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Mar 13

war and financial market

Posted by abiao at 08:47 | Default | Comments(0) | Reads(951)

The Russian military intervention into the neighboring country of Ukraine is taking a heavy financial toll on the Russian economy. Stocks, bonds, and rubles have taken drastic dives since the invasion losing 10.8%. Dollar wise that amounts to about 60 billion dollars valuation of Russian companies vanishing almost overnight.

Russian President Vladimir Putin claims the action is necessary to protect Russian interests and citizens. Further pressure from the United States and Belgium could mean even more significant financial loss if the threats are carried out. The outlook certainly doesn't bode well for an already weakened economy.

With the cost of the invasion cutting deeper and deeper into the economy the Russian currency will continue its decline and Putin may have to resort to an old method of financing the skirmish called a war stock currency bond. A war stock currency bond is an financial instrument between the purchaser and the government to help finance military operations. The Russian President hopes to end the conflict soon and thus avoid any drastic measures to pay for an all out war.

The Russian economy is not the only loser in this confrontation as Ukrainian markets have taken a plunge also. Down almost 10% since last week the effects are beginning to reach the surrounding countries and reaching into Europe. Thankfully no blood has been shed in this upraising but the financial losses have been significant and show no sign of rebounding without a quick unilateral agreement between the two countries.

President Barack Obama stated the cost of this decision by Putin will be costly and recommended a quick resolution. Obama called for international monitors to be called in to mediate a deal acceptable to the Russians and Ukrainians. The European Union echoed those remarks and have established unspecified "targeted measures" should the Russians not withdraw troops.

The financial effect worldwide could be felt soon if no quick resolution occurs. Business Day writer Jeff Sommer of the Sydney Morning Herald wrote that investing is difficult enough when focusing on the fundamentals like earnings, debt loads, and cash flow. He goes on to say when you add geopolitical events and military skirmishes the investment decisions may be impossible. He stated people speculating on the US dollar could have made or lost a fortune on Monday only to find a total reversal on Tuesday.

Sommer went on to say short term plays are extremely risky comparing them to gambling. He does, however, feel long term decisions have less volatility and could return solid gains. Sommer noted the decline of markets worldwide triggered by the news of the conflict and the rebound when Putin announced that outright war was not imminent.

The effects of Russia's actions will depend on the length of the disagreement. The longer the tension is endured the larger the impact. All out war could devastate both countries financially. In that event neither country comes out a winner.

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