Speaker 1: Welcome to Bloomberg Opinion. I'm Vonnie Quinn. This week, what
Speaker 1: we thought was asymmetric relationship having become even more asymmetric.
Speaker 1: Clara Fererra Marquez on the Sea putin meeting than just
Speaker 1: how detrimental sanctions are proving to the state of the
Speaker 1: Russian economy. Later, justin focus on what the slow decline
Speaker 1: of one industry is telling us about a change in
Speaker 1: US labor force. First though, two markets digesting but not
Speaker 1: very easily more ominous inflation data. Jerry J. Powell at
Speaker 1: the Cato Institute Inside of next week's f o MC meeting,
Speaker 1: we need to act forthrightly, strongly as we have been doing,
Speaker 1: and we need to keep at it until the job
Speaker 1: is done. We think we can avoid the kind of
Speaker 1: very high social costs that that Paul Volker and the
Speaker 1: FED had to bring into into ploy in order to
Speaker 1: get inflation back down and set us up then for
Speaker 1: for a long period of price stability. Bloomberg Opinions. John
Speaker 1: Authors joins so John, the week started out well. Market
Speaker 1: seemed to be treating the Russia retreat the Ukraine advance.
Speaker 1: Perhaps it was something soothing in their that there might
Speaker 1: be some geopolitical stability, but then came the inflation data,
Speaker 1: and equities literally embarrassed to put a blunt this was
Speaker 1: This has been one of the most striking bona fide
Speaker 1: macro surprises in many years. I would say the I
Speaker 1: was personally surprised by how poor the inflation numbers were,
Speaker 1: But it's also very strange to me how markets really
Speaker 1: had convinced themselves that the peak was definitely in and
Speaker 1: that more or less any inflation number was going to
Speaker 1: be consistent with the steady, steady decline from here, which
Speaker 1: thankfully I did point out before it happened that this
Speaker 1: seemed over confidence. One decline does not make a trend. Yes,
Speaker 1: and then they had basically set themselves up to step
Speaker 1: on a rake like in the cartoons, and whacked themselves
Speaker 1: in the face of the rake handle. And that's basically
Speaker 1: what happened. That said, I was also my self surprised
Speaker 1: by quite how thoroughly awful the flation numbers were once
Speaker 1: you dug into them. Yeah, I mean, and you point
Speaker 1: us out, how you know, the various head banks and
Speaker 1: other outward to put out different measures for core inflation,
Speaker 1: and it had made it seem like core inflation was
Speaker 1: under control. But actually all of those measures now sticky
Speaker 1: price inflation, trimmed, media or rising. Yes, and that's really
Speaker 1: not what very many people at all had been expecting.
Speaker 1: So these are all the numbers that a year ago,
Speaker 1: when we were still having a debate about whether this
Speaker 1: was transitory, people were pointing out, look, these core versions
Speaker 1: of inflation still aren't that high. This is transitory, and
Speaker 1: that was a valid argument then, and unfortunately what's now
Speaker 1: happened to those numbers shows this is really going to
Speaker 1: be difficult to bring down. The other critical thing, I
Speaker 1: suppose is services inflation, and goods inflation is indeed coming
Speaker 1: back down. Services is coming up by more than enough
Speaker 1: to counteract it. Services is a much more important part
Speaker 1: of the economy than it used to be. That is
Speaker 1: again very disappointing for many people who are hoping to
Speaker 1: see something different. Now markets are pricing in the potential
Speaker 1: for a one hundred basis point in this next week.
Speaker 1: Is that a little too far fetched? I mean, it
Speaker 1: was the CPI that made the Fed move last time.
Speaker 1: It was there is nothing more important than the CPI
Speaker 1: for the Fed at this point. Obviously, unemployment is still
Speaker 1: at such an encouraging level. The labor market is so
Speaker 1: strong that that provides no reason for them not to hike.
Speaker 1: It's all about inflation at this point. I personally think
Speaker 1: that hiking by the full hundred basis points would carry
Speaker 1: some risk of looking as though they're running scared, desperate
Speaker 1: and could therefore undermine itself. So I would bet if
Speaker 1: I had to even odds on a seventy bits rather
Speaker 1: than a hundred, we will probably if they want to
Speaker 1: make it a hundred, they will find ways to leak
Speaker 1: it to our colleagues or competitors between now and the announcement.
Speaker 1: So I'm not sure it's worth spending too much time
Speaker 1: agonizing over that because it's probably going to become clear.
Speaker 1: The key that bothers me, which I don't think has
Speaker 1: been looked at carefully enough, is how quickly can the
Speaker 1: FED turn around and start cutting. There has been a belief,
Speaker 1: which isn't an unreasonable one from from what we've lived
Speaker 1: through in the last decade, that there would be problems
Speaker 1: with either employment or with a sell off in stocks
Speaker 1: would prompt the FED to retreat pretty quickly. That argument
Speaker 1: seems flimsy these days. I am almost inclined to say
Speaker 1: it's gone. I mean, immediately after the last fo MC meeting,
Speaker 1: FED funds futures were priced so that the rate in
Speaker 1: January of four would be lower than the rate it's
Speaker 1: going to be by the end of this month, which
Speaker 1: is a remarkable suggestion that this is a transitory tightening, effectively,
Speaker 1: that we're going to be that far into reverse by then.
Speaker 1: At this point, I think it's the suggestion is that
Speaker 1: will still be a good percentage point higher that this
Speaker 1: is a so that probably is more important for the
Speaker 1: long term than whether the Fed decides it really needs
Speaker 1: to hurry up even more and go with a hundred.
Speaker 1: It's it's how long they have to stay at how
Speaker 1: higher level and how long are they giving these rate
Speaker 1: hikes to work, because we all know that it takes time,
Speaker 1: and it works in different parts of the economy at
Speaker 1: different rates and so on, And what are they looking
Speaker 1: at to see is it working in the broader economy?
Speaker 1: I mean, what does the seventy five basis point hike
Speaker 1: entail when it comes to filtering down through the banks
Speaker 1: and through the system and through loans and so on. Well,
Speaker 1: I guess the critical point for that is on shelter
Speaker 1: inflation the housing market. So yes, oil is more or
Speaker 1: less beyond the fits per view, particularly with the geopolitical
Speaker 1: uncertain at the moment. Shelter whether you're renting or buying,
Speaker 1: is so dependent on the rate at which you can
Speaker 1: take out of mortgage. That is a rate that shelter
Speaker 1: inflation is increasing. Worryingly, we all know that there are
Speaker 1: various markets that look quite bubbly for buying, which are
Speaker 1: already seemed to be turning. The FED needs to be
Speaker 1: sure that it's got the housing market back down again
Speaker 1: before it can desist. I think, and I suppose it
Speaker 1: has the double advantage Festival. It's a third of the
Speaker 1: index in round numbers, and secondly, it's the one where
Speaker 1: monetary policy really unambiguously has a direct effect. I think
Speaker 1: you need to see that trend reverse. People talk about
Speaker 1: real estate a lot when they know anything about it.
Speaker 1: Otherwise they talk about a lot. How much higher rates
Speaker 1: deter people from buying, cause people to stop putting houses
Speaker 1: on the market, all the rest of it is probably
Speaker 1: the single greatest issue for us CPI at this moment. John,
Speaker 1: do you see a scenario at all were inflation continues
Speaker 1: to rise even as the Foe continues to hike. I mean,
Speaker 1: that's basically what we got this month. Could we get
Speaker 1: it again next month ahead? I need to come down
Speaker 1: very slightly. Yeah, I can imagine that. I think it's unlikely.
Speaker 1: I would still, barring something horrible in Ukraine, I still
Speaker 1: think the peak for headline inflation is probably in because
Speaker 1: of oil. It's difficult for it not to be. If
Speaker 1: inflation stays like this for another couple of months and
Speaker 1: you get another round of wage negotiations coming at the
Speaker 1: turn of the year, I can imagine headline inflation getting
Speaker 1: above its peak. From earlier this year, we are starting
Speaker 1: to see that wage price spiral a tiny bit, and
Speaker 1: we were seeing Amazon pony up now a little at
Speaker 1: least for seasonal delivery. Drivers were seeing more and more
Speaker 1: strikes across the country. That I mean, that's one of
Speaker 1: the fascinating, imponderable questions is obviously the balance is going
Speaker 1: to move from capital to labor to some extent, but
Speaker 1: the balance has moved a quite remarkable way towards capital,
Speaker 1: and unions are weaker, less able to assert themselves than
Speaker 1: they've been in a century or so. That means that
Speaker 1: you can perhaps overstate how much that effect is going
Speaker 1: to happen, and membership is still tiny relative to the
Speaker 1: labor force. I think wage pressure is on balance likely.
Speaker 1: But again, this is one of the imponderables we'll find
Speaker 1: out about this country exactly how intense that is and
Speaker 1: how far it takes inflation. So, John, what is the
Speaker 1: question that for J. J. Powell is pondering tonight. I
Speaker 1: do feel somewhat sorry for him, and I'm very glad
Speaker 1: I'm not a central bank here. He has been so
Speaker 1: good as to admit that the FED made a mistake
Speaker 1: last year. That colleague Mike mackenzie was commenting earlier today
Speaker 1: that saying that inflation was transitory last year is going
Speaker 1: to go down with the subprime market is contained from
Speaker 1: two thousand and seven. They all got one, you get one,
Speaker 1: yes exactly. He probably will be giving some thoughts to
Speaker 1: I don't think that's his greatest one. It's about how
Speaker 1: they signal for the future. I think the dot plot
Speaker 1: where the FED governors can use it as a signal
Speaker 1: for their intentions. We get a new dot plot next week.
Speaker 1: I suspect that the Fed will take the chance to
Speaker 1: tell the market listen, you are wrong. We do not
Speaker 1: think we are cutting next year at all. And if
Speaker 1: you see a dot plot where their expectations for the
Speaker 1: Fed funds rates for the next few years rises significantly,
Speaker 1: that could be another really tough moment, tiny bit of
Speaker 1: chatter about England. If you wouldn't mind, you're just back. Yes,
Speaker 1: and you obviously saw a transition. He saw the transition
Speaker 1: from Boris Johnson to Liz trust I was I saw that.
Speaker 1: I saw that transition, and I came home just before
Speaker 1: another transition from another Liz. Yes. Yes, there are over
Speaker 1: sixty million of us to choose from, and apparently Liz
Speaker 1: trusses right best we can manage for being Prime Minister.
Speaker 1: So and now it's her chance to see what she
Speaker 1: can do. Obviously, the Queen's passing is a big moment.
Speaker 1: It can only be plenty of opinions about it, but
Speaker 1: it's a big deal. It was quite big of her
Speaker 1: to shake hands with me Guinness thinking through. But if
Speaker 1: we could go on to further this, let's let's not
Speaker 1: talk about the rather vexed awful history of Britain and treatment.
Speaker 1: Will she be able to carry out the policies that
Speaker 1: she's promised. My best guess is that she won't that
Speaker 1: promising tax cuts was I hope she's going to surprise
Speaker 1: me positively. I took a dim view of the way
Speaker 1: she handled that campaign because she was basically promising something
Speaker 1: she was plenty clever enough to know that she wasn't
Speaker 1: going to be able to deliver. Yes, she must have known,
Speaker 1: and you know that's distasteful. Quasi quatteng another bright guy.
Speaker 1: He was a really guy before, Yes, and you know,
Speaker 1: very talented guy who knows what he's doing. I imagine
Speaker 1: we have a very difficult situation, a very febrile situation
Speaker 1: that does give him a certain amount of room for maneuver,
Speaker 1: a certain ability to do something completely different from what
Speaker 1: was expected if the circumstances demand it. I mean, how
Speaker 1: garsenals what in place is going to be next year
Speaker 1: in the UK, But I mean we could. I mean,
Speaker 1: the UK has very particular, serious reasons to be worried
Speaker 1: about inflation, some of them self inflicted, but let's not
Speaker 1: reopen the Brexit wounds too too widely, and some of
Speaker 1: them a matter of bad luck. The currency is under
Speaker 1: pressure and the energy. The Bank of England I think,
Speaker 1: was very commendably honest predicting that there's going to be
Speaker 1: a recession, that the economy will be smaller at the
Speaker 1: end of next year than it is now. I think
Speaker 1: it's probably right to get everybody into a defensive crouch.
Speaker 1: And I think both quasi Quatting and this drust of
Speaker 1: probably smart enough to know that if they take some
Speaker 1: pain now, the key thing is whether they can get
Speaker 1: the economy recovering enough to get people thinking the direction
Speaker 1: is correct by the next election, which doesn't have to
Speaker 1: be for over two years still, and that that is possible,
Speaker 1: and that's that's their aim. But it's whether they have
Speaker 1: enough communication ability, which I think it's fair to say
Speaker 1: this trust is greatest weakness. She is not like Tony
Speaker 1: Blair or Boris Johnson when it comes to communicating. Whether
Speaker 1: she has the communication and political skills to get the
Speaker 1: government through the next year or so when the economy
Speaker 1: is going to be really bad. I mean, the question
Speaker 1: really is does she last longer than Boris Johnson, who
Speaker 1: didn't even last long If she can't win another election,
Speaker 1: she won't at the moment. Not that Keir Starmer is
Speaker 1: exciting anybody, but Labor looks more electable than it has
Speaker 1: done since Blair. And if the economy doesn't go considerably
Speaker 1: better than seems likely at the moment. The betting has
Speaker 1: to be on labor to win bound that would be
Speaker 1: it's it's quite something. But Liz Trust this very interesting
Speaker 1: piece to As Raphael wrote, Margaret Thatcher as a minister
Speaker 1: was really very unimpressive. She was education minister. She was
Speaker 1: best known for canceling free school milk. Well, I wasn't there.
Speaker 1: I actually was Maggie Thatcher, the milk snatcher she used
Speaker 1: to be, and reasonably when I when I was five,
Speaker 1: we used to get given a bottle of milk in
Speaker 1: the middle of the morning, and when I was six
Speaker 1: that stopped. People weren't happy about children, so so she
Speaker 1: generally didn't seem to be that good a politician on
Speaker 1: the basis of how she did as a minister in
Speaker 1: the early seventies. Justice Liz Trust really doesn't strike me
Speaker 1: as being a particularly special good politician on the base
Speaker 1: of a record to date, and that helped people underestimate
Speaker 1: to people really didn't know quite what they were dealing
Speaker 1: with until and she was aware of that too. Yes,
Speaker 1: and I think Liz Trust is a very different person
Speaker 1: in many ways. But I think she is also somebody
Speaker 1: who benefits from being easy to underestimate. Bloomberg opinions, John Authors,
Speaker 1: pandemic labor force trends have been fascinating, but Bloomberg opinions.
Speaker 1: Justin Fox discovered one trend that predates the pandemic that
Speaker 1: tells us a lot about the US labor force. He
Speaker 1: joins me, Now, dry leaners closing down were literally almost
Speaker 1: at half the amount of dry leaners that we were
Speaker 1: at back in two thousands, so there were more than
Speaker 1: twenty eight thousand, then now there's sixteen and a half thousand.
Speaker 1: It points to several trends, though not just our assumptions.
Speaker 1: So let's go through some of them. Why are dry
Speaker 1: cleaners closing well? So I initially looked at it because
Speaker 1: obviously the pandemic has been really it was tough on
Speaker 1: lots of businesses when things completely shut down, and now
Speaker 1: even as restaurants are full, fewer people are going to
Speaker 1: the office, and sort of the long running trend towards
Speaker 1: dressing more casually when you do go to the office
Speaker 1: seems to, at least in my experience here at Bloomberg,
Speaker 1: accelerated over the course of the pandemic. So I was
Speaker 1: expecting that there would be this plummet at the pandemic.
Speaker 1: And then I looked at the data, and this is
Speaker 1: from the Bureau of Labor Statistics. Does this thing called
Speaker 1: the quarterly Census of Employment of Wages that keeps track
Speaker 1: of how many establishments of different kinds of businesses there are.
Speaker 1: And it definitely accelerated with the pandemic, but it's basically
Speaker 1: been dropping at about two percent a year at least
Speaker 1: for the past two decades. So you see it all
Speaker 1: around New York City. Your local laundrect closes, your local
Speaker 1: directing it closes, and it's very sad. I had always
Speaker 1: chalked it up, at least in recent years, to venture
Speaker 1: capital phones and hedgephons buying up real estate and not
Speaker 1: caring if the real estate was empty or full. But
Speaker 1: it turns out that that's not actually the main way. Yeah,
Speaker 1: I know, I mean New York. It was rising in
Speaker 1: the number of and this is Manhattan. Actually in Manhattan,
Speaker 1: the number of dry cleaning laundry establishments was rising through
Speaker 1: two thousand eighteen, sort of the opposite of the national trend,
Speaker 1: and then it dropped in two thousand eighteen and two
Speaker 1: thousand nineteen and then even more during the pandemic. I
Speaker 1: think the dropping in the two eighteen two thousand nineteen
Speaker 1: is all the e p A this new standard. Well
Speaker 1: it's not that new. It was I think put in
Speaker 1: the Federal Register back in two thousand six or two
Speaker 1: thousand seven, basically banning the use of the chemical and
Speaker 1: I'm going to say it wrong per klora whatever in
Speaker 1: apartment buildings, and lots of dry cleaners in Manhattan are
Speaker 1: in the basements of apartment buildings. You can do dry
Speaker 1: cleaning without it, and they're more and more of these
Speaker 1: sort of organic dry cleaning places that avoid it. But
Speaker 1: I think for a lot of older dry cleaning establishments
Speaker 1: that was sort of the last straw. They had to
Speaker 1: stop using it by two thousand. You also figured out
Speaker 1: that obviously some of this was a trend that we're
Speaker 1: seeing in immigration. Yeah, I mean, this is basically more
Speaker 1: hypothesis than something you can really get date on, but
Speaker 1: it is known that Korean Americans in particular are wildly
Speaker 1: overrepresented in the dry cleaning business. Um and and you know,
Speaker 1: it's just one of those classic an immigrant group comes over,
Speaker 1: develops an expertise, other family members, friends come over, I mean,
Speaker 1: the problem with the Korean American community is the big
Speaker 1: Korean immigration wave ended a long time ago because South
Speaker 1: Korea is now quite affluent and it's also not growing,
Speaker 1: really has very low birth rates, and so that immigration
Speaker 1: wave ended a long time ago. The kids of Korean
Speaker 1: American dry cleaning owners, I would guess most of them
Speaker 1: are have gone off to college and have fancy careers,
Speaker 1: and so we clearly there's this whole bunch of aging
Speaker 1: dry cleaning laundry owners who don't really have an obvious
Speaker 1: person to hand off to. How much is cost an issue,
Speaker 1: if at all? I mean, obviously we've seen a huge
Speaker 1: amount of a lation, and some of that has been
Speaker 1: services inflation. But it turns out we don't really spend
Speaker 1: that much on dry cleaning in the end. I mean,
Speaker 1: we we spend a very small amount of overall consumer
Speaker 1: spending on it. Although you know that I cite numbers
Speaker 1: in my piece, and that's just all spending on laundry
Speaker 1: and dry cleaning outside the house. Back in nineteen fifty nine,
Speaker 1: which is when the data starts, it was half of
Speaker 1: a percent of all consumer spending. Now it's point zero
Speaker 1: seven percent. Part of that is just because everybody's got
Speaker 1: well not everybody in New York, but everybody in most
Speaker 1: places has washing machines at home now. So it's less
Speaker 1: that people are doing less of whatever. It's just that
Speaker 1: it's been shifted from something that people paid someone to
Speaker 1: do outside the house to do it inside the house.
Speaker 1: Because I mean, one interesting thing is that inflation in
Speaker 1: um dry cleaning and laundry has been higher than overall inflation,
Speaker 1: and overall inflation is pretty high, and and that's been
Speaker 1: true for years, and it's definitely true over the last
Speaker 1: two years. You also found out, and this wouldn't be
Speaker 1: any surprise to anybody, that the highest concentration in the
Speaker 1: US is in New York City with twenty nine one
Speaker 1: thousand residents. The lowest, obviously, is only one point six
Speaker 1: per hundred thousand residents, and that's in Pema County, Arizona.
Speaker 1: I guess it's self evidence of why there are so
Speaker 1: many in New York. But are we seeing more of
Speaker 1: a decline in New York than we are elsewhere? I mean,
Speaker 1: it's just a totally different chart. In New York. It's
Speaker 1: it's was rising, doing really well, and then this plummet.
Speaker 1: Pema County is Tucson, So it's partly the weather and
Speaker 1: the kind of jobs there. It's not a big, really
Speaker 1: white collar jobs place, and it's tons of retirees, and
Speaker 1: you know, other places with lots of retirees are relatively
Speaker 1: low on it. One interesting place with really high number,
Speaker 1: especially of workers in laundries and dry cleaners, is Clark County, Nevada,
Speaker 1: which is Las Vegas. And I guess that. I mean
Speaker 1: that's more people washing sheets and other linens for hotels
Speaker 1: and stuff. Newberg Opinions justin Fox. Don't forget. We're also
Speaker 1: available as a podcast on Apple, Spotify, or your favorite platform.
Speaker 1: Chinese President She's in Paying made his first trip outside
Speaker 1: China and Hong Kong in three years this week. Originally,
Speaker 1: his first international trip was supposed to be Indonesia in
Speaker 1: November for the G twenty, which is extended invites to
Speaker 1: President Biden and President Putin as well. This wizard to
Speaker 1: Uzbekistan for the s CEO Summit or Shanghai Cooperation Organization
Speaker 1: gave you the opportunity to meet face to face with
Speaker 1: Russia's president and give the world an opportunity to assess
Speaker 1: China's position on the war Bloomberg's Clara Ferrera Marquez joins, Clara,
Speaker 1: what did we learn from this visit. It's a really
Speaker 1: interesting opportunity for us to take the temperature of this
Speaker 1: no limit partnership. So they had met in February, if
Speaker 1: you remember, just before the start debajing Olympics um and
Speaker 1: this is the first time that they had met since
Speaker 1: then and since particularly the invasion of Ukraine. And what
Speaker 1: we saw was an asymmetric relationship having become even more asymmetric.
Speaker 1: So we saw Putain really bending over to say that
Speaker 1: he understood what he said the Hinda's concerns, recognizing China's
Speaker 1: balanced position, mentioning all sorts of trade figures but getting
Speaker 1: really very little, if anything in return. Now, that's what
Speaker 1: we saw. But we don't know what happened behind closed doors,
Speaker 1: and likely never will. So it's quite clear that President
Speaker 1: Seas and Things wants to give signals to the international community.
Speaker 1: Is there a chance that he said something different or
Speaker 1: took a different tone with Putin behind closed doors. Well,
Speaker 1: as you say, it's that's sort of unknowable, isn't it.
Speaker 1: But it was interesting to me that there were a
Speaker 1: few really low hanging fruit that she could have given
Speaker 1: Puttin at this meeting. For example, they could have advanced
Speaker 1: some sort of agreements, even a memorandum of understanding around parrots.
Speaker 1: Siberia too, which is a gas pipeline, a really important
Speaker 1: part of Russia's shift to the east, and they didn't
Speaker 1: do that. So even though Russian officials had talked it
Speaker 1: up as being close, it didn't actually materialize. There was
Speaker 1: nothing concrete, no numbers, and I think Putin could have
Speaker 1: really done with that. However, the theater is important to
Speaker 1: allowing the two men to be seen together, you know,
Speaker 1: around a very large circular table, but all the same
Speaker 1: together without masks. I mean, all of that is very
Speaker 1: important too, and allows Puttin to play this at home.
Speaker 1: It was interesting to see Putin take the position of subordinates,
Speaker 1: because that's really what happened in the way he said
Speaker 1: that he understood Beijing's questions and concerns about his invasion
Speaker 1: of Ukraine, and he also made mention of the US
Speaker 1: and its allies movements in the Taiwan strage, which has
Speaker 1: annoyed Taiwan obviously, but that presumably was and olive branch
Speaker 1: to Beijing. In other words, is he subordinate now? Association thing. Well,
Speaker 1: I think it's certainly clear that Putain has never been
Speaker 1: in a weaker negotiating position, and I would I would
Speaker 1: really put it that way. I mean, if you think,
Speaker 1: as you say, the optics of the meeting, and it
Speaker 1: was very odd how we we we had it coming through,
Speaker 1: We had some feed and we really just saw that
Speaker 1: the initial comments where Putin was very clear to call
Speaker 1: him comrade to make all these concessions on Taiwan, as
Speaker 1: you say, talking about a foreign policy tandem, which is
Speaker 1: quite interesting word a word of China did not repeat
Speaker 1: back to him. And in fact, what we what was
Speaker 1: she telling him that he would work with Russia to
Speaker 1: inject stability and positive energy to a world in chaos.
Speaker 1: So that was not particularly well availed reminder of what
Speaker 1: she really needs, which is stability. Does it tell us
Speaker 1: anything about ss appetite for what I don't want to
Speaker 1: call it war, but some kind of operation in Taiwan. No,
Speaker 1: I think at this point that is really hard to
Speaker 1: read into this. I mean what we would say is
Speaker 1: obviously through the whole Ukraine campaign, China has been taking notes.
Speaker 1: It's learned a lot of lessons in terms of economic
Speaker 1: resilience in terms of military preparedness. I think here all
Speaker 1: we've seen is that he's willing to continue this balancing acts.
Speaker 1: He certainly won't leave Puttin in the cold, but with
Speaker 1: the policy of Congress a few weeks away, he also
Speaker 1: isn't willing to abandon his pro Russian neutrality if you
Speaker 1: call it to come any closer to Putain. Will she
Speaker 1: have promised Puttin anything? It's unlikely we'd find out if
Speaker 1: he did, or at least until we saw something on
Speaker 1: the ground, if he from some any kind of military
Speaker 1: support or anything like that. But I mean, it sure
Speaker 1: doesn't seem like he did. I think that's very unlikely.
Speaker 1: So China does not in general have allies, for example,
Speaker 1: military allies that in North Korea. UM, they are very
Speaker 1: happy to run joint military exercises as Russia joint naval patrols.
Speaker 1: They really have never signaled the desire to go any
Speaker 1: further than that. I also don't see why she would
Speaker 1: promise anything. Why Why would it be in his interest
Speaker 1: to do so? Because he is providing just enough rhetorical support,
Speaker 1: just enough verbal backing, without running the risk of incurring
Speaker 1: secondary sanctions. Clara will wouldn't change his mind about the
Speaker 1: G twenty after this, or does he have so much
Speaker 1: of an ego that he wouldn't turn up again with
Speaker 1: world leaders continued to speak, even though it's quite clear
Speaker 1: that he has to very much Paris his words. Well,
Speaker 1: the G twenty is still two months away, so it
Speaker 1: could still happen between now and then, and remember that
Speaker 1: it won't be just the G twenty. Indonesia has also
Speaker 1: invited President Vladimierzoleinski of Ukraine. I'd be very prized if
Speaker 1: the war is still ongoing. If Slenski actually tends up,
Speaker 1: it's much more likely to be a remote connection. But
Speaker 1: all the same, I'm pretty sure that Putin would not
Speaker 1: pass up the opportunity to be there in person if
Speaker 1: Zelenski is making any kind of appearance. Um, and it
Speaker 1: is very important for put In, both domestically and in
Speaker 1: terms of protection to the global South, to be part
Speaker 1: of these large geopolitical contacts. You know, he really needs
Speaker 1: to be seen to be a leader that still comes
Speaker 1: still means business. We also this week got a huge
Speaker 1: raft of new sanctions from the United States on Russia.
Speaker 1: Given Russia's unique position exporting energy. Are the sanctions that
Speaker 1: had already been placed on Russia biting enough yet. Well,
Speaker 1: I think there's a lot of misconception about how sanctions work,
Speaker 1: and I think a lot of that was due to
Speaker 1: the unprecedented nature of you know what was imposed early on.
Speaker 1: This sort of pless ora of financial and trade punishment
Speaker 1: effectively cutting off Russians never been done for an economy
Speaker 1: of this size, so people expected instant rewards, and unfortunately
Speaker 1: that's just not how sanctions work, especially when you're dealing
Speaker 1: with a major commodity exporting economy and you haven't actually
Speaker 1: sanctioned those commodities. What we are seeing now is that
Speaker 1: these things are trickling down. The oil sanctions with the
Speaker 1: EU oil sanctions will come into effect, the oil price
Speaker 1: cap will come into effect. All of that is beginning
Speaker 1: to buy. We've seen quite substantial reductions in the Russian budget.
Speaker 1: We've seen a drop in Russian energy revenues and particular
Speaker 1: in August as as the prices have come off because
Speaker 1: remember you know, the war. At the beginning, they were
Speaker 1: selling less, but the price is very high now. We
Speaker 1: also have a global cooling, global economy that is cooling.
Speaker 1: Chinese demand is coming down because of COVID lockdowns and
Speaker 1: other other factors. So it is by thing I mean
Speaker 1: that Russia, however, can sustain a lot of tate. We
Speaker 1: used a fantastic piece comparing South Africa sanctions from the
Speaker 1: nineteen eighties and what we're being today and basically painting
Speaker 1: a picture of the types of lessons we can learn
Speaker 1: from the South Africa sanctions. Give us a little bit
Speaker 1: of a summary of what you found out when you
Speaker 1: went back to look, so full disclosure. As part of
Speaker 1: the reason I did that because that's where I am from.
Speaker 1: I grew up in Caton, and I was there for
Speaker 1: thees and all this was going on. But the interest here,
Speaker 1: I think, is not to draw a sort of perfect parallel.
Speaker 1: In fact, staid earlier, there are no real perfect parallels
Speaker 1: with Russia's sanctions situation today. The interesting thing about South
Speaker 1: Africa is a that it was a commodity exporting economy,
Speaker 1: so there were lots of loopholes. But because of South
Speaker 1: Africa's fragility going into the worst of the sanctions, which
Speaker 1: really come in because of its economic fugility, was already
Speaker 1: an economy that was uncompetitive and inefficient because of variety
Speaker 1: of distortions at the side regime had introduced. The sanctions
Speaker 1: were very important. They were very important contributors because it
Speaker 1: was already dealing with this clorotic economy. And that's I
Speaker 1: think the really important message for the Russian case, which
Speaker 1: is that you are already dealing with an economy that
Speaker 1: is barely growing at one two real disposable incomes are
Speaker 1: already shrinking even before we got to the invasion. Under
Speaker 1: sanctions sort of followed. So far Russia has managed its
Speaker 1: external debts. There is a kind of constant looming default,
Speaker 1: but we never actually see Russia default on mons. Is
Speaker 1: it coming this year? I think the default here is
Speaker 1: very it's very different to pass, you know, even sort
Speaker 1: of South Africa's ciscal constraints. I mean, Russia has created
Speaker 1: to some extensive a ciscical fortress. It's not for lack
Speaker 1: of ability to pay, or rather, it's not for lack
Speaker 1: of cash, and they're not paying their debts. So I'm
Speaker 1: not sure it's it's as helpful an indicator. It's probably
Speaker 1: more an indicator of just how isolated Russia has become.
Speaker 1: What I would really watch in terms of how constrained
Speaker 1: they are is where the budget is allocated. How import
Speaker 1: substitution is going, And the answer is it's going quite poorly.
Speaker 1: If you look at the auto sector, if you look
Speaker 1: at computers and computing, anything to do with technology at
Speaker 1: the brain drain, those will really be of things. That
Speaker 1: is where we will see the real hit. We saw
Speaker 1: a huge change this week. We saw the Russian army retreating.
Speaker 1: We have proof of that. We know that Ukraine has
Speaker 1: been able to advance, and we also saw some descent
Speaker 1: within Russia, which is maybe a little bit unusual. I mean,
Speaker 1: fifty municipal leaders and perhaps more criticizing Vladimar Puddin and
Speaker 1: sort of putting pressure on him to back down. I mean,
Speaker 1: is that as huge an event as it seems? So?
Speaker 1: I think you're right. Two things have happened that are
Speaker 1: very important. One is the strategic defeat, and I think
Speaker 1: we can you know, obviously lots of things are changing
Speaker 1: on the front line, et cetera. This is still a
Speaker 1: moving picture. But the counter offensive and the speed with
Speaker 1: rich pressure has collapsed is unquestioned. The turning point in
Speaker 1: the war certainly an inflection point, and it is a
Speaker 1: strategic defeat for pushing and one that is very difficult
Speaker 1: to explain at home, and we really caught them the
Speaker 1: beginning of the week struggling to find a narrative to
Speaker 1: match this, not least because Puttin over the weekend had
Speaker 1: been completely silent on it, so he was busy inaugurating
Speaker 1: Giants Ferris Wheels. And what we saw was this surge
Speaker 1: of discontent on particular programline nationalist channels and telegram, which
Speaker 1: is um if you think about how restricted Russian social
Speaker 1: media has become. Those channels a huge following. We saw
Speaker 1: some television to some extent for people really questioning, you know,
Speaker 1: what are we doing here. We haven't even got full mobilization.
Speaker 1: We're calling this a special operation and it's not working.
Speaker 1: People wanted answers, and then we also saw the expressions
Speaker 1: of dissent, as you said, among the mayors, among the
Speaker 1: local leaders. It's still too early to say whether that
Speaker 1: will really filter through, but it has begun to put
Speaker 1: pressure on him at a time when vladmore Putin has
Speaker 1: very few answers. He needs more material on the front,
Speaker 1: he needs more manpower. Who's really running out as people,
Speaker 1: A lot of men who have done their first story
Speaker 1: of duty don't want to come back any extension of
Speaker 1: conscription will take a long time to feed through to
Speaker 1: the front. I don't think that necessarily means we're just
Speaker 1: about to press an easily a button. But suddenly he
Speaker 1: is in a pretty tight spot and we'll need to
Speaker 1: decide whether he's ready to take the political costs of
Speaker 1: the math mobilization, really putting the country in the economy
Speaker 1: on the Warford Clara Ferra marquees. That does it for
Speaker 1: this week. We were produced by Eric mollow Till next
Speaker 1: time on Booberg Opinion h