Letters from Moscow

One of my friends, who is an investment banker in Moscow, sent me two messages about the recent movements on the Ruble, the gist of which I am transcribing here:

«About your last note and the Counter-Speculation on the Ruble, part of the rebound is an indirect consequence of the failure of the attack.

Short-sellers must unbuckle if they don’t want to roll-over their positions, which can’t fail happening at the end of the year. If the market doesn’t unhinge in the way of their trading, they simply find themselves stark naked. You can hold out as long as you can, but then comes the moment of truth. Those who jumped on the train at 50RUB/1€ took a nice pile (19/50= 38%) but those who jumped on at 80 will rake in a good loss -26%. And as most of those who jump on the bandwagon do so in the wake of panic movements….

When you have to unbuckle unwillingly at a loss (in this case, selling USD in order to re-buy RUB) you push the market yet a little bit more in the direction that hurts! That’s called a short squezze, the traders’ terror! As these are jobs with a high turnover, it’s a good thing that there’s one occurring every 4-5 years, in order to refresh the memory of the elder, and educate the young. To do that in December, frankly, that’s a vicious one on the part of the Russians, because, as there’s no time left to make up for it, it’s a real hard blow to your bonus. »

As well as the following:

«News travel fast when there are big gains, but it takes much longer when there are losses! Generally, traders try to unbuckle in the evening if their deal is a winner, and to roll over if it’s a loser. But there are two families of traders: those who work for customers and those who work on their own account. The customers-traders must indeed close their positions in the evening and they try to just pass the day having fun with little shorts. Self-account traders can keep their positions open. If I’m not mistaken, it’s the first time since 1998 that the Ruble rebounds so fast after unhinging. Actors on the market must have been dumbstruck because I am pretty sure that anticipations were propped on the perspective of a strong and irreversible downward movement.»

You will notice (chart 1) that there was continued speculation IN FAVOR of the Ruble on Tuesday, December 23. This speculation has certainly made it possible for the Russian monetary authorities to recover part of the reserves spent on Wednesday 17th to “kill off” the speculators.

Chart 1

Movements on the exchange rates market

 A - Forex2

The situation should calm down with the Russian equivalent of « Santa Claus’ truce. » Movements are already weak as of today!



Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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