ground. Sanctions are used to stop behavior (see Russia and Ukraine, Iran and atomic bombs, etc), not to punish it. Further sanctions are very unlikely on this theme.

Temporary Effects

Being that further sanctions are unlikely, this event becomes important for investors. What we have here today is a further 4% temporary discount on Russian equities, brought about by a piece of news that will be irrelevant and forgotten in just a few weeks.

Obviously, the drop in the ruble translates directly into an impact on such Russian proxies as the Market Vectors Russia ETF (NYSEARCA:RSX) or the Market Vectors Russia Small-Cap ETF (NYSEARCA:RSXJ), as well as individual stock ADRs. The Russian market itself is actually up, thus mitigating some of the impact.

Conclusion

Today's drop in the ruble is a buying opportunity. This drop is not because of further crude deterioration (though crude is down slightly). This drop is not because of a fundamental change or the Russian economy.

Instead, this drop is an emotional reaction to a 007-like situation which happened more than 10 years ago. This too shall pass.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.