Back in Febr. of 2011, a little more than a year ago, we made the point that this ETF would go down and that en passant, this had a predictive value in terms of oil prices, considering that Russia is the largest producer (see the blog). A little reverse engineering if you wish. The ETF was at about 40 at the time. Here we are today;

Only down about 40%, roughly, but a lot more to come. For those not completely infatuated with the EW methodology I have thrown in the more traditional Head & Shoulders analysis . Both call for far lower levels even if the count itself is definitely questionable. The B-wave is not, so < $10 is virtually a given.

Oil is perhaps not the only factor in this decline. Economics has always maintained that concentration of wealth (or initially inequality of incomes) leads to a situation where overall demand falls short of what is required to keep the economy going. A form of under-consumption, if you will, induced by the lower propensity to spend (relatively, of course ) by the wealthy. Economics is little more than a list of equations that are, for the most part tautologies; they are true by definition and therefore prove nothing. Ruchir Sharma recently wrote “Breakout Nations; In Pursuit of the Next Economic Miracles”, in which he sheds some new light on this old concept, explaining why China is a better bet than Russia. Here are some figures to mull over (from the Star);

Billionaires                                            Russia     96        China     95

Wealth that represents                          377.3 Bln.         ——-

Percentage of National GDP                     20%                  2.9%

Percentage of non-productive industries  80%                 ——-

In both cases most of the riches were obtained in the usual manner but that is a moral issue. In pure economic terms Russia has a big problem, which might only be resolved the way it was back in 1917. In varying degrees this applies to the world at large, the US included.

These charts are the same except for the annotations. They are both the Russia ETF and I want to use them simple to check the “plausibility” of my thesis that oil will not go much above $100 and that in fact the high of $103 or so the other day is probable it for the next few months. Anyway, Russia , as we all no doubt know, is the largest oil producer in the world so one would expect some correlation at the very least. On top of that, many of the larger companies in Russia, and certainly those that are in this ETF are energy related! Hence the choice.      As it happens the rise from the low could be counted in two (and many other!) ways. The most elegant of the two, by far, is the one on the left; a simple A-B-C up from the lows into (almost) the normal 62% retracement level. As there is no overlap the move could also be viewed as a 5 wave move.  Interestingly, assuming that at least one of the two is correct, it matters precious little as in both cases we should  go down first .  q.e.d.