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BLOOMBERG BIG TAKE The Big Take newsletter ... September 16, 2022 Original article: Peter Burgess COMMENTARY Peter Burgess | ||
Bloomberg ... The Big Take newsletter.
The Globe Is Barreling Toward $1 Trillion in Weather-Disaster Damages
By Danielle Balbi
September 16, 2022 at 8:33 AM EDT
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Pakistan's Deadly Floods
A man carries furniture through flood water in Sindh province, Pakistan. Photographer: Asim Hafeez/Bloomberg
Deadly floods in Pakistan. Scorching heat and wildfires in the US West. Torrential rains in Australia and Indonesia. A megadrought in Brazil and Argentina.
As climate change pushes weather disasters to new extremes, it’s La Nina, an atmospheric phenomenon, that has been the driver behind the chaos since mid-2020. And now the planet stands on the cusp of something that’s only happened twice since 1950 – three years of La Nina.
Another year of La Nina means the world is hurtling toward $1 trillion in weather-disaster damages by the time 2023 wraps up. The floods, droughts, storms and fires will destroy more homes, ruin more crops, further disrupt shipping, hobble energy supplies and, ultimately, end lives.
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The Globe Is Barreling Toward $1 Trillion in Weather-Disaster Damages
$1 trillion
The estimated cost of global weather damage should La Nina extend to a third year, according to Aon
ICYMI:
From the Rhine to the Danube, waterways are failing at the worst possible moment.
Hydrogen, considered a miracle fuel, can actually make climate change worse.
An inside look at how looted statues are ending up in major museums.
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There’s an Unusual Thing Happening in the Housing Market
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There’s an Unusual Thing Happening in the Housing Market
Residential homes in San Francisco, California, US, on Thursday, Sept. 8, 2022.
Residential homes in San Francisco, California, US, on Thursday, Sept. 8, 2022. Photographer: David Paul Morris/Bloomberg
ByTracy Alloway
September 16, 2022 at 10:15 AM EDT
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It’s no secret that the US housing market has been softening as interest rates rise at the fastest pace in decades.
Higher mortgage rates mean the dramatic growth in home prices that we’ve seen over the past two years is beginning to slow. Sales of new homes recently came in at the weakest monthly level since 2018. Meanwhile, purchase applications are down 20% year-on-year, and so on.
But the rapid pace of rate hikes has also resulted in an interesting statistical anomaly. Months of supply — or the number of months it would take for the existing inventory of homes on the market to sell at the current sales pace — has jumped to 4.1 from a record low of just 2.1 back in January of this year. And, as Morgan Stanley strategist James Egan notes, rarely have we seen an increase of this size.
To some extent, the jump in inventory is to be expected. It’s maths. As sales volume falls while inventories rise, months of supply naturally increases.
But such a jump is intuitively striking, and the key question for housing-watchers is whether the absolute level of inventory — which is still low by many measures, even as homebuilders have ramped up construction since last year — will turn out to be more important than its rate of change. A housing market that is structurally undersupplied is going to be a lot less vulnerable to fewer sales.
Here’s Egan:
“Months of supply has rarely increased as quickly as it has over the past six months. While we have a limited sample size of this kind of volatility, the size of this increase is normally associated with falling home prices 12 months forward. In fact, in the 34 instances in which months of supply increased by more than one month over any six-month period, [year-on-year Home Price Appreciation] was negative 12 months forward 88% of the time. While there have only been nine instances where months of supply have increased by more than two over a six-month period, home prices were always lower 12 months later.”
relates to There’s an Unusual Thing Happening in the Housing Market
Source: Morgan Stanley
The team at Morgan Stanley still expects home prices to rise this year, estimating a 9% increase for 2022 and more moderate 3% in 2023.
But much of that forecast is predicated on inventory slowing. If it fails to do so, the team predicts a bear case of house prices falling 3% next year.
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Russia’s Secret Gem Sales Are Dividing the Diamond World
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Diamond Trade
Russia’s Secret Gem Sales Are Dividing the Diamond World
A handful of buyers are snapping up large volumes at lucrative terms.
Diamond jewelry in the window of a store in the Diamond District neighborhood of New York.
Diamond jewelry in the window of a store in the Diamond District neighborhood of New York.Photographer: Stephanie Keith/Bloomberg
Bloomberg News
September 17, 2022 at 2:00 AM EDT
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The secretive sale of Russian diamonds, worth hundreds of millions of dollars every month, is fracturing the global trade that stretches from cutting factories in Mumbai to luxury stores on New York’s Fifth Avenue.
Many in the industry refuse to deal in Russian gems following the invasion of Ukraine and after mining giant Alrosa PJSC was hit with US sanctions. But there’s a handful of Indian and Belgian buyers who are snapping up large volumes at lucrative terms, getting to pick and choose the diamonds they need while others stay away.
The deals are happening quietly, even for the famously secretive diamond world.
And while they’re not breaching sanctions, there are other risks to consider — heavyweights like Tiffany & Co. and Signet Jewelers Ltd. don’t want Russian diamonds that were mined since the war began, and suppliers say they are worried about losing crucial contracts by dealing in Alrosa gems.
The sales present a problem for any attempts at a boycott: once stones enter the supply chain they can become near-impossible to track. Diamonds are sold in parcels of similar sizes and qualities — there are about 15,000 different categories — and can be retraded and remixed multiple times before ending up in an engagement ring or pendant.
Read: Russian Diamonds Are Quietly Flowing Again After Sanctions Chaos
Western retailers trying to avoid Russian gems are also concerned about securing enough diamonds, especially the small and cheaper types that Alrosa specializes in. The company accounts for about a third of rough diamond supply, and any Russian stones mined before the war are essentially all used up.
Some big European luxury brands have asked Alrosa’s rival, De Beers, to increase sales to suppliers they trust, according to people familiar with the matter who asked not to be identified discussing private information. The company has made some efforts to do so, but has little extra to sell, the people said.
As Russian supplies divide the diamond world, much of the tension is focused in the “midstream,” a vast network of mostly family-owned businesses that cut, polish and trade the world’s precious stones — many of them in India — and provide the link-up between mining companies and jewelry stores.
Diamond Industry In Surat as Global Diamond Trade Fractures Under Russia Sanctions Pressure
Diamonds at a diamond market in Surat, Gujarat, India.Photographer: Dhiraj Singh/Bloomberg
Before Russia’s invasion of Ukraine, Alrosa sold to more than 50 such customers every month. Sales froze up initially after the invasion but have now returned to near-normal levels.
But it’s happening very quietly. Before the war, the company ran 10 sales a year out of its Antwerp, Belgium, sales office based on a set calendar, and published the results afterwards. Alrosa has now stopped publishing any information on its sales or financial performance.
Most of the Indian midstream is still avoiding Russian purchases because of the risk that they lose western customers as a result, according to people familiar with the matter.
The US in particular is a crucial market — 50% of all polished diamonds are sold in the country, ranging from luxury pieces worth tens of millions to stones that sell for less than $200 at retailers like Walmart Inc.
Read: The Diamond World Is Scrambling to Keep Buying Russian Gems
While diamonds are a discretionary luxury for the people who buy them, the business itself is an economic bedrock for the major cutting and trading hubs. The diamond trade roughly supports an estimated one million jobs in India, where the government has pushed to keep business flowing. Belgium’s Prime Minister has also reiterated the country’s position that Russian stones should not be sanctioned — more than 80% of rough diamonds are traded through its port city of Antwerp at some stage.
For now, the vast majority of Russian stones are going through about 10 buyers. Indian companies Kiran Gems and Shree Ramkrishna Exports Pvt are the two largest buyers, according to people familiar with the matter.
Kiran and SRK did not respond to emails and calls seeking comment. Spokespeople for Alrosa and De Beers declined to comment.
After the Russian diamonds are cut and polished, the assumption is that they will end up in jewelry for markets like China, Japan and India. Those three countries together account for about 30% of global demand and — unlike western retailers — are happy to receive Russian production.
However, the opaque nature of the diamond trade with its long and convoluted supply chain means that Russian stones are likely to end up in western markets as well.
A diamond’s origin is clear at the start of the chain when it is issued a certificate under the Kimberley Process, which was designed to end the sale of “blood diamonds” that financed wars in the 1990s.
But after that, things can get murky. Parcels of gems are often intermingled at trading houses, and the original certificate will be replaced with “mixed origin” documentation, making it near-impossible to keep track of where Russian diamonds are eventually sold.
Alrosa PJSC Reveals Its Largest Pink Diamond And Main Sorting Center
Rough diamonds on a sorting table in Moscow.Photographer: Andrey Rudakov/Bloomberg
While the fear of alienating western companies is the biggest obstacle for most in the industry, the practical difficulties in buying from Russia are also a deterrent.
Following the US sanctions, most European and Middle Eastern banks have withdrawn from funding purchases from Alrosa, which previously sold almost all its diamonds in US dollars. That leaves a few Indian banks that have become more comfortable in recent months with how to facilitate transactions in other currencies, primarily euros and rupees.
In one sign of ongoing wariness, IndusInd Bank Ltd., one of the biggest financiers of India’s diamond buyers, has been requiring customers in those deals to sign waivers acknowledging they’re responsible if any transactions are frozen, according to people familiar with the situation.
A spokesperson for IndusInd said the bank “is compliant with domestic as well as international trade sanctions inter alia not undertaking transactions with sanctioned entities/individuals.”
For those who are still willing to buy, Alrosa is offering perks including unusual flexibility, although it’s kept pricing overall on par with De Beers.
Normally, customers are expected to take a pre-agreed assortment of diamond parcels. Now, the company is allowing buyers to handpick their packets, which means they can select diamonds that are in short supply or the ones that are likely to yield the best profit. In a reflection of the shifting structure of the industry, it’s also looking at establishing more permanent sales offices in India.
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Putin Threatens New Military Strikes on Ukraine Infrastructure
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Putin Threatens New Military Strikes on Ukraine Infrastructure
Russian leader says ‘in no rush’ with military operation
In first public comments, Putin dismissive of counteroffensive
Vladimir Putin at the SCO leaders' summit in Samarkand on Sept. 16.
Vladimir Putin at the SCO leaders' summit in Samarkand on Sept. 16.Photographer: Sergei Bobylyov/AFP/Getty Images
Bloomberg News
September 16, 2022 at 12:43 PM EDT
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Russian President Vladimir Putin threatened to step up attacks on Ukraine’s civilian infrastructure, vowing to continue his invasion after his forces suffered some of their worst reverses in the seven-month-old campaign.
In his first public comments on the issue since Ukraine said it retook as much as a tenth of the territory Russia had seized, Putin was dismissive of the counteroffensive. “We’ll see how it goes,” he said, noting that Russian forces are continuing to advance in other areas.
“Just recently the Russian armed forces hit some sensitive targets. Let’s consider that warning strikes,” Putin told Russian media reporters Friday in Samarkand, Uzbekistan, where he was attending a summit of the Shanghai Cooperation Organization, a China-led bloc. “If the situation develops further in this direction, our response will be more serious.”
Putin said Russia’s military campaign was “proceeding at a slow pace, but consistently” and claimed Moscow was using “only part” of its army. “Bit by bit, the Russian army is taking control of more and more territory,” he said.
Ukraine wrested control of a large swathe of the northeast of the country occupied by Russia in a lightning offensive this month that forced Russian troops to flee, abandoning their equipment. The sudden losses dealt a major blow to the Kremlin’s efforts to seize eastern Ukraine. In response, Russia fired missiles that plunged large areas of Ukraine into darkness and attacked elements of the water system in a city behind the front lines, causing severe damage and flooding.
The Russian leader, who accused Ukraine of targeting civilian infrastructure as well as assassinating pro-Moscow officials in Russian-controlled territories, said the Kremlin is “in no rush” to complete its invasion. Ukraine denies striking civilian facilities and killing collaborators.
Putin’s comments came just hours after he told Narendra Modi that Russia would “do everything to end this as soon as possible.” The Indian prime minister chided the Russian leader, saying, “today’s era is not one for war.”
In his comments to reporters, Putin reiterated his claim that he’s ready to negotiate with Ukraine but blamed Kyiv for being unwilling to talk. Ukrainian officials have demanded a full Russian withdrawal as a condition for diplomacy.
Earlier Friday, Ukrainian President Volodymyr Zelenskiy said authorities had discovered hundreds of graves in territory retaken from Russian occupation and demanded that the Kremlin be held accountable for war crimes.
— With assistance by Benjamin Harvey
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A Weakened Putin Is No Use to Russia
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Opinion
Leonid Bershidsky
A Weakened Putin Is No Use to Russia
As military reversals erode his domestic legitimacy, Russia’s president faces an ever-darker road, and more drastic choices, in order to retain power.
The darkness around him is growing.
The darkness around him is growing.Photographer: Contributor/Getty Images Europe
ByLeonid Bershidsky
September 15, 2022 at 3:00 PM EDT
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Leonid Bershidsky, formerly Bloomberg Opinion’s Europe columnist, is a member of the Bloomberg News Automation Team. He recently published Russian translations of George Orwell’s “1984” and Franz Kafka’s “The Trial.” @Bershidsky
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As Ukrainian troops probe Russian defenses along the entire front and only the Wagner Group mercenaries continue a small-scale offensive operation in the Donetsk region, the initiative in the Russo-Ukrainian war is firmly in the hands of the invaded, not the invader. While that can still change, perhaps more than once, it’s a good moment to consider whether the man who got Russia into this mess retains any legitimacy — domestically or internationally. To put it even more bluntly, who, if anyone, still needs a weak Vladimir Putin?
Putin’s claim to power has evolved over his nearly 22 years atop the Kremlin. In 2000, he was President Boris Yeltsin’s chosen successor, then the president elected in a vote that, while not problem-free, reflected the will of Russian voters. By the end of the first eight years of his rule, he was the architect of a corruption-plagued, but broadly beneficial economic upsurge; because Russians credited him for that, they cared little about the erosion of electoral democracy as he consolidated power. After the intermission of Dmitry Medvedev’s presidency, he briefly struggled to find a new source of legitimacy until he seized on the annexation of Crimea, an event so inspiring to a large majority of Russians that even a harsh pension reform four years later didn’t appreciably dent his popularity.
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Putin went into the Covid pandemic riding an ebbing Crimea wave of support while relying increasingly on a swollen, well-fed security apparatus — a full-fledged dictator now, with elections a joke and all major issues, and lots of minor ones, requiring his personal intervention. The pandemic, when most visitors had to quarantine for weeks before being admitted to Putin’s presence, seems to have shrunk his trusted entourage to a handful of yes-men. The Kremlin’s erratic policies made Russia one of Covid’s biggest victims, and only the disease and increasing oppression kept Russians from looking up too much. By then, Putin’s legitimacy rested on the general impression of undefeated, unbeatable strength, backed up by a military success in Syria and the steamrolling of domestic opposition.
As in the tough streets of any big city, however, be it St. Petersburg or Sao Paolo, the reputation of a strongman as the head of a country needs constant reinforcing by further feats of strength. For his next one, Putin chose Ukraine again, launching what he clearly thought would be a blitzkrieg ending with the swift fall of Kyiv and the annexation of a large swathe of Ukrainian territory. Even though the outcome of the war is far from decided, this show of force has failed spectacularly. Russia has revealed itself to be vulnerable militarily after years of bravado that deceived even the experts.
Russia’s weakness is not lost on foreign leaders, from once-cautious Western adversaries shipping increasingly deadly weaponry to Ukraine to neighbors like Azerbaijan’s leader Ilham Aliyev, who appears to see a new opportunity to improve his country’s position in Nagorno-Karabakh while Putin is bogged down in Ukraine. Putin may have hoped for more active support from China, but he’s not getting anything beyond discounted energy purchases; were he winning, China would doubtless be more forthcoming.
The domestic audience, too, appears to be shedding its illusions of Russia’s greatness, no matter what one might say about the efficiency of Putin’s propaganda. His media mouthpieces Vladimir Solovyov and Margarita Simonyan no longer own the narrative. Even on state television, not to mention nationalist Telegram channels with hundreds of thousands of readers, Russia’s defeats are engendering much bitterness and hurt. The hard-core propagandists look lost, sometimes downright bizarre, with Simonyan retreating into sentimental memories and poetry and Solovyov appearing on the air with bruises and scratches on his face.
Putin himself, stubbornly maintaining a business-as-usual program of meetings of little relevance to the Ukrainian elephant in the room, looks like a denizen of “Pink Pony Planet,” as far-right commentator Igor Girkin (Strelkov) calls the distant realm of the Russian elite.
And what of Putin’s suppression machine, his vaunted FSB domestic intelligence and more than 300,000-strong Rosgvardia riot police? Despite its extensive network, the former failed to predict Ukraine’s stiff resistance. A large part of the latter was sent across the border, initially to police the conquered territories, but ending up in the meat grinder of trench warfare, something for which its personnel never trained. Whether they will return from the war with any respect for Putin is questionable; even the dictator’s faithful servant, Chechen leader Ramzan Kadyrov, whose fighting force in Ukraine is part of Rosgvardia, has doubted the campaign’s conduct, if not (yet) Putin’s leadership and goal-setting.
If a strong Putin was widely tolerated, often appeased, and, in Russia itself, feared and obeyed, what could be the basis of a weak Putin’s power? Certainly not sympathy: Russians aren’t known to respect weak leaders — witness the political fate of the last Soviet President, the late Mikhail Gorbachev, and many a Russian czar before him. A Ukraine-style popular revolution in Russia is unlikely, even if Western sanctions begin to bite in earnest: The new leaders needed for something like that will not emerge overnight from Russia’s thoroughly purged civil society. But you can at least expect popular indifference in the face of top-down change. Despite appearances, an unquestioning pro-Putin majority doesn’t exist, according to a recent report by the Carnegie Endowment for International Peace — and the number of the dictator’s diehard backers won’t increase with more defeats.
Internationally, what might prop up Putin even if he loses the war is a fear that what comes after him may be far worse. The far right, inspired by the same ideals of imperial greatness as Putin himself, can be much more ruthless when it comes to its choice of means to that end. Someone of Strelkov’s ilk with a finger on the nuclear button is indeed a scary thought.
Domestically, though, Putin risks losing control as soon as the fear subsides. Military and police commanders, spies, even the timid oligarchs will be scheming — and likely already are, as a matter of contingency planning — to put forward a figure who could maintain their positions while pulling out of the Ukraine nosedive and offering a calming alternative to the rest of the world. The tightening of Putin’s close circle during the pandemic has, as an unintended consequence, shortened his reach and provided more opportunity for plots and intrigues behind his back.
None of this means, of course, that Putin is about to be toppled. Speculation concerning potential replacements is being dribbled into Telegram and foreign media mostly as a way to damage specific figures. For now, the dictator is still in control: All his years in power have earned him the benefit of the doubt among Russia’s powerful, a group moth-eaten by negative selection. He must, however, realize that if military defeats continue, retaining his clout will require surprising, even drastic moves. The world might yet be treated to a re-enactment of the tired cornered rat metaphor from Putin’s childhood — something to keep in mind but not to fear: All dictatorships end someday, and few go out in a blaze of glory.
More From Other Writers at Bloomberg Opinion:
Ukraine’s Army Is Winning But Its Economy Is Losing: Niall Ferguson
How the Ukraine Offensive Will Shift the Market Narrative: John Authers
Ukraine May Become More Successful Than Biden Wants: Hal Brands
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