Tufar on Finance and Economy

Financial Times reports that Russian companies face $45bn backlog to be paid or restructured before the end of the year. Cost of refinancing and borrowing for Russian companies increased by 2-3 percent due to political risks.

Meanwhile Russian stock market is being decimated and lost half of its value in last 3 months! Russian indices are in freefall and recently government announced that it is contemplating using Russian sovereign investment fund to stop the fall of share prices.

While it is an incredibly short-sided idea, there is some merit to it since no other measure can stop the fall. Also, monies from sovereign fund will be necessary to help Russian companies pay back the debt to foreign banks.

Russian sovereign fund is held not in cash but in government bonds so that it would bring profit while it lies there idle. They are spread between US, European Bank and UK treasuries but for the simplicity we will assume that they are held in US treasuries, half of trillion of them.

So, soon Russian government will rush to the market to sell half a trillion worth of treasuries. As we all know too well, a world-wide liquidity crisis is ravaging for the good part of the year. Selling half-a-trillion worth of treasuries for hard cash is going to be a difficult task.

Furthermore, as it is usually happens, Wall Street broker houses will be waiting for this move of government of Russia with an eager anticipation. They are getting wet at the mouth at the idea that Russia will have to dump this amount of treasuries on their market all at once. They will agree among themselves and keep the prices of treasuries artificially low. Then, after buying them, they will turn to the Fed discount window and borrow hard cash to pay the Russians. They can do it against collateral of treasuries, thanks to the extended lending rules announced in March. Well played Wall Street, well played indeed.

What can Russia do? Sure, they can go to China or Saudi Arabia, or any other dollar-rich country to sell US treasuries for the hard cash. But I doubt that these countries would pass the opportunity to profit handsomely even like their Wall Street colleagues.

Russia is cornered and by the New Year it is going to lose almost all of its foreign currency reserves: it is going to be spent on paying back the loans. The Russian Stock market will collapse, Russian economy will collapse. This is the cost of war and aggression on Georgia.

Well played, indeed, well played.

It finally happened, government is all but takes over Fannie May and Freddie Mac. Shareholders are wiped out, government will inject liquidity, take over the management and gradually unwind the investments until the entities dissolve.

It was expected, Fannie and Freddie could not survive by themselves. This may mark the end of banking crisis of 2008, a definitive bottom and a start of recovery. Why? Because there is nothing else to fail. When there is nothing els to go down,  the only way to go is up.

I spent all August following Russia’s aggression towards Georgia and could not dedicate as much time to the markets. Nothing has moved in the markets in August.

As we came into September, price of oil fell, dollar strengthened, euro collapsed, commodity and fertilizer companies got decimated. China, which drove commodities surge, is submerging into recession.

But, do not fret; September is historically a losing month. This fall is a good opportunity to load up on shares and be ready for September surge.

Jim Cramer says that this 5-day sell-off was due to hedge funds redemptions that have to be honored within five days of application (September 1)

S&P 500 Seasonal Pattern

S&P 500 Seasonal Pattern

Source: Washington Post (http://www.washingtonpost.com/wp-dyn/content/graphic/2008/07/26/GR2008072601566.html?sid=ST2008072601558&pos=list)

Nothing moves in the markets. One day up, next day down. No clear trend, no clear direction.

Drug stock show some action. Health care is also moving. But no action is worth investing.

My positions are emerging out of negative territory. Surprisingly, energy and ag. sectors are rising up again. I have orders to close positions at break even. I am reluctant to take any bets now. I want to close all of my positions and take a breather after my huge loss in July.

(BUCY: 61.215 +0.68%, 50-day: 53.13, 200-day: 59.01, short ratio 1.60, 1yr target: 79.53) position closed at break even.

(MOS: 47.6019 +0.03%, 50-day: 43.60, 200-day: 52.28, short ratio 0.80, 1yr target: 57.67) just announced stellar earnings after market close. My position of Aug 150/155 debit call spread is in a deep loss as the share price is $122.36. Hopefully shares will soar tomorrow and I will be able to close my position without a loss. Price is up $2 in the aftermarket. I wish it went up more dramatically.

Sold them to close Aug options position. UNP was moving up gradually, WLT shoot up 15% after stellar earnings.

X also reported above expectation earnings and very good outlook. Stock shoot up 14% but my position in it is still in minus. The volume was high but it failed to cross 50-day moving average. But I hope it will continue its ascent tomorrow.

Oil is falling, natural gas declined 34% this month, consumer sentiment is getting better. CNBC announced that the last 10 days were the best 10 days for stocks ever. But, I still can not find an attractive industry to invest in.

My position in MTL is still standing, accumulating losses but I hope Vlad does something to reverse the damage he has done with his careless attack last Thursday.

Markets continue to oscillate. Absolutely no ideas and no well-defined trends. Commodities no longer work. Vlad Putin continues attack on MTL, the shares go even lower. Now there is a real fear that Vlad will go yukos on MTL.

I mostly look for the ways to trim down and close my existing positions. No prospects for good investment until autumn.

MTL announced that it will cooperate on the issues pointed out by Putin. Bought some, expect a rally on Monday. Foreign investors are worried about growing government interference in business in Russia.