Markets of Israel in Terror War + Russian Ruble
Note: I was almost finished with an article on the Russian ruble on Friday before Shabbat came in. When I got out of Simchat Torah, news and images of butchered Israelis were abounding. Now I have a quick rundown and context of Israeli markets initial reaction to this war as well as a discussion of the Russian Rubles continued weakness having it hover around 100 to the dollar.
Israel:
Hamas launched a massive coordinated terrorist attack on Saturday, October 7th. Killing more people in Israel than the death toll on 9/11. For perspective, Israel is a country of 9.3 million compared to America’s 331 million. Unlike the US, Israeli stock markets are back open. We can already see a big drop of about 10% and the damage done is unlikely over… just as this war is not over.
In many ways this is a measured, even ‘positive,’ response. After 9/11, the US markets were closed for a full week to prevent panic. When they reopened, it was also about a full 10% down. The attack on Israel is proportionally much larger than 9/11 – frankly, I would have expected the Israeli stock market to crash harder.
The Israeli Shekel also dropped under the attacks. The total move was more muted, but it is in context of a multiyear weakness in the Israeli Shekel.
I will be monitoring the Shekel as events unfold. As a longtime floating currency, the shekel will reflect a mixture of capital flows and economic measures and problems. The story may turn out to be simple or complex but a floating currency of a non-commodity country is a good place to start an analysis.
Rumors are circulating that Hamas or Iran linked groups shorted the Israeli market before the weekend. However, I have seen no reputable reports or any evidence of this action myself. The way to execute this trade would be to purchase options and sell them after the event – such trades leave clear electronic traces. If it were done in US markets, our regulators would flag and follow the money. I trust Israeli security services will do the same should it be discovered – but for now, these are just rumors.
This is not a war about profit. Hamas was founded on achieving Jewish genocide and continue their attempts. As we can see, this has not changed.
Russia:
Finance Minister Elvira Nabiullina did an amazing job financing the terror of the Russian state for this long.1 Except now, it seems she is being setup as a scapegoat for the economic problems in Russia – all of which are driven by causes outside of her control. It is quite fitting and normal for an autocratic regime to blame its finance minister for their misdeeds. Nabiullina or her ministry may eventually be blamed for the Russian domestic economic disaster caused by the war, as well. Problems include: massive emigration of working age population, huge death rates amongst working age males, problems with foreign trade, domestic inflation far higher than reported rates, and a collapse in domestic tech and manufacturing sectors.
During the war, Russia has built a large ‘ghost fleet’ of ships without transponders and flagged under various nations to export a majority of their oil at around $75 a barrel. Oil and Gas income is still the main finance mechanism of the state. Further, despite significant economic problems from sanctions, having not taken the machine tooling industry seriously, Russia continues to be able to operate, update, and repair machine tools entirely made in foreign countries and mostly in the EU (with the US and Taiwan rounding out the main list). If we want to make trade sanctions effect the war machine, we need to focus the sanctions against the machines that produce weapons—in this way, quality matters more than quantity.
At the end of the day, no amount of cash is enough to satisfy the grand ambitions of Czar Putin while also maintaining the russian peasants’ standard of living. If Russian history serves as any guide – the state will continue its terrorist ways and citizens’ standard of living will continue to deteriorate… but their support for imperial chauvinism will not go away.
Article by
Editing by @J_Prettybuds on Twitter
While I remain impressed with the technical capabilities of Minister Nabiullina, this is not to say that she is a ‘good guy.’ She has spent the better part of two years evading international sanctions to find ways of financing the genocidal invasion of Ukraine. With her extensive contacts and skillset, she could have easily sought asylum after attending a foreign Finance event. Instead, she chose to make the capstone of her life’s work financing the murder of Ukrainians.