Ups and Downs for U.S. Stocks; Russian Fallout Spreads
QUEST: The fallout from the economic crisis in Russia now is spreading way across Europe. In Moscow, the Russian parliament now rushed through measures. It's designed to prop up the country's banks. And from Russia into Western Europe, neighboring nations with exposure to Russia are, some would arguably say, almost in panic mode. In Belarus -- now Belarus, of course, obviously well and truly on the border there -- Belarus is fearing a devaluation of the Belarusian ruble. The central bank's put restrictions on currency trading and a 30 percent tax on purchases of foreign currencies. Some interest rates in Belarus have been hiked to 50 percent to stop people from withdrawing the money, to force them or to keep them -- keep them in the bank. And you'll understand, of course, Belarus is one of those countries which has basically thrown its lot in with Russia in terms of trade agreements and the future trade region. The -- in Russian gas deal with the German company has been called off. Gazprom's now looking to expand activity in Europe. Sanctions stopping several new energy projects. But obviously the question of the South Stream pipeline and other energy -- and other energy projects very much in question. Charles Dallara is the former managing director of the Institute of International Finance, joins me now from Washington. Charles, good to see you. Nice that we're not talking about Southern Europe for a change, sir. We're talking about Russia. When do we start to see widespread effects of this Russian recession?</s>CHARLES DALLARA, FORMER MANAGING DIRECTOR, INSTITUTE OF INTERNATIONAL FINANCE: Good to be with you, Richard. Unfortunately, I think we could see that fairly early in 2015. The cloud of economic weakness in Russia weakness in Russia is spreading over Europe. It has the potential of spreading into contagion into other emerging markets, particularly those with large energy companies, such as Petrobras in Brazil. And finally I think the combination of the weak oil prices, the lack of confidence in Russia and the ratcheting up of sanctions may well put Russian corporations and financial institutions early in the year where they're unable to meet their financial obligations to the West.</s>QUEST: Right. And now where are you more concerned? Are you concerned about Western Europe, which does, of course -- I mean, besides Germany, Austria maybe, a few other countries, the rest of Western Europe or the E.U., to be more precise, isn't as affected. Or are you concerned with the Stans over on the eastern and the southeastern part of the Russian border?</s>DALLARA: Well, I think there has to be concern in both directions. But actually I think the fundamental problem is not so much with the Stans. I think they are adequately differentiated that they will be able to ride through this turbulence. I think the fact is is that we've had virtually no growth in Europe for half a decade now, Richard. And I think that we see the growing signs of political extremism. We see the continued weakness. We see the continued difficulty, which Europe has, reestablishing any sense of market momentum under the -- over the austere policies that have been guided out of Brussels and Berlin. I think this leaves Russia in a vulnerable -- not only Russia in a vulnerable position, but leaves Europe in a vulnerable position as we enter the new year. Finally I would just say that emerging markets are going to be put back into play, I'm afraid, by the combination of Russian weakness, energy market weakness more globally and the prospect eventually of the Fed moving.</s>QUEST: Now hang on. If you -- I was going to ask you a different question, but you've just thrown -- you've just thrown a financial hand grenade into the interview with that. If -- we've already seen Indonesia, Thailand, Brazil, their markets, their currency markets affected by what's happening with a rising dollar. If you do add in the Fed, the patient as Job they may be, eventually rates are going up, probably mid-next year. You're forecasting this -- the emerging markets get hit.</s>DALLARA: I'm suggesting absolutely that emerging markets could be hit and hit hard, Richard. The fact is is that notwithstanding the vast amount of hope which markets have extracted from the simple word "patient" in the last couple of days, the -- despite that -- and by the way that's happening while earnings estimates in U.S. corporates are actually being marked down. All 10 sectors in the U.S., in the Dow have been marked down for earnings over the course of the fourth quarter and yet we have this continued upward movement of the Dow. The Fed cannot levitate markets forever. And when they finally do move, I think we have to be prepared for a considerable amount of turbulence.</s>QUEST: And we heard that from our guest earlier on markets; we're hearing it now from you. Charles, it's always good to see you, sir. Thank you for coming back. We'll have much more to talk about. Thank you.</s>DALLARA: Good to be with you, Richard.</s>QUEST: When we return, the President of the United States says Sony made a mistake in withdrawing the release of "The Interview." Sony says the president is wrong.