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By Sean Hyman Russia, Russia, Russia! Oh how the mighty have fallen once again.

It seems like Russia has been hit by everything but the kitchen sink lately. Not only has the global slowdown pounded this nation, but the crash in oil prices also paralyzed this traditional commodity-based economy. The country was also internationally shunned in 2008 after its week-long war with Georgia.

They say timing is everything, but so is lack of timing. As you can imagine, the Russian ruble plunged significantly once traders realized a big shift had happened in commodities.

At first Russian authorities tried to defend their currency. They spent a huge percentage of their reserves on this failed attempt. They even closed their stock market a number of times as the bear market took over global markets.

But it seemed like every time they tried to fix the economy, things just got worse for both the Russian economy and the ruble. Investors continually lost more confidence in the country and its currency.

Even Now, the Ruble Could Still Drop Another 25%!

So where does this leave the ruble now? Well, Russian authorities have already given in to the market’s whims. They devalued their currency an astounding EIGHT times just since November 11th.

That’s almost unheard of. Usually, a country only devalues their currency in the extreme, worst case scenarios (for example, Mexico did during the peso crisis, and Cuba has done it on occasion).

Investors have pulled a whopping US$211 billion from Russia just since August. Their central bank drained a full 27% off of their reserves in trying to defend the currency.

The currency is expected to fall about 14% to 25% more according to some analysts at Goldman Sachs.

Supposedly Russia is not in a recession yet. I find that hard to believe. But if it’s not in a recession yet, then it’s only a matter of time.

You see, they need an average of US$70 a barrel for their country’s oil in order to make their budget for 2009. However, right now they can only get US$43 a barrel for it. So I think you can see where this is all going.

While I personally do expect some rebound of oil at some point in 2009, I don’t think it will come soon enough for Russia to meet their annual budget. Therefore they will have a shortfall, which is just one more thing going against them.

On top of this, Standard & Poors cut Russia’s credit rating in December for the first time in nine years. This means they will have to pay more interest out on their bonds, and it also means fewer institutional investors will be able to invest in the country until the credit rating comes back up. So that’s a double whammy!

The dive in oil prices will also shrink their country’s US$91 billion current account surplus (just one more negative).

Nobody Believes in the Ruble Anymore for Good Reason

On top of this, the citizens are losing confidence in their country’s currency because they’re having flashbacks from the past. Russians have already withdrawn over 354 billion rubles from their banks (the most in two years) just since October.

Think they’re losing confidence in their own currency? And their banks? I believe so…and they are right to feel this way. I would feel the same way.

Well, unfortunately for Russia, the investing community around the world agrees with me. Traders are selling off rubles left and right and moving more into euros and dollars.

Russia’s goal is to allow the ruble to free float on its own in 2011 rather than having it tied to a mixed basket of dollars and euros. However, if that’s ever going to happen, they’ve got to get more confidence and stability behind the ruble.

I must say that I have a hard time trusting the Russians with their current track record. They try to manipulate so much of their markets. They shut down stock markets whenever they want. It’s just an unstable country. So to me, it’s much easier to be a ruble short seller than be a ruble buyer – even when times are looking up in Russia.

Plus, if things are looking up in Russia, there’s always another commodity-rich nation that’s worth investing in, that have a much better track record.

So if you’d like to take part in a little ruble shorting with a small portion of your portfolio, then I’d recommend that you short the USD/RUB pair in the spot forex market because the Ruble ETF (XRU) just hasn’t been trading long enough yet and its volume is meager at best.

Have a great weekend!
Sean

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