Streetwise Professor

December 29, 2014

Three Card Monte, In New York and Moscow

Filed under: Commodities,Economics,Politics,Russia — The Professor @ 8:31 pm

One of the most vivid memories of my early trips to New York was the three card monte games on virtually every corner. The guys would slide their bent cards on the top of cardboard boxes. The most amusing memory is that when a cop would approach one of the card sharps. The hustler running that table would whistle, and you could see others on nearby corners fold up their boxes in a flash and scurry off onto a side street.

Well, they’re back. And like everything else, their games are more expensive. Now you get the privilege of losing $100 when you play: back in the day, it was merely $20.

Speaking of three card monte, it appears that currency traders have figured out the three card monte game that Elvira Nabiullina of the Central Bank of Russia has been playing. The ruble resumed its plunge, declining more than 9 percent today.

As I noted last week, it looks for all the world that the CBR is trying to fool the suckers and hide the black lady with a lot of sleight of hand. Rather than spend reserves officially to prop up the ruble, the CBR is lending dollars to the big banks (VTB and Sberbank) which is lending them to Russian exporters, and the government is ordering the corporates to sell dollars and buy rubles, thereby supporting the currency. See! Reserves stay the same! The country’s finances are healthy!

But if you watch closely, and follow the money and the risk, and you’ll see that the CBR has effectively spent the reserves, or at least put them at significant risk of loss, by replacing dollar liabilities of the US government with dollar liabilities of soon-to-be-junk corporates whose ability to earn dollars to repay the loans has plunged along with the prices of commodities, especially oil.  If that happens, the CBR will have to eat the losses on the collateral posted by the banks (i.e., the loans the banks make to the Russian corporates).

This con game worked for, oh, a good week or so. Today’s big ruble move suggests that market participants are seeing through the scam. So lookout below, and don’t stand under a falling ruble, lest you end up like Wile E. Coyote looking up at the anvil that’s about to drive him into the pavement.

Come to think if it, it amuses me to imagine Putin in the role of Wile E., watching all of his machinations and dreams of conquest come crashing down upon him.


PS. In the early-80s, the three card monte wager was a little more than 1/2 of the price of a barrel of oil. Today, the price of a barrel of oil is a little more than 1/2 of a three card monte wager. Food for thought.

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  1. Huh? Are the inhabitants of NYC simpletons, or something? Seriously, they come across a shifty-looking guy dealing cards on an upturned box and decide to gamble thinking the game is straight? And then walk away $100 lighter feeling they’ve been cheated?

    You see the gypsies doing similar tricks for the tourists – mainly the hiding the ball under the 3 cups one. You pay a few Euros and get to see a decent trick, and it’s popular with the tourists. But I don’t think there is anyone stupid enough to think it’s being played straight.

    Comment by Tim Newman — December 30, 2014 @ 1:23 am

  2. Sorry, the second paragraph is in reference to Paris.

    Comment by Tim Newman — December 30, 2014 @ 1:24 am

  3. @Tim-Amazing, no? Haven’t done a systematic study, but it’s my impression that most of the suckers are tourists: at least that was my impression in the pre-Giuliani days. It’s quite a scam, complete with shills who “win”, thereby enticing the rubes to believe that the game is straight.

    The one guy cracked me up. Yeah, to lose once, OK, I guess. But 5 times?

    The ProfessorComment by The Professor — December 30, 2014 @ 8:14 am

  4. Live stream from protests in Moscow:

    Let’s see if it turns out to be an anvil or just a light summer breeze in Putin’s face.

    Comment by Ivan — December 30, 2014 @ 9:54 am

  5. Why are you insulting otherwise innocuous three card monte dealers by comparing them with these boobs? Unlike your russian bungle crat, they are usually sober on the job and can convince people that left is right and right is left: in other words have real and marketable skills.

    Shame for insulting my native city’s criminal class!

    Comment by sotos — December 30, 2014 @ 10:37 am

  6. Putin had plenty of smart advisors like Kudrin or Guriev who warned him about the risks, but he chose to ignore them and gamble with Russia’s future all the same. In that sense he’s more like Elmer Fudd than Wile E. On that note, I’m wondering if imposing financial sanctions on Bill de Blasio and his circle of friends will help to save New York City from a slide back into its pre-Giuliani state.

    Comment by aaa — December 30, 2014 @ 1:23 pm

  7. aaa ‘slide back to its pre-Giulliani state’ ? What are you talking about, crime is lower now than it was under Giuliani, as is the number of arrests of negro youths for being negros. But I guess to you that might be a slide eh?

    Comment by d — December 30, 2014 @ 11:30 pm

  8. I think the best indicator of how badly things are in Russia is the rate of shrillness over at the best website in the world, zerohedge. The more they are talking about some kind of broad ‘collapse of America’ then things are really bad. That means there isnt any Russian propaganda to even try to work through numerous boldings and underlines. But now even Russia liberals are squealing ‘why should we do anything, if you wont let us into the EU its best to sit at home.’ Hopeless nation.

    Comment by d — December 30, 2014 @ 11:33 pm

  9. SWP: Love the analogy. You should expand the theme to other central bankers of the world… sleight of hand when they lend to their Treasury agencies, GSEs, and now “Corporate Exporters”.

    Comment by scott — December 31, 2014 @ 3:01 am

  10. The peace conference is scheduled for Astana not Munich. Almaty would have been nicer … still beggars can’t be choosers.
    There will be a deal. And when the deal is published, we’ll see how Putin from the very beginning hedged his bets on Crimea.
    Remember he created two republics: Sevastopol and the rest of Crimea.
    Sevastopol will remain part of Russia – like Kaliningrad. The rest? Semi-detached status.
    A deal will save the ruble, the MICEX and the man’s wretched neck.
    Happy New Year

    Comment by SimpleSimon — December 31, 2014 @ 7:15 am

  11. Professor, Happy New Year to you and the family!
    Yours is one of the few blogs I learned to rely on for spot-on commentary, always witty, competent and funny.
    Wishing you another successful year in everything you do.


    Comment by ETat — December 31, 2014 @ 12:11 pm

  12. Well:

    Sounds like a feeler to me.

    Comment by LL — December 31, 2014 @ 5:43 pm

  13. I can see it now, at some gussied up rusky golf course, O steps out of the re-engineered Trabant golf-cart and says ” this Putin initialed scorecard guarantees peace in our time – or at least gives the globe a mulligan.”

    And they say he didn’t deserve the Nobel Peace Prize!

    Comment by Sotos — December 31, 2014 @ 7:57 pm

  14. @LL-A pathetic, desperate, delusional feeler. It is part of a pattern. Obama throws adversaries a lifeline precisely when they are most vulnerable.

    The ProfessorComment by The Professor — January 1, 2015 @ 9:09 am

  15. @T-Thank you very much. I really appreciate your kind words: I will endeavor to keep SWP worth relying on 😉

    You have a great New Year too, full of happiness and success! Cheers.

    The ProfessorComment by The Professor — January 1, 2015 @ 9:10 am

  16. @Thanks, Scott: glad you like the analogy. Yes, central bankers everywhere rely on very similar tricks, don’t they?

    The ProfessorComment by The Professor — January 1, 2015 @ 9:12 am

  17. So, looks like a light breeze would be too violent a phenomenon to be a reasonable metaphor for Russian protest. As long as there is enough cash to feed the police and the sheeple of Moscow, Putin will be fine even if Russia outside of the MKAD starves to death:

    Comment by Ivan — January 3, 2015 @ 3:51 am

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