recession in the US has already begun, but the markets are growing briskly

If you earn 300kk/sec by pogroming, but at the same time you have some kind of irrational FOMO about the fact that you will miss some important news and get on the loot – then here is the most important thing that happened in the world of finance both in Russia and in the world over the week: Nabiullina is preparing to stop exchange trading in dollars, non-residents are planning to slowly sell shares on the Moscow Exchange, and Interactive Brokers continues to pinch Russian clients.

There is a video version hereand under the cut – all the same text.

The Central Bank of the Russian Federation continues to resolve the situation with the currency

The Russian Central Bank published on its website an answer to a question that hints that the most stringent foreign exchange restrictions on foreign accounts, established by Presidential Decree No. 79 in February of this year, are a thing of the past.

Roughly speaking, earlier Decree No. 79 prohibited any transfer of currency to foreign accounts at all, except for a handful of allowed exceptions. And now a new Decree No. 430 has been released, which turned the situation in the opposite direction: everything is allowed that is not directly prohibited – let’s go for a walk!

Elvira Sakhipzadovna knows how to please investors: first they need to ban everything, and then allow something a little
Elvira Sakhipzadovna knows how to please investors: first they need to ban everything, and then allow something a little

Also Friday at Forbes an article appeared that the Central Bank has been preparing for the introduction of Western sanctions on the Russian exchange infrastructure (the Moscow Exchange and the National Clearing Center) for a couple of months – in this case, among other unpleasant things, the very possibility of exchange trading in dollars and euros will disappear.

So the Central Bank is preparing a scheme on how to calculate the official exchange rates of these currencies against the ruble in this case – by, so to speak, polling the ten largest banks in the country. I can imagine how, in this case, those who have been indignant at the “drawn” exchange rate of the ruble against the dollar for the past four months will be bombed … When calculating the “fair” exchange rate using the new methodology, you will have to come up with some kind of new metaphor – well, like in that joke: “the exchange rate of the ruble sung by Rabinovich from memory.”

Be that as it may, for an ordinary private investor, this bell once again reminds us that in the new reality, the reliable preservation of capital in dollars or euros within Russia is becoming more and more elusive. Well, if you, of course, did not have time to fill the mattress with crunchy dollars (or at least a virtual cryptomatress with kosher stablecoins).

Friendly non-residents are planned to be launched on the Moscow Exchange

Remember our discussion of the fact that a huge number of non-residents have been locked inside the Russian stock market who cannot sell their shares (which causes the hidden potential for the entire market to fall)?

So, the Moscow Exchange decided to start slowly defrosting them: from August 8 will have the opportunity trade by non-residents from “friendly” countries, as well as non-residents who are ultimately owned by Russian beneficiaries.

An unfriendly non-resident is waiting for his turn to unfreeze assets inside the Moscow Exchange.  Canvas, oil.
An unfriendly non-resident is waiting for his turn to unfreeze assets inside the Moscow Exchange. Canvas, oil.

In addition, on August 15, the automatic deconversion of depositary receipts for Russian shares will begin. Can you hear what’s going on? The volume of supply of Russian securities of varying degrees of unfreezing in August should grow – and this, as we are taught by the inexorable law of supply and demand, usually means that the price will fall.

Or at least in this firmly convinced party of domestic traders. Although, if everyone is sure of this, does it mean that this is already included in the current share price? In short, nothing is really clear on this exchange of yours … Except for one thing: never take trading signals seriously from incomprehensible dudes from the Internet!

Interactive Brokers cuts off access to market data of American exchanges for Russians

Popular American broker Interactive Brokers sent out to its clients with Russian residence a “letter of happiness” that from August 1 they will no longer receive up-to-date market data on the NYSE and Nasdaq exchanges.

Important notice from IB: “Dear customer! Trade blind. Such conditions. Hope for understanding.”

This means that it will still be possible to trade on these exchanges – but applications for the purchase and sale of securities will have to be placed blindly, crossed and relying solely on God’s providence. After all, it will no longer be possible to view the current quote or inspect the order book in the Interactive Brokers application.

In general, this does not threaten the majority of IB clients with anything – especially since many of them did not pay the broker an extra $ 1.5 per month for online quotes of American exchanges, but instead used free data with a delay. Well, now you will sometimes have to peek into third-party applications, yes – inconvenient, but not fatal (if you are not an intraday trader).

US Schrödinger recession

On the week It revealedthat for the 2nd quarter, US GDP fell by 0.9% per annum. If we recall that in the 1st quarter the US economy was also falling, then in fact we have a recession on our hands (which is most often defined as a fall in the economy for at least two quarters in a row).

But not everyone agrees with this thesis! For example, Janet Yellen (the head of the US Treasury) said that there is no recession – but there is only “necessary slowdown after growth”. Apparently, in the near future we should expect passages from the guys like “as a result of inflation, there was a planned release of labor and a negative growth of the American economy, powerful as never before!”

Janet Yellen seems to be saying here: “Listen, dear, what a recession - are you even normal, to say such words out loud ?!”
Janet Yellen seems to be saying here: “Listen, dear, what a recession – are you even normal, to say such words out loud ?!”

Yellen’s opinion is supported by both Joe Biden and Fed Chairman Jerome Powell. Like, the labor market in the US feels great – let’s look at that. And the fact that the economy has been falling for half a year already is… ahem… well, in general, the next question!

The US Federal Reserve continues to raise rates

On Wednesday, the Fed at the next meeting raised base interest rate by another 0.75% – up to 2.25-2.50% per annum.

It must be understood that he does this not from a good life: usually, when the country’s economy starts to act up and cough (see “recession” in the previous section), the Fed tries to lower the rate as much as possible – so that loans in the economy become cheaper, money flows through the financial pipes more hard, and so on.

In particular, it was precisely these methods (in combination with Quantitative Easing – “quantitative easing”) that saved the American economy in the covid 2020. And after all successfully rescued! Despite all these lockdowns-shmokdowns, there was no economic collapse – and the Duck stock market generally doubled in two years from March 2020 to March 2022.

As you probably know – in the scientific literature such an economic policy (low interest rate + QE) is called the term “Money Printer Go BRRR!”.

Money Printer Go BRRR by Fed Chairman Jerome Powell
Money Printer Go BRRR by Fed Chairman Jerome Powell

So, in the current situation (the beginning recessionary recession in the US economy), it would be just right for Powell to play around with the printing press. And he would be happy! If it were not for inflation, which by now has already reached 9% in the United States – what a little (four and a half times) above the inflation target of 2%.

It turns out that the US Federal Reserve is now a little hung between a rock and a hard place. If you don’t raise the rate, inflation will continue and rednecks from the southern states will soon take up the pitchfork. If you raise the rate too aggressively, the economy will go kirdyk, and again it will fall on the pitchfork…

TradingView: Fed Base Rate (Blue) vs. US Inflation Rate (Orange)
TradingView: Fed Base Rate (Blue) vs. US Inflation Rate (Orange)

Now the Fed is being scolded by many for keeping rates too low for too long. Throughout 2021, Powell fed everyone with the fairy tale that “inflation is a temporary matter, now it’s about to fall back!”. And for some reason she kept growing. So now we have to tell everyone that Putin is solely to blame for this. No, well, the problem cannot be in the actions of Powell himself and Money Printer Go BRRR?!

No matter what, the markets are growing

In fact, the recession has been confirmed in the USA, the interest rate continues to be raised at a record pace – what do you think should happen to the stock market? But no: the US market has grown by 4.2% over the past week, but in general, since mid-June, the rise has already been 12.6%.

TradingView: S&P500 Index 2022
TradingView: S&P500 Index 2022

The fact is that the behavior of the market is controlled not so much by the facts themselves, but by the expectations of investors regarding the future. If something bad happened for the stock, and they are growing at the same time, it just means that investors were expecting even more sad developments. So, over the horizon of days, weeks and months, the market is greatly influenced by the mood of the masses; and only on long horizons (years and decades) does everything eventually come down to fundamental economic factors.

In addition to traditional markets, our favorite cryptocurrencies are also growing: Bitcoin has grown from the bottom by 25% over the past month and a half, and Ethereum has grown by 70% in general! After all, Vitalik Buterin promises here at last turn Ethereum from a nasty anti-environmental project into a beautiful green Proof-of-Stake blockchain of the future (that is, without the need to continuously mine numbers on Chinese video cards).

If the selection seemed interesting to you and you are in favor of me starting to publish similar issues weekly, press the like article! In case of a good response, I will make it a regular column. =)

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