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In this video we look at the effects of economic sanctions on the Russian economy and the value of their currency.
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0:00 - 1:58 Intro
1:59 - 3:18 Masterworks Sponsorship
3:19 - 5:13 Initial effects of sanctions
5:14 - 7:29 Fossil fuel windfall
7:30 - 9:47 Foreign companies in Russia
9:48 Long-term pain
#Wallstreetmillennial #Russia

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What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing after russia's invasion of ukraine. Most economists predicted that the unprecedented economic sanctions imposed by the west would crush the country's already weak economy. The sanctions mainly targeted. Russia's financial system, within days of russian tanks rolling into ukraine, the european subsidiary of russia's spare bank was forced to shut down after a bank run.

Half of the russian central bank's foreign currency reserves. Totaling 300 billion dollars were frozen overnight, severely diminishing their ability to defend the value of the ruble over a thousand large western corporations shut down their russian subsidiaries, even if they were not required to do so by the sanctions with the ruble collapsing and trade ties with The west drying up many economists predicted a complete collapse with some estimating as much as a 25 percent contraction in their gdp. The er west, russia, etf tanked by 80, before being halted by the exchange as investors, grew increasingly pessimistic about the country's prospects. Western policymakers had hoped that the crippling economic costs and pose against the russian federation would hamper their defense industrial base and reduce their ability to wage a prolonged war.

That's why it came as a big surprise when the russian ruble more than doubled from its lows year to day, is the best performing currency in the entire world. Increasing twenty percent in value versus the us dollar and thirty percent versus the euro when including the currency gains. The russian stock market has also outperformed the us and european markets, while the country's gdp is still expected to contract estimates now have the economy shrinking by between eight and ten percent. While this will surely be a painful recession, it's not a complete collapse.

On the surface. This looks like putin's fortress, russia's strategy is paying off and he has been able to withstand the brunt of the sanctions, but the country is in a very fragile situation and there are reasons to believe that the strength of the ruble will only be temporary. This video is brought to you by masterworks with russia's invasion of ukraine and the fed hiking interest rates. Investors have understandably become concerned about their portfolios.

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On february 24th, foreign investors immediately dumped their holdings of russian assets in anticipation of western sanctions. This caused the value of the ruble to freefall, losing 45 percent of its value. In the first couple weeks, the federal reserve coordinated with allied central banks to freeze the russian central bank's foreign currency reserves greatly inhibiting their ability to support the value of the ruble. Many eu countries banned exports of luxury goods to russia, with tens of thousands of luxury vehicles stuck in transit frozen by european port authorities.

In fears of further export restrictions, russians started stocking up on imported goods, while they still could putting further pressure on the ruble. The decline in the ruble's value caused prices of imported goods to skyrocket inflation doubled from 9 to 18. In the first two months of the war. Aware of how desperate the situation was becoming putin quickly, convened with his economic advisers and the central bank governor to come up with a rescue plan, the most immediate priority was to stop the bleeding of the ruble's value and tame inflation.

Just four days after the war began, the russian central bank doubled their short-term policy interest rate from nine and a half percent to 20 percent, increasing interest rates made, holding the ruble more attractive, encouraging people to buy rubles and take advantage of the high interest rate. Secondly, they compelled export focused companies to convert 80 of foreign currency holdings to rubles, providing further buying pressure. Another big concern is that foreign investors would dump their russian stocks in bonds. Many institutional investors now consider russian financial assets, uninvestable msci and ftse.

Two of the largest stock index makers removed russia from their emerging markets and disease. When investors sell, they will convert rubles into their home currency, which would cause further depreciation to mitigate this. The russian government banned foreigners from selling their stockholdings on the moscow stock exchange. They also froze any distributions paid from russian businesses to foreign shareholders.
A law of the strength in the ruble can be attributed to the kremlin's capital controls which basically amounts to manipulation. But in addition to this, the fundamentals of the russian economy are actually pretty strong. Russia is one of the world's largest fossil fuel producers. Producing 14 of the world's oil supply and 17 of global natural gas.

Europe, in particular, is heavily dependent on russia, given their geographical proximity and pipeline infrastructure. Most large western oil companies have divested from their russian joint ventures and their ability to purchase oil field capital equipment has been reduced. Also, many western importers are shunning russia for pr reasons and fears around the uncertain sanction environment. Some of the decrease in european imports will be made up by greater exports to india and china, but it will take years to build out the necessary infrastructure to divert all the supply.

The research firm rice, dad energy predicts that russian oil production will decrease by about 15 percent in 2022. However, the decrease in volume will be more than offset by higher oil prices, which have almost doubled since pre-covered levels. In fact, a large part of the price increase has been the result of decreased russian supply. Oil demand is very inelastic.

Even when gas prices are high, you still have to fill up your tank to go to work. It would take a very large increase in price for most people to meaningfully reduce their consumption. Thus, even a small decrease in supply results in a large increase in price perversely. Russia's oil revenues may actually increase as a result of the sanctions they're exporting fewer barrels, but each barrel that they do export is for a much higher price.

The situation with natural gas is even more favorable to russia. Europe and asia are so dependent on russian natural gas that, even despite the sanctions, their production is still expected to grow, just a slower rate than would have been the case. Otherwise, with european natural gas prices more than five times higher than normal levels, russia is currently experiencing a windfall which will likely persist for at least a couple more years, based on current prices. Russia's energy exports are expected to increase by 36 percent to 321 billion dollars in 2022..

In fact, the european union has already sent close to 50 billion dollars to russia since the invasion began. This is more than the economic and military aid given to ukraine. In the same period, importing nations have to buy rubles to fund their energy purchases, which has sent the currency's value skyrocketing. The next problem they have to deal with is a 1000 foreign companies which have voluntarily halted operations in their country.
These companies employ hundreds of thousands of russians. Their closure would cause massive unemployment and reduce the availability of products to russian consumers. To mitigate this putin put into place laws whereby these foreign business subsidiaries will be expropriated by the government and souls of local entrepreneurs who are willing to operate them to get in front of any expropriations. Many western companies are selling their russian subsidiaries for pennies on the dollar.

Mcdonald's has operated in russia since 1990.. The grand opening of their first moscow location had great symbolic significance for russia's increasing economic ties to the west. Over the years, they expanded to 850 stores employing 60 000 people. Shortly after the war began, mcdonald's suspended its russian operations.

The real estate and supply chain infrastructure is still in place, they're just sitting idle. Just a few days ago, mcdonald's sold all of its russian operations to a russian billionaire named alexander gover, dover, already owned 25 mcdonald's franchise locations. He will continue operating the 850 mcdonald's across russia and the 60 000 employees will retain their jobs, while the exact terms of the deal were not disclosed. It's safe to assume that govern got a steal.

Mcdonald's says that it will take a 1.2 billion loss related to the transaction. There are many similar examples. The most popular automobile brand in russia is called leyda and is majority owned by the french auto giant renault, like mcdonald's renault, suspended its russian operations they're. Currently, in discussions with russian companies to divest their stake and the french company expects to recognize a loss of at least two billion, there will certainly be operational problems once they try to get the factory back up and running, as it will be more difficult to import.

Foreign-Made parts, but the factories previously owned by renault, will start producing cars again. At some point, western companies are on track to lose hundreds of billions of dollars by fire selling their russian assets to local entrepreneurs. While this will cost some operational inefficiencies, it is effectively a massive transfer of wealth from western shareholders to russian business elites. This benefit to the russian oligarchs will be far greater than the yachts that were seized, while shutting down russian subsidiaries makes for a great pr move.

It will only have a limited impact on the russian economy and putin's war machine, at least in the short term, while russia has been able to offset most of the effects of the sanctions in the short term. The long-term picture is much bleaker. Many western high-tech products like smartphones and computers will be very difficult, if not impossible, for russia to make on their own, for example, apple, stopped exporting iphones to russia. Russia has their own local smartphone manufacturers.
Their is smartphone is a very capable device which sells for less than 150 dollars, while they can assemble the device domestically. Their domestic semiconductor manufacturing capabilities are almost non-existent, especially for higher end chips. Manufacturing semiconductors is extremely difficult and russia has relied heavily on imports from taiwan and south korea. Both countries are parties to the western sanctions and have implemented semiconductor embargoes against russia.

They can import some chips from china. Currently, china only produces simpler chips, such as the ones used in automobiles and generally less sophisticated products. As long as the semiconductor sanctions remain in place, russia's domestic technology hardware industry will grind to a near halt. Also, russia's own oil refining capacity will gradually start lagging behind western countries, as they will no longer have access to many of the leading edge refining technologies developed in the u.s.

This doesn't mean that russia will go back to the stone age in recent years. Russia has dramatically increased its ties with china, and chinese brands made up three-fifths of the russian smartphone market last year. This number is now probably closer to 100, as apple and samsung's suspended shipments to the country. The western sanctions will certainly have a negative impact on the russian economy in the long term, especially in the technology sector, but this will take years to have a significant effect.

In the meantime, a combination of capital controls and high energy prices have put russia into a surprisingly strong position. Unfortunately, this means that they will have sufficient financial resources to continue their invasion of ukraine, at least in the short to medium term. Alright guys that wraps it up for this video, are you surprised that ruble is the best performing currency of 2022? Let us know in the comments section below, as always. Thank you so much for watching and we'll see in the next one wall, street millennial signing out.


By Stock Chat

where the coffee is hot and so is the chat

28 thoughts on “The russian ruble just doubled, have sanctions done anything?”
  1. Avataaar/Circle Created with python_avatars G.T. G 1 says:

    Well who knew?? Now seemingly, Rubies is out-performing all currencies.

  2. Avataaar/Circle Created with python_avatars Funmilayo Tijani says:

    America and UK can invade all the countries they want and no one punishes them for it but everyone wants to pretend moral outrage when Russia does the same 🀑

  3. Avataaar/Circle Created with python_avatars tristan flodin says:

    Russia is not nearly as evil as they try to claim. Sanctions were retarded

  4. Avataaar/Circle Created with python_avatars Fortunato Cardenas says:

    The basic assumptions of this poor Millennial guy of wall street is based on the theory that Russians cannot Innovate. Well Mr. Millennial, you seem to be born yesterday. FYI Russian have contributed to great innovations of the world. The periodic table of elements was invented in Russia. There are many pioneer inventions that started in Russian which the west just copied and improved. So if you really think that Russian cannot innovate then probably you should just turn off this dumb channel of yours.

  5. Avataaar/Circle Created with python_avatars Vzzdak says:

    International companies choosing to place their operations within a totalitarian country need to assume that their equipment and technical know-how can be subject to theft at any time.

    The sketchy bit are stakeholders who push for that integration, then sell their stake prior to the operation going south.

  6. Avataaar/Circle Created with python_avatars Jeff Sopha says:

    Forgive my poor attitude, but I did not expect a millennial would have such a clear picture of what is currently unfolding. It will take time for any of these sanctions and business exits to have a consequential result. Maybe years. By then Russia, Europe and America will be in crisis and China will be there to save us all.

  7. Avataaar/Circle Created with python_avatars Geof Holman says:

    So Rubble is has risen, even with sanctions. I think this just shows how poor western fiat currencies are…Fiat currency exchanges are really a zero sum game…

  8. Avataaar/Circle Created with python_avatars Eric M says:

    They’re selling their oil at a 30% discount right now and production is down 10% so it’s not all it seems

  9. Avataaar/Circle Created with python_avatars Eric M says:

    Soon America will let high skilled immigrants from Russian, opening up the flood gates stealing Russia’s talent that will be the most effective move imo

  10. Avataaar/Circle Created with python_avatars living alone says:

    lol who cares about macdonald russian can eat healthy food. macdonal are so unhealthy

  11. Avataaar/Circle Created with python_avatars Allen Pradhan says:

    Russia is not able to take advantage of high oil prices because it has to sell its oil to countries like India at a discount of 25-30 dollars per barrel as no other oil importing countries are willing to increase their imports of Russian oil and gas

  12. Avataaar/Circle Created with python_avatars mr fool says:

    Man, most western goods just have to go through a middle man before reaching Russia same with Russian exports.

  13. Avataaar/Circle Created with python_avatars SetTheCurve says:

    These videos often start out good only to get ruined by shilling masterworks.

  14. Avataaar/Circle Created with python_avatars Orange Rightgold says:

    yeah it did. Sanctions raised our gas prices and caused a food shortage.

  15. Avataaar/Circle Created with python_avatars Chris Paul says:

    Doubled from where?.. Long term trend of the ruble is about the same as before the
    invasion.. Support sadistic killers for a buck if it thrills. Karma does exist.
    Why is it up? Price of oil is up ,,so demon put gets more per barrel.

  16. Avataaar/Circle Created with python_avatars Samson Soturian says:

    They lived fine during the iron curtain, why would thus be any different?

    Then again, if you believed all the internet experts, you would have believed Russia would collapse in a civil war over a month ago, that Russians had both useless equipment and were slaughtering indiscriminately, that Russians were both suffering 80% casualties and were seizing ground, that Russia was a third world country with first rate science and factories, and so on and so forth.

    The bottom line is the internet is full of it.

  17. Avataaar/Circle Created with python_avatars D C says:

    He's laughing,countries are still buyjng his oil and gas and now he cant pay his debts

  18. Avataaar/Circle Created with python_avatars Tamin Mohammad says:

    I feel like Crude Oil is all a big scam. I mean how is a commodity seen as "free" on 4/20/2020, and now worth over $100. Thats stupid. Companies taking advantage of what is worthless.

  19. Avataaar/Circle Created with python_avatars Marc Lewis says:

    Is it really a transfer of wealth though? The cars produced in those factories are going to be garbage and there’s not much of a market to export them. And those McDonalds locations will no longer be McDonalds no matter what the sign says. Those businesses will be making a small fraction of what they were making before, if they can turn a profit at all.

  20. Avataaar/Circle Created with python_avatars cpm1003 says:

    Joe Biden is essentially funding both sides in the Ukraine war, causing more death and misery.

  21. Avataaar/Circle Created with python_avatars William Lloyd says:

    Death by a thousand cuts takes a long time. Grey market sourcing of iPhones and gaskets will work but at a cost.
    PS – would you want to use Huawei Technologies core routers, 5G cell system, and other high tech gear? Guess Russia will have to manage this risk

  22. Avataaar/Circle Created with python_avatars Matt X says:

    The currency has NOTHING to do with its economy now. Its totally unlinked because nobody other than Russians are buying Roubles and thats because they are forced to by law hand over 80% of all currency for roubles.

  23. Avataaar/Circle Created with python_avatars Richard Fox says:

    Is anyone actually paying for anything in rubbles? I saw a chart where there is essentially zero dollar to rubbles being converted which means Russia can peg its exchange rate and its meaningless as no one is buying.

  24. Avataaar/Circle Created with python_avatars Andrew Allbright says:

    "…While this will cause some operational inefficiencies, it is effectively a massive transfer of wealth from western shareholders to Russian businesses." DUDE. Fuck. That's right. Russia is taking some big wins πŸ™ˆ πŸ™ˆ

  25. Avataaar/Circle Created with python_avatars PutXi Whipped says:

    So many NATOadies malding in the comments. Ukraine is now a de facto rump state and now the West is slowly admitting that Russia is winning.

  26. Avataaar/Circle Created with python_avatars Graeme Wingate says:

    Capital controls work both ways, if I could buy Rubles right now then I would. Sadly my western Government has blocked it.

  27. Avataaar/Circle Created with python_avatars Kevin Mosser says:

    Let’s punish them by giving them a our stuff at a 50% discount and that will help them them compete with us in 5 years when we try and go back…… damn these companies are dumb.

  28. Avataaar/Circle Created with python_avatars lalaha burp says:

    As cgp grey says "a country can run on dying slaves and still produce great treasure."

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