In my opinion, the biggest economic news recently has come out of Russia. The Russian central bank dramatically raised its key interest rate to 17%, up from 10.5% (Dec. 18) in an obvious, desperate attempt to stem the dramatic slide of the Russian ruble.
Interestingly, the Russian central bank cited the rising devaluation of the ruble and inflation risks as the reasons behind its dramatic interest rate hike. However, whenever a central bank uses the word “devaluation,” you can pretty much kiss the currency goodbye.
The world is now waiting for that impending devaluation of the ruble, and the financial markets are now watching Russian bonds for a potential default.
The 54% plunge in the ruble relative to the U.S. dollar since the June 26 high is truly shocking. Clearly, Russia now has a much bigger problem than just weak crude oil prices. In fact, many big-name companies like Audi, General Motors Company (GM), Jaguar and Land Rover halted their sales to Russia last week, despite the fact that Russian citizens were trying to buy vehicles and other big-ticket items to protect their rapidly depreciating rubles.
Notably, Apple Inc. (AAPL) also suspended online sales in Russia last week, and then reopened on Monday with a few notable changes. Due to the extreme currency fluctuations, Apple is now charging Russian consumers 35% more for the iPhone and 31% more for an iPad Air 2.
Apple also nearly doubled the price of downloading a basic app from its Russian app store, which is the second time in recent months that Apple has had a double-digit price hike for its bestselling smartphone. (Amid all of this, AAPL remains a “strong buy” up to $120 per share).
Other international companies are likely to follow suit, which will just deepen the current recession that is enveloping the Russian economy.
Naturally, the world is now watching how Vladimir Putin will react, since it is obvious that he has destroyed Russia’s economy. Putin said it will take up to two years to improve Russia’s economy by diversifying, but in his three-hour news conference, he blamed Western economic sanctions and lower crude oil prices for the plunge in the ruble. Whether or not a new cold war is unfolding with the West is hard to say, but Putin is clearly blaming the West for his country’s woes.
Russia is an emerging-market disaster, and neighboring countries like Armenia, Belarus, Kyrgystan, Moldova and Tajikistan are all suffering from Russia’s economic woes. So, it will be interesting to see if Russia will sell any of its foreign currency holdings or vast gold reserves to make ends meet while the ruble is gyrating.
While a few multinational companies — like Apple — do business in Russia, most are insulated from these problems, but keep monitoring the situation with Russia just in case you need to take action.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
