Whistling Past the Russian Graveyard

  • Markets
  • Michael Gayed

The economic challenges facing Russia, the eighth largest economy (and 2nd most powerful military) in the world, are intensifying. I’ll let the charts speak for themselves.

The Ruble is collapsing, hitting new all-time lows against the U.S. Dollar.


This is leading to a significant increase in inflation, with prices rising 9.1% over the past year.


Credit concerns are growing, with CDS Spreads at multi-year highs.


Interest rates on their debt is moving in the opposite direction to most other countries globally, with the 10-year yield now above 11%.


The Russian stock market (in USD terms) is at its lowest level since 2009, down more than 50% from its recent peak in 2011.


Preoccupied with monetary easing in the U.S., Japan, and Europe, the global equity markets have completely ignored these issues thus far. With the Dow hitting new all-time highs daily, investors seem to be whistling past the Russian graveyard. The prevailing view is that more QE in Japan, the prospect of QE in Europe, and 0% interest rates here in the U.S. render everything else irrelevant.

Perhaps this will remain true in the U.S. equity market through year-end as seasonality is favorable, but I would note that there is one area of the market that continues to suggest 2015 may be a different story: the bond market.

Credit spreads are wider in 2014 and wider than year-ago levels. This suggests higher volatility in equities is likely as I wrote about recently.


Also, the yield curve continues to flatten, suggesting the odds of slowing economic growth have increased.


Will anyone care about these issues if the ECB announces QE in early 2015? Maybe not, but in a more rational world it is difficult to assume Russia’s precipitous decline will be ignored forever.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.


Edward M. Dempsey Pension Partners New York






Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts.  He is the co-author of two award-winning research papers in 2014 on Intermarket Analysis and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors, an institutional investment research firm. Previously, Mr. Bilello held positions as an Equity and Hedge Fund Analyst at billion dollar alternative investment firms, giving him unique insights into portfolio construction and asset allocation.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.

You can follow Charlie on twitter here.


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