He also explained what private soldiers need to prepare for. Russians, the richest oil and gas regions of the country, what “time bombs” are about to explode and whether Russian oil will have to “roam around the world” in search of sales, at least at a discount.
- An unprecedented number of sanctions have been introduced against Russia - about 10,000 types. We answered abnormal strengthening of the national currency. How long will this economic miracle last?
-Let me give you an analogy. There is the so-called Euclidean mathematics, which we all studied at school: 2+2=4, parallel lines do not intersect. But under other conditions, there may be another: regular consistent mathematics. Non-Euclidean.
And now paradoxes are happening in the country, which, from the point of view of our usual mathematics / economics, should not occur, but do occur. When the Central Bank changed the conditions in February, introduced and adjusted restrictions for exporters, this naturally led to a huge influx of foreign currency and the strengthening of the ruble. About a billion dollars of export earnings come into the budget every day. Russia began to receive even more foreign currency than in the pre-February period.
-Exporters are no longer required to sell so much foreign exchange earnings. Against the background of these concessions, the ruble did not even flinch.
-The fact is that in the foreign exchange market there is a group of sellers and a group of buyers of currencies. It is clear that exporters are currency sellers who will still sell it in order to cover their ruble expenses. They were traditionally opposed by two large groups of players. The first is importers, and our imports fell by 89% in April compared to January 2022, or about 70% year-on-year.
This means that the demand for the currency has fallen sharply, just collapsed.
And the second group is foreign companies, foreign financial institutions, foreigners who worked here. These are about 2.5 thousand companies that directly provided 2 million jobs in Russia and indirectly another 4-6 million jobs. And it's all gone. Instantly. Among the buyers there was still demand from citizens - an insignificant group, but we were limited.
And if earlier there was a certain balance, now only exporters are left of all the participants.
We see that mathematics has changed absolutely. And strangely enough, in this mathematics, parallel lines converge. Because when the demand for currency fell so sharply, and at the same time the inflow of currency increased, then, according to Adam Smith's theory, the ruble should strengthen, the dollar should fall. What we see.
- What processes have been launched by this new mathematics, provided that the macroeconomic and political situation does not change in the foreseeable future?
Let's start with the population. It seems that the winners should be ordinary citizens who consume a lot of imported goods or goods with a high share of the imported component, and according to various estimates, from 35 to 50% in consumer goods, and up to 80% in durable goods, in the same household technique.
But nothing of the sort happened. We see that the real exchange rates at which transactions take place are higher than the exchange rates. For example, real estate transactions today take place at the level of 85 rubles per dollar - the buyer can cover the ruble price at this exchange rate, if he has it available.
If you take food, then there was no reduction in price. Maybe they have become cheaper compared to the peak in early March, when there was an absolutely incomprehensible situation, but when compared with mid-February, prices not only did not decrease, but rose. Simply put, this strengthening of the ruble affected the citizens to a much lesser extent.
Exporters. They, as traditional beneficiaries of a weak ruble, also seriously lose from such a course. This is the first time in my memory that exporters suffer like this, but I would quote the verb suffer.
And, finally, the country's budget, which has obligations in rubles, and approximately 50% of income in foreign currency.
Yes, there is a “fat”, or rather, there probably was. 2021 has been a pretty successful and surplus year. It was a great start to 2022, with the economy growing 3.5% in the first quarter. Now let's see what happens to the accumulated "fat".
The cost of the military operation, judging by the sometimes stingy figures, in April amounted to about 600 billion rubles. This is against 180 billion until February 2022. Triple growth. And it was not in the budget. And the operation continues.
The second item of additional expenses is the decision to increase all social payments from June 1. The cost of this measure by the end of the year will amount to 509 billion rubles. Or about a trillion a year.
And the “fat” that Russia has can end very quickly, given the extremely alarming data that comes out for March and April. And partly already for May already.
- Do you mean the reduction of oil and gas exports?
- No, we will return to export a little later. I'm talking about some key indicators of the country's economy.
For example, last year the vast majority of Russian regions experienced economic growth. In April 2022, only 27 subjects showed growth.
VAT collection in April fell by 54%, and this is the second largest source of income after oil and gas. I am citing the officially confirmed figures that are in the reports of Rosstat and the Central Bank. And I want to emphasize that the VAT is not only one of the most capacious, it is also the most revealing. It's sales tax! And the April-May fall in VAT by more than 50% indicates the extreme depression of the economy.
We will lose about 7-8% of GDP this year. Foreign experts estimate losses closer to 10% or more. In any case, one must understand that this is the biggest economic failure in the history of modern Russia since 1991.
- Subjectively, I still don't believe in depressive forecasts. Inflation has slowed down. People live ordinary lives, are keenly interested in the new name of McDonald's ...
-And so and not so. The crisis process will be cumulative.
You haven't been going to cinemas since March, have you? If your car breaks down and you try to fix it, then repairs, taking into account parts for a foreign car, will cost many times more. You cannot go on vacation abroad today, especially to Europe. Yes, you are right, this is not some big shock for the majority of Russians. And about 10% of the country's inhabitants usually traveled abroad - Russians have only 14 million foreign passports in their hands.
But! According to surveys of Russians themselves, people estimate the increase in the cost of their current life by about 15-25%. Another thing is that the same inflation is felt differently in different groups of people.
Cumulative inflation since the beginning of the year amounted to 12.5%. Let's start with the poor strata of the population and the structure of the consumer basket. Its structure is as follows: 45% - food, food, about 25% - mandatory payments, including credit, the remaining 30% - durable goods. Now let's put this on a pensioner with an average pension of 18 thousand rubles. How much does it match? The communal apartment occupies only 25%, I think, up to half. Plus more expensive food. Again, by the way, the same notorious borscht set suffered greatly - carrots and onions break all records.
An able-bodied person probably still does not notice the new food prices. Well, spending more than usual, but still bearable.
Meanwhile, a new official figure from Rosstat appears: almost 21 million of our fellow citizens are below the poverty line. There have never been so many! Usually there were about 17-18 million people. In three months, we added about 3 million beggars, 2% of the Russian population.
And you need to understand that about 60% hang around this die - the notorious poverty line.
Let me repeat for the optimists who are more interested in the taste and appearance of the new burger at the Russian McDonald's: it seems that there are no bright external manifestations of the crisis yet, but they will grow. Only someone will feel it when he cooks borscht, and the other - when he decides to change the car, but sees that instead of a foreign car he will have to change to Moskvich.
- Will a great power really follow the scenario of Iran, which for several decades under sanctions has turned into a poor country, cut off from the whole world?
- In the late 70s, it was one of the progressive Arab countries, and at the same time very Europeanized. And now there are no iPhones, no access to social networks, no Western films - there are only our own. And Iran has been plunging into mud for more than a decade.
Will we have a slow dive in the same scenario? Ask yourself this question when you suddenly think: I used to go to the mall for the weekend, buy something, watch a new movie, eat ice cream, and now I have to take the train, go to the garden and fry potatoes so that I have a supply for the winter . I exaggerate, but the situation is already changing. Not sharply, but, I repeat, cumulatively.
- The Central Bank, it turns out, went too far? Did not cope?
- In my opinion, the regulator did everything right. We must pay tribute to our Central Bank: in general, its actions are very effective. Maybe they went too far with the exchange rate, but nevertheless, the Central Bank did not allow panic in the financial markets. Restrictions were introduced and filmed promptly. The rate was raised, which blocked currency speculation.
But given that the situation is unique, the results are not the worst, but still bad. It is simply impossible to turn a bad situation into a good one. Well, no way.
- Then let's get back to the ruble, which knocked out the dollar and, despite the attempts of the Central Bank, has not given up for the third month.
- The Central Bank itself gives forecasts that by the end of the year the exchange rate should be about 70 rubles per dollar. This is a more adequate course for the economy. And an acceptable rate for exporters, importers and other economic agents.
Will such a prediction come true? Let's go back to the math analogy. Every month, every week serious additions are made to the current situation. The source data is changing.
Including imports. I hope that we have passed the lowest point of decline in imports. This is evidenced by the data for April and preliminary data for May, when imports from negligible values increased three times in May compared to April, but it is still 40% less than year on year.
This happens due to the reorientation of imports from Europe and America to the countries of Asia. The long-awaited time for reconfiguring supply chains seems to have arrived. Therefore, imports will grow.
Exports, unfortunately, will decline. And no matter what Russia does here, I have rather pessimistic forecasts here, because Europe and the United States have quite clearly taken a course towards abandoning Russian oil and our gas.
Then again there will be a new mathematics, a new paradigm. The ruble will begin to weaken when exports fall and imports rise.
- When does the ruble start to weaken: summer? Autumn? 2023?
- It will be clear, I think, by the end of this month. By the end of June, maybe a little later. In my opinion, it's time. It's just time. But no one will say the exact date, everything still depends on the geopolitical situation.
From whether foreign assets will be unfrozen, from the effectiveness of sanctions, in the end. It is obvious that now Russia continues to export in circumvention of the sanctions, but the authors of the sanctions packages can respond to this with new tightening.
I still consider the question open as to where Russia will redirect oil. While there is hope that the volumes will go to the same India and China. And I strongly doubt China, which does not support sanctions, but does not support Russia either. The Celestial Empire, as always, plays only in its own favor. Yes, as long as they are happy to buy cheap Russian oil at a big discount - 30-35% of the market price. But China will definitely not dare to do any big support for the Russian economy in terms of imports. And it is clear why - they are afraid of secondary sanctions. The logic of secondary sanctions is very simple - if you work with Russia, we do not work with you, the US will tell the Chinese.
- Some financial analysts predict that as soon as imports and exports are settled, the national currency will collapse rapidly and we will still see the dollar at 200 rubles.
- The question is not 200, 150 or 50. The whole question is how much you can buy with it. In my opinion, the problem is neither in the depreciation of the national currency, nor in inflation, but in the standard of living.
We need to look at people's incomes. And income is bad. If, according to Rosstat, the number of poor people has increased, then, apparently, there is a rapid decline in real disposable incomes of the population. It cannot be explained by other reasons.
Perhaps, according to statistics, the nominal incomes of Russians are growing, but in the economy it is necessary to operate with something else - net disposable income.
And here, as I said, taxes and mandatory payments should be immediately excluded from income, but utility bills are still growing in most regions, and taxes have not been reduced in our country. There are practically no concessions.
Plus, another time bomb is the credit load. The Russians have collected about 10 trillion mortgage loans and about the same amount of consumer loans, including car loans, card loans, unsecured, etc. Divide these 20 trillion by 146 million people in the country and you will understand the scale of the catastrophe.
Moreover, even according to the data of the Central Bank for 2021, the average Russian spends about 12% of his income on servicing loans. This is comparable to the same income tax.
Incomes are falling, but they didn’t really give any credit holidays, what they gave is just laughter, few people can take advantage of this. Sooner or later, an ordinary family will face such a choice - either feed the children or pay off the loan. When this happens, people will make the right choice: they will, of course, feed the children.
And then all this credit structure will crumble. There are already some first signs: about 25,000 mortgage loans are now in default, that is, 25,000 families need to be evicted. This is not so much, but we may have 25,000 families in this situation, then 100,000 families, and then a million, two, three, ten.
- The pillar of the Russian economy is the oil and gas sector, what is in store for it?
- At the moment, according to data for April: exports fell in physical volumes, because oil supplies to Europe, the USA and Canada were reduced, but increased in monetary terms. According to preliminary data, there will also be growth in May. Deliveries to India and China increased many times. Deliveries to Europe, if they have fallen, are still insignificant. The share of the USA and Canada - they actually consumed some Russian oil.
In the future, the oil and gas sector is still waiting for a decrease in production volumes. This will lead to very serious consequences for the regional budgets of the oil and gas regions and to the loss of jobs. Unfortunately, this will be the case.
- Despite the turn towards Asia, will our oil industry not find sales markets comparable to those supplied to Europe?
- Neither in China, nor even in India, a comparable market can be found. Sanctions can be lifted, for example, from Iran, and this is a very serious player in the oil market. Sanctions on Venezuela could be lifted. Namely, Venezuela is number one in the world in terms of reserves. Now they are allowed to export something. Perhaps the Americans will come to an agreement with the Arab sheikhs.
There is something to replace Russian oil. And it will be done, a little earlier, a little later. If the pressure on our country continues, then Russia will have to roam the world with its oil and sell it at a discount and in a roundabout way to China.
- If we are only at the beginning of the crisis, and the dollar is still weak, please give practical advice. Buy currency, save a ruble airbag?
- Since 2011, I give the same recommendation: to have savings in foreign currency. If, of course, income allows.
And the logic here is not whether the dollar will be higher or lower - you are buying peace of mind. No matter how much a piece of cheese, sausage or something yet, in foreign currency it will cost you about the same. Yes, inflation will be, but insignificant.
A currency cushion is not a means of earning money, it is a means of preserving the purchasing power of your money, and therefore your peace of mind.
But at the same time, the currency must be in cash. Store in a glass jar. Literally so. There is a risk that some additional restrictions will appear on the currency in addition to the existing ones (pay attention - to the existing ones!). Even the risk of withdrawal is not zero. It rose sharply when a law was recently adopted stating that in the conditions of a war economy, foreign exchange savings can be withdrawn. Remember that an account, a deposit and a glass jar are not the same thing.
And one more piece of advice: internally prepare for any scenarios. It is still possible to discuss the replacement of the sign for fast food, you can talk with a smile about the release of the Moskvich car based on Renault, but if instead of the Kia Rio you really have to change to the Moskvich steering wheel, then everything will become clear to everyone. Without words.
Reference: Konstantin Petrovich Selyanin is a candidate of economic sciences. He has three higher educations (mathematical, legal and economic). He has been working in the stock market since 1992. Over the years, he held senior positions in the investment companies Accord-Invest, Troika Dialog, and others.