60 Minutes — Hot on the Trail. Breaking news
-This Monday's plunge wasn't a surprise for the Moscow stock exchange. The blow was hard but not fatal. This statement is rather recent. In this context, let's point out the aspects that we were expecting. For the first time since December 2016, the rate of the dollar went up higher than 62 rubles while the euro rate rose higher than 76 rubles. We hadn't seen a similar plunge since April 2016, but we expected it. So, what does it mean?
- Yeah, some have succumbed to panic. They are crying that everything's lost. Of course, nothing's lost. The stocks of blue-chip and many other companies are falling. But let's hear a professional opinion on that. Are the scaremongers right? Please welcome Maxim Shein.
The matter is surrounded by many myths. Some say that we've lost control and that the companies of Deripaska and Potanin are going to stop paying wages leading to the ultimate death of the single-industry cities. Please, tell us what's really going on?
Maxim Shein, investment strategist: It's not that scary as it might seem, and there are several reasons for that. First, if we speak about stocks and bond quotation, without taking the currency market we see the following picture. When geopolitics and diplomats are getting involved and sanctions are being imposed investors get nervous. Foreign investors get nervous and start thinking what to do. Some of them start selling their Russian assets. When they do that, they have to exchange rubles for dollars. The demand for dollars increases and the dollar rate naturally grows.
But if we assess the real situation and talk to the actual foreign investors we'll see that they are still interested in dealing with Russia. Why? Because profits and risks really are in favor of the Russian Federation and Russian assets. Truly enough, such plunges happen at the stock market when everybody wants to sell and is afraid to buy. It happens. Such situations happen for a brief period of time and it's just the right moment for the long-term investors to buy our stocks. Just the right moment to buy them.
Warren Buffet used to say: "When stocks go down, it's good news". It gives investors an opportunity. So please, invest instead of gambling in stocks.
- Go buy some cheap stocks. That's right.
- Excuse me, but, say, workers who cast aluminum at one of Deripaska's factories are worried. Should they be?
- No. They shouldn't worry until Deripaska starts closing his factories. Financing is another issue.
- It'll be too late to worry when the factory's closed, you know.
- We might have borrowed some money to expand our industry. But aluminum is still in demand and we must supply it. Nickel, copper, and gold are still in demand.
- Investors are worried though.
- A worker cares about what happens to the industry. They wouldn't end up unemployed if somebody needs their skills.
- But the industry is in a weird spot right now. Investor are getting worried, have we ever experienced a similar situation? Are they going to relax eventually? Is everything going to be OK? Uh-huh!
-Well, "relax" and "OK" aren't exactly business terms.
- Let's speak about the specific dollar and euro rates then. When will the emotional decline turn into an emotional growth? Will the dollar get cheaper? Will we be happy again? Well... Will it?
- The emotional growth will begin when everything is sold and there are no sellers on the market. They sold their rubles, bought their dollars and cashed them out. I'm talking about foreign investors and especially about profiteers trying to get that "hot money." Once the dust settles, it'll be over. Maybe some...
- Well, we could have been "happy" today or yesterday, if we use that term. But only if Elvira Nabiullina and her Centrobank entered the currency market. But for some reason, our Centrobank doesn't participate in this madness.
Dimitri Nekrasov, political analyst: It's doing the right thing. Actually, currency fluctuations are a usual thing for a market economy with market-based pricing. Centrobank has a tendency to avoid the fuss and not waste its reserves to save the ruble. We tried once in 1998 and it resulted in a huge crisis that wouldn't have been so severe if we had devalued the ruble earlier. We did the same thing in 2008 and basically wasted more than 100 billion. The crisis still happened but it could've been milder if we didn't waste the money. But we've learned. Centrobank's become wiser. That's my first point. The long-term rate of the ruble...
- Excuse me, but do you mean it's no big deal?
- I mean that Centrobank shouldn't waste its reserves to support the rate of the ruble. I believe that 10-15% fluctuations are normal for a market economy. Moreover, the long-term currency prices depend on the trade balance — the balance between our export and import. And our trade balance depends solely on oil prices. When prices are high, we sell more and buy less.
- And they are pretty high now.
- So I don't think our ruble is doomed to sink even lower During the first half of the year, our exports tend to exceed our imports. It's odd that the ruble is in decline now, it usually is during the second half of the year.
- But what's the fate of ordinary people like you?
- Look, the aluminum plants currently owned by Deripaska existed before Deripaska and will exist after him. The existence of Deripaska and his business has no effect on the existence of those plants. If aluminum is expensive...
- And it is. It's more than $2000 per ton.
- It's more expensive than it used to be. ...and if the plant benefits from producing aluminum then it will be produced and the workers will get their wages. Another question is: Who will own it? Deripaska might go bankrupt, although that's unlikely.
- But we won't sell it to Americans, will we?
- Why should they buy the plant? They don't need it. Hypothetically, in the worst case scenario that's unlikely to happen the company might...
- Sure, why should they get 5% of the world aluminum market? Nah, we'll pass.
- They won't buy anything because of the sanctions. Roughly speaking...
- Well, they used to buy back then. …
- Some other people might buy the plant.
- We're worried about ordinary people, not Deripaska.
- One way or another our state budget will save Deripaska. Which might be wrong.
- Why do you care so much about him? And then, the interests of ordinary people would be violated. Our schools and kindergartens will help Deripaska.
- Or we could let him go bankrupt.
- Will they help though? It's not decided yet.
- Here in Russia, we have an idea that bankruptcy is a bad and unhealthy thing. But bankruptcy leads to recovery. New effective owners appear and the economy grows. But when we support everyone spending our state budget...
- Like Obama did in 2008. …
- and especially when we support some chosen ones the economy doesn't grow as rapidly as it could if the ineffective owners went bankrupt.
-Hail bankruptcy!
Nikolai Rybakov, Vice Chairman, Yabloko: The worst thing is that the government announces that it will support the sanctioned companies. Once again, Trump cooperates with our government. Trump fulfills his election promise to "make America great again" by developing their aluminum industry and we, instead of developing our own infrastructure support some private companies. I find it wrong.
- But how shall we act?
- Once again, we should normalize our relations quit the sanction race and finally, admit that sanctions...
- Become the 51st state. …
- Deny us the participation in the world economy.
- Great idea.
Nikita Isayev, economist: Mr. Shein said that we'll recover and it'll be fine. Mr. Shein, you came here to speak honestly, am I right? But you understand that we won't recover. You understand that this pendulum... You should be interested in politics.
- Nothing will recover.
- This pendulum is dangerous for our country and for our stock market. This pendulum will strike everyone, not just Deripaska. Partially due to our inability to borrow money. Dimitri says we shouldn't waste our reserves. But what do we accumulate them for, Dimitri?
- You'd better ask Kudrin, not Dimitri.
- Well, not Kudrin... We accumulated the reserves and are now trying not to waste them. People discovered that they became 10% poorer in a single day. You're saying...
- What people? What people?!
- We try not to pay attention to the rates. But we still haven't found a substitute for import and everything we import is tied exclusively to a foreign currency. Even if we manufacture something here we still import all parts. And people...
- Right, the bread parts are tied to the foreign currency.
- The people live there. They work at those plants in those single-industry cities. Our economy focuses on export. Unfortunately, we don't produce anything in Russia. And even when we do, we sell it for dollars. And now, they forbid us to sell it. That's what happening to Deripaska. And the Nord Stream 2 that's basically been frozen is our second-best asset after oil. Our budget that's been in deficit for three years will decrease even more.
- Why? Why would it decrease?
- Taxes will increase and people will suffer. Soon, the government... You said Dvorkovich had had a plan.
- And he does have a plan, Mr. Isayev. It was officially announced for all zealous scaremongers like you. Mr. Shein, could you explain?
Maxim Shein, investment strategist:
- Well, regarding the forex reserves I personally believe that Centrobank should even out such fluctuations. Everybody knows that it could punish all those profiteers, do justice upon them. That's first. Secondly, who are those profiteers? And when will the dust settle? Who sets the exchange rate at the Russian market? Profiteers, carry traders. Why? The daily foreign currency turnover at the Moscow stock exchange is $20-30 billion. How much do we need to satisfy the needs of our economy? $400 billion per year. OK, $500 billion per year. The sum that could satisfy the needs of our economy is traded within a month. And who trades during the remaining 11 months? Profiteers do. So when the profiteers eat their fill…
Nikita Isayev, economist: When will they leave the market?
- When you build the Iron Curtain. But we won't let you do that.
Maxim Shein, investment strategist: They'll leave when the rates drop and they're already starting to. It wouldn't be profitable to stay.
-The profiteers are gone, everything's back to normal. Or will be back to normal very soon. It was 60 Minutes. Watch Vesti. Thank you.
