Speaker 1: This is Bloomberg opinion. I'm Vonnie Quinn this week. I
Speaker 1: think there is gender of a Chinese stemon collapse if
Speaker 1: we see trouble with local government financing. Shulie Ran on
Speaker 1: the standoff between President she and COVID zero. Also Tim
Speaker 1: Coulpen on the standoff between the US and China on semiconductors.
Speaker 1: First though, to financial stability in US markets. After Thursday
Speaker 1: saw a five percent swing for the SMB five, I
Speaker 1: spoke with Bloomberg Opinions John Authors. So, John, we got
Speaker 1: the CPI prints which showed harder inflation than expected, and
Speaker 1: the markets sold off, and then suddenly we got a
Speaker 1: turn around, a five percent swing on Thursday. How much
Speaker 1: the technical levels and programmed to buying feature. First of all,
Speaker 1: I'm going to be honest, of course, I don't know
Speaker 1: quite why that happened. That five percent turnaround makes it
Speaker 1: in the top five or six. Different people have come
Speaker 1: up with different estimates I've seen all time, So that's
Speaker 1: a seriously big deal on crazy days own news. Um,
Speaker 1: the best guess is that it's about technical levels if
Speaker 1: you look at it on a chart, if you do
Speaker 1: a fiber and actually retracements and we had reached the
Speaker 1: point of three thousand, five hundred on the SMP, which
Speaker 1: is obviously around number, and it's also exactly where you
Speaker 1: reach the fifty retracement. You've lost half of the game
Speaker 1: that you made since the COVID bottom, exactly. And it's
Speaker 1: too simple to blame everything on algorithm. Some human wrote
Speaker 1: the algorithm, but enough people were programmed to buy that
Speaker 1: you got a bid. At that point. The inflation numbers
Speaker 1: were unquestionably bad and worse than it was reasonable to hope.
Speaker 1: Service inflation was up, shelter inflation was up, all the
Speaker 1: sensible measures, trimmed mean, median, sticky price inflation, everything across
Speaker 1: the board was its highest in forty years. So it
Speaker 1: was unquestionably bad, but it wasn't game changing. Everybody assumed
Speaker 1: FED was going to hike BIPs, so after the initial
Speaker 1: shock there may have been a grasp of well, actually
Speaker 1: this isn't going to change anything much and stocks are
Speaker 1: really keep now, which is what we've seen before. You know,
Speaker 1: bad news is good news, etcetera, etceter etcetera. And also
Speaker 1: more visibility. Maybe we know that there's two seventy five
Speaker 1: basis point where tags coming out, Well, that's what the
Speaker 1: market certainly seems to think yes, So how much more
Speaker 1: damage could be done? People are still out there saying
Speaker 1: the bottom isn't in. There could be another downside. Jamie Diamon, Yes,
Speaker 1: I still think they're perfectly easily could be. I think
Speaker 1: the critical number is inflation. The longer it keeps doing this,
Speaker 1: or if the headline setting you high, then the Fed
Speaker 1: really has no choice but to keep on pushing. So
Speaker 1: the markets pricing at a terminal rate beyond four eight
Speaker 1: five percent. Right now we have a ten year yield
Speaker 1: very close to four percent again, which is also worth noting.
Speaker 1: David ian Horn said this week that value investing might
Speaker 1: be dead because no one knows the value of anything.
Speaker 1: That day thought I thought what he said was fascinating.
Speaker 1: The critical point, certainly, both low rates and the growth
Speaker 1: of passive investing could certainly be said to have undermined
Speaker 1: the whole business, the whole profession of value investing, of
Speaker 1: stock picking. So there are plenty of well trained people,
Speaker 1: but these days it's about macro and models and the
Speaker 1: kind of technical stuff we were just talking about, rather
Speaker 1: than crunching your way through balance sheets. So I did
Speaker 1: think there was a lot of sense in the argument
Speaker 1: he made that you can spot that something's too cheap
Speaker 1: and buy, and then wait for other people to notice
Speaker 1: what you've noticed, and this time nobody else notices. This
Speaker 1: has been said both about the growth of growth stocks
Speaker 1: and about the growth of passive There has logically at
Speaker 1: some point to come a time when the screamingly best
Speaker 1: way to make money is going and looking for all
Speaker 1: the ridiculously cheap stocks that have been created by passive investing.
Speaker 1: For years, it's been the idea of going into private
Speaker 1: markets because that's where the inefficiencies are at this point,
Speaker 1: I think David Eindhorn probably is right, but but sorry,
Speaker 1: y yeah, well I was just gonna say. I mean,
Speaker 1: even in a broader sense, no one really knows what
Speaker 1: the forward earnings of the SMP five hundred should be.
Speaker 1: No one really knows what the value of anything is.
Speaker 1: And that you have to throw in the shock of
Speaker 1: the pandemic followed by the shock of the Ukraine War.
Speaker 1: We don't have any good precedents to rely on here,
Speaker 1: and so there's uncertain about the YEP exactly. But I
Speaker 1: still ultimately think that there comes a point when ten
Speaker 1: years from now there probably are going to be some
Speaker 1: diligent long only people who bought a bunch of cheap
Speaker 1: stocks who will look as clever as David Swinson of
Speaker 1: the Yale Endowment did at one point and will be rewarded.
Speaker 1: Is liquidity an issue? I mean, obviously it might be
Speaker 1: in Britain depending on how things pan out with the
Speaker 1: pension funds. Are their concerns for the broader markets. Yes,
Speaker 1: you can tell from the results that they're not as
Speaker 1: acute as they were in Britain, where I had to
Speaker 1: talk to a contact referred to quantitative destruction that you
Speaker 1: had all these structures that had been built up to
Speaker 1: take advantage of low rates, but we're also necessary because
Speaker 1: low rates made the investment arena so dull, gave you
Speaker 1: a big incentive to take more risk. In the case
Speaker 1: of the UK, plainly we got to the we got
Speaker 1: to the point where there wasn't enough liquidity and it's still,
Speaker 1: we hope, only a liquidity issue. Pension funds have had
Speaker 1: a solvency issue for a long time, but hopefully this
Speaker 1: is remains as a liquidity otherwise it could be an
Speaker 1: extraordinary week next week too. I mean, you start talking
Speaker 1: about things like tarp bailouts, the parallel is quite close
Speaker 1: that when it came to actually put in capital into banks,
Speaker 1: it wasn't the fit that did that. It was Congress
Speaker 1: using taxpayers money, and that turned out to be the
Speaker 1: single most important step in ending the crisis. Similarly, the
Speaker 1: Bank of England's can't print money and put it in
Speaker 1: people's pension plans. It's going to have to come from
Speaker 1: taxpayers if it comes to that, which is not a
Speaker 1: pleasant thought in the slightest, but it's somewhat less unpleasant
Speaker 1: than people going without their pensions. Bloomberg Opinions, John Authors.
Speaker 1: This Sunday, Chinese President chit and Ping will give the
Speaker 1: opening address to the twentieth National Congress of the Communist
Speaker 1: Party of China. The week long event happens twice a decade.
Speaker 1: This year, it will celebrate the one anniversary of the
Speaker 1: establishment of the Communist Party of China. President she is
Speaker 1: expected to win a third term as President and General
Speaker 1: Secretary of China's Communist Party. I spoke with Bloomberg Opinions
Speaker 1: Julie Ran on why markets are seeing this particular party
Speaker 1: congress as a line in the sand. First, though, here's
Speaker 1: Australia's former ambassador to China Jeff Raby on President She's
Speaker 1: in Ping's constituency Sunday and beyond. China does have an
Speaker 1: institutional mechanism of governance, say and like Russia these days,
Speaker 1: and Sheetingping is a servant of the party. So at
Speaker 1: the point of which the party feels that she is
Speaker 1: in some way undermining the party's legitimacy, its support in
Speaker 1: the broader community, then elite members of the party could
Speaker 1: well start to a question whether she is the right
Speaker 1: person to lead the party socially. Is there any danger
Speaker 1: at all that she will not secure a third term
Speaker 1: at the party congress or is it a foregone conclusion
Speaker 1: that obviously he will. I think it's a foregone conclusion already.
Speaker 1: I mean, like he already went abroad one month ahead
Speaker 1: of schedule, and this congress is sat to start in
Speaker 1: October instead of originally scheduled in November. So I think
Speaker 1: he has already this position locked up. Now. Is that
Speaker 1: wishful thinking on the part of Wall Street and traders
Speaker 1: globally that President she will pivot prioritizing the economy after
Speaker 1: the CPC, shifting away from COVID zero and so on.
Speaker 1: Is there any actual evidence that the CPC might be
Speaker 1: a line in the sand, and that he might change
Speaker 1: policies after that. I don't think it's necessarily wish for
Speaker 1: thinking in part because I'm in that camp. I think
Speaker 1: it's just inevitable because holding onto the COVID zero policy
Speaker 1: is very, very expensive. The last two years, China was
Speaker 1: doing quite okay in and one, so they had a
Speaker 1: little bit of fiscal room to hold down to COVID
Speaker 1: zero until the Party Congress. But twenty three, where is
Speaker 1: the fiscal money coming far? And it's going to be
Speaker 1: very difficult for China to continue. They will have to pivot.
Speaker 1: But vaccine take up has been relatively low in China.
Speaker 1: Why not mandate vaccine take up and open the economy
Speaker 1: as opposed to allowing people choose on vaccinations but having
Speaker 1: rolling lockdowns? Has there been much debate on vaccines in China.
Speaker 1: It's funny because you know, the vaccination drive pretty much
Speaker 1: stopped even after the Shanghai lockdown. I mean, my parents
Speaker 1: are in Shanghai. No one asked them to take any
Speaker 1: jabs um. I think it's kind of foregone conclusion. Now,
Speaker 1: like in Hong Kong, we have very similar problems. The elderly.
Speaker 1: They don't want to get the vaccinated. It again and again, right,
Speaker 1: so Hong Kong still open. What Hong Kong did was
Speaker 1: they called the three thousand elderly people and the state
Speaker 1: do you want to get back? And almost all of
Speaker 1: them say no. So the Hong Kong governments that we
Speaker 1: just have to open. And I expect that's what's going
Speaker 1: to happen to China. Even back then in twenty when
Speaker 1: China was starting the vaccination chart, they started with the
Speaker 1: younger working population instead of with the elderly. But Julie,
Speaker 1: is there any talk of what might happen if China
Speaker 1: does open and the vaccination rate is low. Hospitals might
Speaker 1: get overwhelmed. I mean it might look something like the
Speaker 1: original pandemic. Here right now we are seeing on the
Speaker 1: crown China has escaped from Delta, and Delta was the
Speaker 1: bad one, so I think it should be okay. Very
Speaker 1: recently there was a government document urgent the county level
Speaker 1: local government to prepare themselves for hospitalization, and some people
Speaker 1: on the marketplace see it as a tentative sign that
Speaker 1: the China is prepared to reopen um and the vaccination
Speaker 1: rate is lower for the elderly, but for the broader population,
Speaker 1: it's not low. People are chapter three times now you
Speaker 1: mentioned the local governments, the local economies. To an extent,
Speaker 1: Presidency has delegated fixing China's economy to the local municipalities.
Speaker 1: Do they have the resources to jump in if there's
Speaker 1: some kind of a crisis or some kind of an
Speaker 1: economic slowdown that they can't bear. No, that's the problem
Speaker 1: because COVID zero has been ongoing for too long. According
Speaker 1: to walk In Stanley, the Chinese government at the local
Speaker 1: level has been two trillion U n um COVID zero controls.
Speaker 1: I mean, that's just money wasted. And the local governments
Speaker 1: also rely on land sales and that's not going very
Speaker 1: well as well, and that's why, like I think, ultimately
Speaker 1: China just has to pivot away from COVID zero, perhaps
Speaker 1: within months, because this clay is just not going to work.
Speaker 1: So there's obviously the property market crisis that we heard
Speaker 1: a lot about over the last year. There's regulation around education,
Speaker 1: around gaming and so on. But while we've seen a
Speaker 1: lot of bondholder pain, we haven't seen, for example, the
Speaker 1: kind of systemic crisis that we might have seen during
Speaker 1: the Great financial crisis the United States, Is there any
Speaker 1: reason to think that China is in danger of having
Speaker 1: one in the banking system or elsewhere. I think there
Speaker 1: is danger of a Chinese demon collapse if we see
Speaker 1: trouble with local government financing, develop her debt or the
Speaker 1: stuff that we're seeing the news headlines. A lot of
Speaker 1: it is US Dolard debt that's offshore, right, But if
Speaker 1: we're talking about income bank liquidity freeze, I'm sure that
Speaker 1: will have to do with local government debt because they
Speaker 1: have issued a lot. Yeah, does she have any wish
Speaker 1: to attract overseas capital and mainland markets? I mean, clearly
Speaker 1: at the moment, he is a lot on his plate.
Speaker 1: He has to figure out how to handle Russia. The
Speaker 1: G twenty is coming up, and obviously the CPC is
Speaker 1: what he has to get past first. But at the
Speaker 1: same time, investor confidence has definitely been damaged during his
Speaker 1: second term. Any evidence to suggest that he might want
Speaker 1: to woo investors again somehow? I think he is not
Speaker 1: Ma or Kim Jong yng, like I do feel that
Speaker 1: he still wants to reconnect with the world, right like
Speaker 1: he pretty much has not helped Russia during this Ukraine counphlict.
Speaker 1: That's knowls that he didn't want to be the prior globally.
Speaker 1: And also like the Chinese government has struck deals with
Speaker 1: the U s SEC to let the auditing Committee or
Speaker 1: the Chinese companies accounting papers right. And then also she
Speaker 1: is coming to G twenties, so I think he still
Speaker 1: wants to connect with the world. What market indicators are
Speaker 1: most reliable for explaining the shape of China's markets? What
Speaker 1: do you look at these days is just the major
Speaker 1: benchmarks Julie and the offshore ontour bonds. I think for me,
Speaker 1: I still look as stocks because they are quite volatile,
Speaker 1: and any think of possibly China reopening, you're going to
Speaker 1: see a pretty sharp bump, in part because the evaluation
Speaker 1: is very very low right now. So I will look
Speaker 1: at that. Will there be a UN policy. We've obviously
Speaker 1: seen the U on weekend dramatically, as have we seen
Speaker 1: many currencies we can dratically in the face of the
Speaker 1: dollar strength. But how do she and the p BOC interact.
Speaker 1: Willy have thoughts on how strong or weekly UN should be.
Speaker 1: I don't think they have a certain but seven point four,
Speaker 1: seven point five, I mean they're preparing the public thing.
Speaker 1: You know, whatever the UN is, it is against the
Speaker 1: stronger US dollar strength, and then compared to the yen
Speaker 1: or the euro or the British pounds, the UN is
Speaker 1: doing fairly well, and there is some incentive, to be honest,
Speaker 1: for the Chinese rand to be weaker because China still
Speaker 1: realize on a lot of exports. Right, Yeah, for sure,
Speaker 1: it's a double slided sword. What else will we hear
Speaker 1: out of the CPC. I mean, obviously human rights will
Speaker 1: almost definitely not be addressed, but what else will we
Speaker 1: be looking for a post CBC. I think that the
Speaker 1: most interesting thing for the Congress is the lineup. Who
Speaker 1: are what's the ranking of all the politicians? She is
Speaker 1: on top, who is going to be the Prime Minister,
Speaker 1: and who's going to be the head of the political
Speaker 1: standing Committee Because unfortunately for economic policies, it used to
Speaker 1: be just economic policies. People at the minister level they
Speaker 1: can just handle major decisions and stuff, But unfortunately the
Speaker 1: economic policies have become political in the last few years.
Speaker 1: Take housing policy or COVID zero policy for instance. So
Speaker 1: who is on top understanding committee is going to be
Speaker 1: very important to watch. Nuomeberg Opinions. Shuli ran the US
Speaker 1: this week unveiled a new set of restrictions on Chinese
Speaker 1: access to US semiconductor technology. I spoke with Bloomberg Opinions
Speaker 1: Tim Copen in Taipei on the ramifications for China, Taiwan
Speaker 1: and the United States. So, Tim President, she will likely
Speaker 1: be appointed to a third term after the Party congress
Speaker 1: next week. He obviously has a lot of contend with
Speaker 1: how far up his priority list will China's tech prowess
Speaker 1: being specifically it's chip prowess. It's gonna be very high
Speaker 1: on the list. There's a lot of things on she
Speaker 1: did mind right now, covid zeros, retaking Taiwan, but getting
Speaker 1: a chip industry that's up to global standards and competing
Speaker 1: with the U and with Taiwan and South Korea is
Speaker 1: something very very much wants that she Before that, independence technology,
Speaker 1: will independence of China, As you say, China had been
Speaker 1: aiming for almost self sufficiency in semiconductors. How much of
Speaker 1: a thorn and she's in pink side? Will this round
Speaker 1: of restrictions be? Can he stave off some of the
Speaker 1: worst dramifications. It is going to be very potent and
Speaker 1: quite damaging I think to China's chip goals and dreams.
Speaker 1: The Chinese had been somewhat catching up. That's found a
Speaker 1: lot of progress in the last twenty years. This is
Speaker 1: not just the Chi ji Ping move. Previous administrations in
Speaker 1: Beijing has been wanting to build up a chip sector.
Speaker 1: She has been pushing the harder and harder, and they
Speaker 1: had made progress. But it's important to remember that the
Speaker 1: West and I include Taiwan and South Korea and that
Speaker 1: are also moving ahead. Chip industry moved very very quickly ct.
Speaker 1: In fact, what would seem over last decade is that
Speaker 1: while China has improved so as the Western, the gap
Speaker 1: is not actually closed. And that's a little bit of
Speaker 1: an embarrassment for Baking because there's been a lot of
Speaker 1: money trying to close that gap. Now, with the Biden
Speaker 1: administration's latest rules, it's going to be harder and harder
Speaker 1: to close of that, and I would predict that made
Speaker 1: an EXPI to get my widen again as a result
Speaker 1: of these new district now. Ursula wonderlyand pointed out that
Speaker 1: the EU doesn't want to be in a situation where
Speaker 1: they're dependent on, say China for chips, like Europe became
Speaker 1: dependent on Russia for gas. When it comes to the
Speaker 1: US and China, tease a part for US, who exactly
Speaker 1: is dependent on whom. One of the key issues is
Speaker 1: that year everyone reliant on the West ships. The US,
Speaker 1: even though they don't manufacture a lot of chips, is
Speaker 1: a leader in the chip industry because they create a
Speaker 1: lot of the technologies, for example, equipment and the software
Speaker 1: needed to make chips, and then they basically outsourced to Asia,
Speaker 1: to Taiwan, to South Korea, to Japan and elsewhere. And
Speaker 1: that's something that doesn't sit comfortably with the United States,
Speaker 1: and it doesn't see it comfortably with China. So ironically,
Speaker 1: China and the US are in a similar position, have
Speaker 1: a similar level of discomfort that they don't have control
Speaker 1: over the manufacturing of even the chips that they design themselves,
Speaker 1: and both sides both aging of Washington is something about it,
Speaker 1: and find a lot of money to try and rectify
Speaker 1: that problem, literally passing the Chips Act of fifty two
Speaker 1: billion dollars to award domestic semiconductor production in the United States.
Speaker 1: Now you're in Taipei. Obviously Taiwan is watching all of
Speaker 1: this with huge interest as well. Talk to us about
Speaker 1: t s m C. T s MCS model is to
Speaker 1: allow its own clients design their own chips. But it's
Speaker 1: a company that produces nine of the world's most advanced semiconductors.
Speaker 1: Will it be a victim of this chip war? You
Speaker 1: could say it's victim chip war. It's also, I guess,
Speaker 1: a major beneficiary of the chip war. They're definitely in
Speaker 1: the crosses of Beijing. Is sorts of stark humor about
Speaker 1: you know, taking Taiwan just for the chips that of
Speaker 1: course would not work it with sale At the same time,
Speaker 1: Taiwan and itself front and center of the global stage
Speaker 1: because now suddenly everyone has woken up and realized how
Speaker 1: much they need to Taiwan and how much they need
Speaker 1: to people like myself has been watching this for two decades.
Speaker 1: They've known about it a long time, but it's happened
Speaker 1: kind of under their nerses without people realizing it. Now, suddenly,
Speaker 1: with the pandemic chip shortages and it's greater need for
Speaker 1: more electronic products, everybody's woken up and realized how much
Speaker 1: they need the am and seeing they're doing well, this
Speaker 1: is great. You want me to sell off a factory
Speaker 1: in in your territory, showing me the money. And that's
Speaker 1: what they're doing with Arizona, that's what they're doing with
Speaker 1: the kind of what they may be in Europe. They're
Speaker 1: getting up countries to basically pulling up some of the
Speaker 1: different setting up a factory. ANC isn't a very nice
Speaker 1: spot right well, and so this brings me to another point.
Speaker 1: Chris Miller has written a history of semi conductors. It
Speaker 1: concludes that basically World War Two was decided by steal
Speaker 1: an aluminum. The Cold War was behind by atomic weapons,
Speaker 1: and the rivalry, he says, between the U. S and China,
Speaker 1: may well be determined by computing power. Is that an overstatement?
Speaker 1: I think that's pretty true. Even if you think of
Speaker 1: kinetic weapons, that is, in the bombs and missiles and planes,
Speaker 1: they need chips. In fact, you know the first guided
Speaker 1: missiles which were deployed in Vietnam the Americans, we are
Speaker 1: dropping a lot of bombs on Vietnam and something was
Speaker 1: their charcus. And still they use cemic conductors to help
Speaker 1: guide them to their destination. And then of course we
Speaker 1: have a cyber warfare, and that is a huge, huge,
Speaker 1: you know, you can create a lot of damage by
Speaker 1: hacking your rival systems. We saw that happened when a
Speaker 1: US route including the UN hacked into around Nuclear Fund
Speaker 1: and basically messed up their center view US for making
Speaker 1: nuclear materials. We've also seen that when Colonial pipeline brought
Speaker 1: down by hackers last year. So the cemic conductor is
Speaker 1: very important in this process. At the end of the day,
Speaker 1: you still need boots on the ground. Is it going
Speaker 1: to take the territory as as Vadimir quick't be discovering,
Speaker 1: But semic conductor is a very important part of being
Speaker 1: able to do that. Tim Colp as always do get
Speaker 1: in touch. Comments and opinions always welcome at Volley Quinn
Speaker 1: on Twitter or email v Quinn at Bloomberg dot net.
Speaker 1: Many commodity prices are down to stantially from their peaks. That's, however,
Speaker 1: cold comfort for nearly eight hundred million food insecure around
Speaker 1: the world. Let's get to David Fickling for some explanation. So, David,
Speaker 1: there was huge relief in grain markets when we saw
Speaker 1: that first ship leave the port of Odessa for Elebanon.
Speaker 1: Prices have come down for all sorts of grains and
Speaker 1: oil seeds, and it's a big difference from when we
Speaker 1: spoke earlier in the year about the difficulties in palm oil,
Speaker 1: wheat and other markets. But in terms of food security,
Speaker 1: the situation is much more complicated and multi factored than
Speaker 1: simply prices are too high. I think that's right. It's
Speaker 1: very much feels like we've passed the sort of acute
Speaker 1: phase of food crisis. But I think there's a chronic
Speaker 1: problem underlying this. To use the sort of medical metaphor,
Speaker 1: I mean, you look at a bunch of commodities, spring wheets,
Speaker 1: the benchmark in the US, it's done more than a
Speaker 1: third at this point from where it was in March.
Speaker 1: Palm all you mentioned oil feeds that stounds forty percent
Speaker 1: in April corn prices than by nearly a course in
Speaker 1: sort of my sugar and Arabic at coffee. They're all
Speaker 1: on year nine months load. But although the price of
Speaker 1: these commodities are still actually reasonably hired by ten years standards,
Speaker 1: certainly compared to where we where a few months ago,
Speaker 1: there's come down a great deal and we're starting to
Speaker 1: see signs that maybe certainly things were returning to normal.
Speaker 1: So that great, and we should be very excited for
Speaker 1: the world's poor and hungry that perhaps they have a
Speaker 1: chance to get food again. But that's not quite the case,
Speaker 1: is it. That's right, because I think there's a tendency
Speaker 1: for us in rich countries, looking at commodity markets to
Speaker 1: rather overestimate the importance of the prices of benchmark commodity
Speaker 1: futures as a sort of index of the affordability of
Speaker 1: food for the world's poorest. It's certainly a factor, but
Speaker 1: one of many factors, and not even I would say
Speaker 1: the most important factor. You know, if I was to
Speaker 1: say one factor above all that affects food insecurity, and
Speaker 1: bear in mind the population of people facing under nourishment,
Speaker 1: who don't have enough food through the year to give
Speaker 1: them a balanced diet. It's looking now at being the
Speaker 1: highest in twenty one since the mid two thousands, about
Speaker 1: seven hundred and sixty eight million people, possibly higher than that.
Speaker 1: One in ten people in the world very nearly do
Speaker 1: not have enough nourishment to provide them with a balanced
Speaker 1: diet or of real improvement. That number, far from the
Speaker 1: sort of eight hundred million we're seeing now, was in
Speaker 1: the five hundred to six hundred millions, it was quite
Speaker 1: significantly lower. A couple of factors. I mentioned war and insecurity,
Speaker 1: that really is probably the biggest of all factors. And
Speaker 1: you know, one sort of measure for the sort of
Speaker 1: human cost of that is probably if you look at
Speaker 1: the number of displaced people, refugees and internally displaced people.
Speaker 1: It has been soaring over the past decade. It's now
Speaker 1: running at double its level of a decade ago one.
Speaker 1: It rose eight percent in one year. And there's a
Speaker 1: tendency obviously to see these benchmark pology prices of the
Speaker 1: field and end all of food prices. But actually, I mean,
Speaker 1: you know, I always go back to the great Indian
Speaker 1: economists that much of fen and his analysis of famines
Speaker 1: that previously people talked about in as something where there
Speaker 1: simply wasn't enough food in the world to feed people,
Speaker 1: or food in that particular region to feed people. And
Speaker 1: he went back and went back at the Dayton fans
Speaker 1: and said, well, it's very rarely a general sortage of food.
Speaker 1: It's generally actually that the price of food has has
Speaker 1: written beyond the level of people's ability to afford it.
Speaker 1: And that can be caused by rising food prices, it
Speaker 1: can be caused by falling incomes, and it can be
Speaker 1: caused by other indexes of civil disorder and a lot
Speaker 1: of folks that we're seeing right now civil disorder, but
Speaker 1: even things like insurance on ships, crew for ships, and
Speaker 1: so on. So many varied factors go into the price
Speaker 1: of something and the delivery of something. In fact, I
Speaker 1: was looking at the overall world food price index and
Speaker 1: it's still at four point two, which is not that
Speaker 1: far off this year's March I oft seven. So in
Speaker 1: spite of large jobs, nearly eight hundred million people are
Speaker 1: going hungry right now, and that could rise. Talk to
Speaker 1: us a little bit about the effect of the dollar
Speaker 1: and how that set in motion a whole range of
Speaker 1: things like the evaluations and so on that also effect
Speaker 1: to the price and the deliverability of food. Absolutely, I mean,
Speaker 1: I think that's crucially important. We tend to look at
Speaker 1: these quantity prices in dollars and most agricultural commodities a
Speaker 1: few exceptions, palm oil is one of price in the
Speaker 1: US dollars. Obviously, we've seen a lot of dollar strength
Speaker 1: in recent months, and that's particularly bad for a lot
Speaker 1: of emerging market currencies. These are countries that are some
Speaker 1: of the world's biggest food importers, and are most dependent
Speaker 1: on imports from overseas. So take Egypt for instance. Egypt
Speaker 1: is the world's largest wheat importer. The Egyptian pand has
Speaker 1: absolutely been collapsing over the past year. So whereas the
Speaker 1: rise of the US dollar price of wheat has driven
Speaker 1: up costs by about twenty three percent, if you add
Speaker 1: in the evaluation of the Egyptian pand, that's added in
Speaker 1: another twenty percent on top of that. Pakistan is not
Speaker 1: actually a huge wheat importer, but it is used dependent
Speaker 1: on imports to some extent. The rupee slump has added
Speaker 1: fifty three percent on top of that three percent increase
Speaker 1: from the US dollar price. And Turkey, I mean, Turkey's
Speaker 1: a wealthier country, but of course the Turkish there has
Speaker 1: been in the terrible States. So the collapsing there is
Speaker 1: about a hundred and seventy one on top of that
Speaker 1: twenty three percent in priests from from the US dollar week.
Speaker 1: It's horrifying. We talk about nine eight percent inflation, we're
Speaker 1: looking for to go below that in the United States.
Speaker 1: But if you're in one of these countries, you're literally
Speaker 1: talking about what nearly two added to costs. That's that's hyperinflation.
Speaker 1: That's insane. You can't feed your people of that. Yes,
Speaker 1: And of course you know, if you think about how
Speaker 1: a lot of these governments managed this, Egypt in particular,
Speaker 1: I think he's an interesting example because subsidized bread is
Speaker 1: really the central part of the Egyptian welfare spect. In fact,
Speaker 1: if you look at their physical numbers, their fruit subsidies,
Speaker 1: they spend as much on pretty much all other aspects
Speaker 1: of social security put together. So of course, what happens
Speaker 1: when the Egyptian pan is devalued and wheat prices go
Speaker 1: up further, Well, Egypt has been out in the market
Speaker 1: making big purchases of of wheat. Of course, it was
Speaker 1: one of the big buyers of Ukrainian and Russian weeks,
Speaker 1: so it's sort of suffered from that, but it's still
Speaker 1: needs to buy this because it sort of crucial element
Speaker 1: of social stability. And what's happening as a result of
Speaker 1: that that is of course impacting Egypt's physical balances. So
Speaker 1: this is going to be an impact that will linger
Speaker 1: their physical balances, and their external balances are deteriorating as
Speaker 1: a result of this. Now, I don't have a macro
Speaker 1: economic crystal ball for Egypt and know where they're going
Speaker 1: in the next two years. But if you look at
Speaker 1: the situation of countries like Pakistan and Sri Lanka that
Speaker 1: have been making their trips to the IMF recently, you
Speaker 1: can be put in a very difficult situation when you're
Speaker 1: having to subsidize something like that in the context of
Speaker 1: weaker fiscal and external balances, right, and then you're subject
Speaker 1: to a whole range of I m F conditions for
Speaker 1: the foreseeable future. And of course you mentioned Sri Lanka.
Speaker 1: It's interval to Pakistana staring at the fold, and they
Speaker 1: both no coincidence, have massive social unrest, in part because
Speaker 1: people have to stand in line for food for days.
Speaker 1: And if you're somebody with mouths to feed, or you've
Speaker 1: lost your job because of COVID and suddenly there's no
Speaker 1: tourism in your country, you must be living under severe stress,
Speaker 1: never mind being undernourished. The jobs thing I think is
Speaker 1: crucial and it's often underestimated. This is another of these
Speaker 1: long COVID effects. A hundred million people worldwide were laid off.
Speaker 1: The global labor force of employed people dropped by a
Speaker 1: hundred million for the first time in living memory, and
Speaker 1: in terms of the people who are living below the
Speaker 1: global poverty line one dollar ninety a day, about ninety
Speaker 1: seven million were pushed below the global policy line by COVID.
Speaker 1: And so if you're in the top forty percent of
Speaker 1: the world's population, your incomes at this point down about
Speaker 1: two point eight percent below where you've expected to be
Speaker 1: before the pandemic. But if you're in the bottom forty percent,
Speaker 1: it's six point seven percent down. And of course those
Speaker 1: are the people who are most constrained and most dependent
Speaker 1: on being able to afford food. David, you mentioned some
Speaker 1: Southeast Asian nations that we have been talking about on
Speaker 1: the program. Tell us where else is suffering badly? Obviously
Speaker 1: many countries in Africa. Yeah, I think Africa is always
Speaker 1: on the front lines of a lot of these things.
Speaker 1: If you look at see number of people who are undernourished,
Speaker 1: the rate in Africa is just different to anywhere else
Speaker 1: in the world, even now where things have ticked up.
Speaker 1: It's probably about ten percent of the population of the
Speaker 1: world of the whole faces under nourishment. In Africa, it's
Speaker 1: about is double the level. So although there are a
Speaker 1: larger aggregate number of people in Asia, for instance, who
Speaker 1: are affected by hunger just because the population is so
Speaker 1: much larger. I think around five million in Asia, but
Speaker 1: two million people in Africa really affised as the population
Speaker 1: are affected by that. One interesting thing about Africa that
Speaker 1: also makes it a little bit different to a lot
Speaker 1: of these other parts of the world is that because
Speaker 1: so many countries in Subhan Africa are really at the
Speaker 1: bottom end of the income distribution, they're particularly disconnected from
Speaker 1: global commodity markets. So there are actually particularly unaffected by
Speaker 1: a lot of what we're talking about in terms of
Speaker 1: the week price and the palmer or price, simply because
Speaker 1: the incoming supply chains and the availability of cash to
Speaker 1: afford imported global commers are simply not there. So people
Speaker 1: are really very heavily dependent on locally produced produced and
Speaker 1: the price of locally produced good. So it's really quite
Speaker 1: a different picture to what we're talking about. Certainly in
Speaker 1: a lot of Middle East and Asian countries where there
Speaker 1: is poverty, these global flows matter a little bit more well.
Speaker 1: And that's another question about globalization. Because of the fact
Speaker 1: that we have globalized commodity markets, and we need to
Speaker 1: have because countries can't feed themselves. There's no way back
Speaker 1: from this, right, there's no sort of let's have our
Speaker 1: own supply chain because some countries just can't produce indeed,
Speaker 1: and you know, I'd say most countries are actually better
Speaker 1: off being able to be plugged into those global supply chains,
Speaker 1: being able to benefit from those commodity flows. Of course,
Speaker 1: one of the other areas that we've not talked about,
Speaker 1: it's a big driver of hunger, is local climate and
Speaker 1: weather conditions. Of course, there's been a very severe three
Speaker 1: year drought in East Africa in recent years. You're just
Speaker 1: seeing in the news recently, these very severe flogged in Pakistan. Pakistan,
Speaker 1: as a country that's more plugged into those global community flows,
Speaker 1: we'll probably in many way do a lot better than
Speaker 1: East Africa because despite their own fiscal problems, they can
Speaker 1: benefit from food imports. They can afford food imports, but
Speaker 1: a lot of those countries in West Africa can't afford.
Speaker 1: So these chips that are leaving Ukraine. While it's wonderful
Speaker 1: and everything in the Portovodessa being open again with the
Speaker 1: humanitarian corridor is fantastic, it's really not going to provide
Speaker 1: that much relief for that many people. It will, it'll
Speaker 1: it will help certain parts of the world, the sort
Speaker 1: of more middle income parts to the world, like the
Speaker 1: Middle East, like parts of South Asia, the lower income
Speaker 1: parts the world. They have much more severe problems than
Speaker 1: it's going to take more than that to actually solve
Speaker 1: those problems. David Fickling, We're now choosing to end all conversations,
Speaker 1: not with you, though, Please do get in touch. I'm
Speaker 1: at Vannie Quinn on Twitter or send your thoughts to
Speaker 1: v Quinn at Bloomberg dot Net. Opinions and comments always
Speaker 1: very welcome. We're produced as always by Eric Mollow and
Speaker 1: don't forget We're also available as a podcast on Apple,
Speaker 1: Spotify or your preferred platform. Till next time on Bomberg Opinion.
Speaker 1: I'm vanniy Quinn The bea