It was just three weeks ago when I wrote to you about the possible fall of the Russian ruble
. At that point, I had thought about a possible aggressive move from Russia if the Ukraine situation got out of hand, but I didn't expected to see it really playing out.
In my mind it was a theoretical possibility, but my prediction was rather based on the mess in the neighboring regions.
Had you acted on that tip, you could have seen a double-digit gain in less than a month. I do not believe the ruble is out of the woods yet. I would sell half my position today and wait to see how the other half performs before I exit my position fully.
The response to the ruble slide from the Central Bank of Russia was certainly very interesting. The bank raised interest rates by 150 basis points to help reverse the losses a bit and stem the bloodletting. It also heavily intervened in the currency markets and burned through $12 billion to stem the ruble's decline. While the slide may have stopped for now, I do not believe the geopolitical mess is quite over yet.
What is fascinating is the diplomatic response streams being bandied about to halt Russian aggression in its tracks. In the United States, we have the Republican pundits demanding a war-like response from the perceived weak President Obama, while the liberals are talking sanctions and freezing of Russian assets. In short, the predictable response that could have been anticipated well in advance.
I am confident Russian President Putin would have enacted all the possible outcomes and evaluated each one before he has started his aggression. He has played us all, just as he did during the Syrian crisis.
One cannot really believe he plans to annex Crimea in such a direct aggressive stance.
Putin may be a lot of things, but he is not stupid. If he wants to really take over Crimea, he would have fostered revolt from within there and then become the savior rather than be labeled as Attila the Hun.
War from the U.S. side is nearly ruled out, as we are flat broke. The sanctions would not be supported by the Europeans or would languish. Europe has too much to lose if sanctions are imposed. Russia supplies a huge quantity of oil, and Europe would not be able to sustain the blockade of Russia for too long. So they would drag their feet.
So no real options existed in the traditional responses.
In the meantime, Russia has warned of removing the U.S. dollar from the reserve status if sanctions are imposed. They have now joined a growing voice of people who are threatening the U.S. dollar. In addition to Russia, the Chinese and Iranians want to see the end of the U.S. dollar. There is now growing impetus from the oil producers and consumers to end the dollar's reserve status.
Russia smartly withdrew its forces before the heat got high. It rattled the cages and then withdrew. Just like how Russia saved Syria at the last minute from a U.S. invasion. Russia has now outfoxed the world twice in the past six months.
If they align themselves against the dollar with the other haters, we could see a real assault on the dollar sooner rather than later.
So while I predict the calming of the turmoil against Ukraine in the next few weeks, we will see possibly one more flash point before we see a calming down. I would buy the Polish zloty and South African rand against the dollar or euro now or at the next flash point, and then sell as the currencies strengthen in a few weeks when Russia retreats back to its cave to plot the next strategic move to outwit the world once again.
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