Good summary article on more second order impacts: 3rd order impacts will come in the form of counterparties if intermediaries like brokers and agents starts to fail. As posted Russia is inviting vultures to watch the fat lady sing by raising rates to 17%. They will need concerted efforts then just interest rates... but ooops they are largely isolated now. Will be interesting to see if China will want to fit into the picture... either RMB or USD swap lines or just O&G pre-payments to name a few.
"After the single worst day in Russia’s nine-month-old financial crisis, the fallout is spreading across global markets.
Pacific Investment Management Co. (PEBIX) is facing mounting losses on its Russian bond holdings; almost every bullish ruble option contract registered in the U.S. has been made worthless; and foreign-exchange brokers in New York and London told clients they’re no longer taking ruble trades. Sergey Shvetsov, a first deputy central bank governor, expressed astonishment at the scope of the collapse during a conference in Moscow.
“We couldn’t imagine what’s happening in our worst nightmare even a year ago,” Shvetsov, who oversees financial markets at Bank of Russia, said yesterday. He said the surprise interest-rate increase in the middle of the night, a 6.5 percentage-point move that failed to stem the run on the ruble yesterday, was a choice between a “very bad” option and and a “very, very bad” option.
The ruble sank beyond 80 a dollar, a record low, as panic swept across Moscow’s financial markets before it rebounded after Economy Minister Alexei Ulyukayev denied speculation the government would impose restrictions to stop Russians from converting cash into dollars. The currency ended the day at 67.9, down 5.4 percent on the day, while bonds and stocks also tumbled, sending the RTS equity gauge down the most since 2008. One-month ruble forwards strengthened 1.5 percent today, snapping a seven-day losing run in which they fell 26 percent.
Oil Collapse
The speed of the ruble’s retreat indicates policy makers are losing control as the six-month tumble in oil robs President Vladimir Putin of the hard currency he needs to sustain an economy faltering under the weight of international sanctions tied to the Ukraine conflict. The selloff in Moscow is being felt in other developing nations, where investors are pulling money amid concern that Russia’s financial struggles and the tumble in oil point to a global economic slowdown.
A Bloomberg gauge tracking the top emerging-market currencies fell to the lowest since 2003 while equity benchmarks in Dubai and Saudi Arabia lost more than 7 percent each yesterday. Indonesian policy makers propped up the rupiah as it sank to a 16-year low and the currency is down 0.3 percent today. The MSCI Emerging Market Index rebounded 0.2 percent, paring its losses for this month to 9.2 percent. Crude oil fell 1.5 percent in New York.
Pimco Losses
Pimco’s $3.3 billion Emerging Markets Bond Fund has been one of the hardest hit. It held $803 million of Russian corporate and sovereign bonds at the end of September, equal to 21 percent of total assets, an amount that’s more than double that of the benchmark it tracks, according to data compiled by Bloomberg. The fund has lost 7.9 percent in the past month, trailing 95 percent of its peers.
“The investment themes in Pimco’s portfolios are based on long-term ideas and views,” said Michael Gomez, the head of emerging markets at Pimco. “While emerging markets have been volatile, we think segments of the market offer compelling risk-reward opportunities for long-term investors.”
Traders and investors in the currency options market were also caught off-guard by the ruble’s 52 percent slide this year. In a market with hundreds of bullish call options worth more than $15 billion combined, only one of them -- a $5 million contract expiring a year from now -- is still profitable at the current exchange rate.
Worthless Options
Every single other contract is now out-of-the-money because they gave traders the right to buy the ruble at exchange rates that are stronger than yesterday’s closing level, according to data compiled by the Depository Trust & Clearing Corp. from clients of U.S. banks.
The volatility is proving too much for some brokers. New York-based FXCM Inc., the third-largest currency broker for retail clients, will stop offering the ruble versus the dollar and begin closing its customers’ trades while Alpari UK stopped clients from taking new positions.
Hedge fund Alden Global Capital is profiting from the turmoil sweeping across Russia’s financial markets. The $1.8 billion New York-based firm run by Randy Smith has been betting against the ruble for the past month and a half, according to two people familiar with the trade.
Government officials including central bank Governor Elvira Nabiullina and Finance Minister Anton Siluanov huddled outside Moscow yesterday to discuss ways to combat the crisis. The rate increase to 17 percent, taken less than 24 hours earlier, only managed to stoke a brief rally in the ruble.
In addition to denying that officials were considering currency restrictions, Ulyukayev, the economy minister, told reporters after the meeting that “of course” rates should have been raised earlier. No policy changes were announced.
Capital Controls
Speculation has been growing that foreign-exchange controls were imminent, with firms from Schroder Investment Management Ltd. to Skandinaviska Enskilda Banken AB (SEBA), or SEB, saying they were possible. Per Hammarlund, chief emerging-markets strategist at SEB, said the government could make it harder for depositors to swap cash into hard currency or require exporters to bring some earnings into the country.
While there were no initial signs yesterday of Russians lining up in downtown Moscow to pull their ruble deposits and buy dollars, Khanty-Mansiysk Otkritie Bank, the retail arm of the country’s second-largest private lender, said demand for foreign currencies was three to four times the daily average.
Even after rebounding late in Moscow, the ruble was still down 14 percent this week and 27 percent this month. It earlier fell the most in a day since the country defaulted and devalued the currency in 1998. Ten-year ruble bond yields jumped 3.05 percentage points to 16.28 percent while the annual cost of insuring against a debt non-payment climbed to 5.55 percent in the credit-default swap market, the highest since 2009.
‘No Bids’
“Our traders are informing me that we see no bids to buy rubles,” SEB’s Hammarlund said. “I thought 17 percent would give them at least a month of breathing space. We next have to look at the experience in 1998-1999. We are also one big step closer to capital controls.”
The ruble has kept plunging even after the central bank raised rates 11.5 percentage points this year and spent more than $80 billion in the foreign-exchange market, draining reserves to a five-year low of $416 billion. Economists surveyed by Bloomberg said they expect central bankers to step up intervention again, spending about another $70 billion.
Stagflation Risk
Russia, meanwhile, is sinking into stagflation.
A recession looms at the same time that inflation is soaring to a three-year high. The economy may shrink as much as 4.7 percent next year if oil, the country’s biggest export, averages $60 a barrel under a “stress scenario,” the central bank said earlier this week. Net capital outflows may reach $134 billion this year, more than double last year’s total. Prices for benchmark Brent crude fell below $60 yesterday, leaving them down 48 percent in the past six months.
While Putin’s approval rating remains near an all-time high on the back of his stance over Ukraine, the currency crisis risks eroding his popularity. There are few signs the crisis will fade any time soon.
“It’s very hard to stop the panic,” Vadim Bit-Avragim, a money manager at Kapital Asset Management LLC in Moscow, said by phone. “Everyone is betting against the ruble.”
http://www.bloomberg.com/news/2014-12-16...sinks.html
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Like I posted below, all these talks abot DD/SS can be resolved once Ukraine is resolved 
