A Government Cardinal Sin That Results To A Bear Market? War!

What is one of the government prompted cardinal sins that results to a bear market? The answer is War! We have dealt with this in our past article, Phisix: Learning From the Lessons of Financial History.

So now it appears we have a LIVE unfolding showcase: Russian assets have been collapsing since the military conflict with Georgia erupted!

Courtesy of Danske Bank

From Lars Christensen and Lars Rasmussen of Danske Bank (highlight mine),

``Russia’s financial markets remain under pressure today following the news. Performance has been negative in FX, fixed income and equity markets, and among derivatives. The Russian rouble (RUB) at one point weakened more than 1.3% against its dual currency basket (45% EUR and 55% USD) to trade around 30.10. The Russian central bank (CBR) has since stepped in to support the currency. The RUB basket currently ranges between 29.70-29.90, a few percentage points weaker than last week.

``Meanwhile, Russian share indexes have hit their lowest levels for almost two years. Russia's benchmark RTS stock index fell more than 4% this morning, to its lowest level since November 2006, although it has rebounded somewhat in the last couple of hours. Overall, Russian equities are down more than 30% from their peak in mid-May.

``Going forward, the Russian markets will remain under pressure for as long as there is no move towards a resolution of the conflict. In addition, further falls in oil prices could add to the downward pressure on Russian assets. Caution is thus clearly warranted in the Russian financial markets.”

Additional observation…

From the New York Times,

``Mr. Saakashivili, the Georgian president, said Russia’s oil riches and desire to assert economic leverage over Europe and the West had emboldened Kremlin country to attack. Georgia is a transit country for oil and natural gas exports from the former Soviet Union that threatens Russia’s near monopoly.

“They need control of energy routes,” Mr. Saakashvili said. “They need sea ports. They need transportation infrastructure. And primarily, they want to get rid of us. ”

Hmmmm. It seems to sound more like a conflict premised on commodity geopolitics!