Beirut watch: can Lebanon subdue Hizbullah?

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1:09Rosie Blau:Hello and welcome to The Intelligence from The Economist. I'm Rosie Bloor.

1:18Rosie Blau:Today on the show, the Lububu bubble is bursting and remembering Margareta Magnusson, guru of decluttering

1:32Rosie Blau:But first

1:42If anything represents the tug-of-war going on between the Lebanese state and Hezbollah, it is Beirut Airport. The airport is a particularly important institution in Lebanon, and for decades it has been a symbol of Hezbollah's control over the country. Over the years, Hezbollah used the airport to bring Iranian weapons and money in and out of the country.

2:05Rosie Blau:Gareth Brown is a Middle East correspondent. I've travelled through this airport hundreds of times, literally. And in the last year or so, I've seen a real change as it has become a battleground in the Lebanese government's efforts to reassert sovereignty and reclaim parts of the state that have long been ceded to Hezbollah. So Gareth, you're using the airport here as a microcosm of the relationship between Hezbollah and the Lebanese government. Just remind us of the context here and what has weakened Hezbollah recently. Most recently, the Iranian-backed group have just come out of a six-week war with Israel, a war that began within the atmospherics of the Israel-U.S.-Iran war.

2:53And Hezbollah made the decision to unilaterally drag Lebanon into that conflict. And over the last six weeks, they've taken a real beating from the air. Israeli airstrikes have further decimated their military command, their political command, and dozens of villages along the southern border, some of which Hezbollah has strengthened, have essentially been cleared by the Israeli military, this new buffer zone. That comes on top of the regional conflicts which we have seen unfolding since October 7th 2003 Hamas's attack on Israel from Gaza Hezbollah's decision to join that war the assassination of Hassan Nazrallah and then that cunning operation by the Mossad where they exploded hundreds of pages of Hezbollah operatives across Lebanon so it's had two or three years of really relentless beating and And the group has put itself in this much weakened predicament.

3:48Rosie Blau:So as we're speaking, there is actually a ceasefire deal between Lebanon and Israel. How is that holding? It depends who you ask. Baked into the ceasefire, there is provision for Israel to carry out acts of self-defence. So with the proviso that it's acting in self-defence, Israel can continue to strike pretty much wherever it wants to in any part of the country. And it has been doing that. Dozens of Lebanese have been killed by Israeli airstrikes since the ceasefire. And we've also seen Hezbollah firing some rockets. So there's still some sort of low level conflict going on, but it's nowhere near the tempo that we saw just a few weeks ago.

4:30Rosie Blau:And that ceasefire deal was between the Lebanese government and Israel, right? So Hezbollah wasn't actually part of it. Hezbollah never explicitly signed on to the ceasefire deal, but they also came out as soon as it was announced and basically said they would respect it if Israel were to respect it. A key expectation of the Lebanese government is as a part of this ceasefire in exchange for Israel stopping the airstrikes, the war at the tempo it was going and the Lebanese government and the Lebanese army would do more to stop moving against Hezbollah. Hezbollah. I think the ceasefire was agreed upon and is working because every party to it had a different interpretation of what it was expected to do.

5:11And the ceasefire agreement is thriving in this ambiguity. I think people are tired on all sides of the border of the war and they just want a period of calm and so they're happy to sort of acquiesce to that ambiguity.

5:23Rosie Blau:And you've spoken to a Hezbollah MP recently, haven't you? What did he say? I spoke with Hussain Haj Hassan, who's one of the group's ideological MPs. He sits in the Lebanese parliament, really seen as an intellectual of the movement. I think something that really came through in my interview with him is this real contradiction in Hezbollah's place in Lebanon. We were discussing this idea of the Lebanese government signing a peace agreement with Israel. and his line of argument was Lebanon is a confessional democracy and so in order to make these big decisions, constitutional changes, you need the buy-in of every sect, every religious group.

6:09You can't just do things with a simple majority. You can't do things through presidential decree. You need consensus in the country to make these big decisions.

6:26And he says that consensus is lacking when it comes to any sort of agreement with Israel. When I spoke to him, I put to him the idea that last month, when Hezbollah decided to drag Lebanon into war with Israel again, this was a decision of peace and war, arguably the most important decision a state can make. Hezbollah made it without consulting anyone. There was no consensus. Hezbollah's decision to launch rockets at Israel six weeks ago, two months ago, did not have consensus. That was a decision made by Hezbollah. And he sort of shrugged his shoulders and said, well, this is Hezbollah's right to fight Israel.

7:04And he sort of seemed aware of that contradiction, but didn't really try to explain it. And I think that is another indication of Hezbollah's weakness now. These ambiguities and contradictions, which in years gone by could have been ignored or brushed over, now are coming to the forefront. And you even have the president saying, Hezbollah dragged us into this war without consulting anyone. And so these questions are becoming harder and harder for Hezbollah to bat away.

7:33Rosie Blau:More than a million people were displaced in the recent fighting between Israel and Hezbollah. What's happened to them since the ceasefire? A lot of them have gone home. You know, within minutes of the ceasefire being announced, people were packing up their cars and driving south. The issue is Israel, despite the ceasefire, now occupies about 5 % of southern Lebanon. That's dozens of villages. That's the homes of tens, perhaps even hundreds of thousands of people. And they're unlikely to go home anytime soon. So the displacement crisis has certainly eased, but it's not been fully solved. So where does the Lebanese government now stand in relation to Hezbollah, both in terms of power and in terms of who gets the say?

8:18I think there is a massive element of the unknown to that question. One of the immediate responses to the fighting flaring up last month was the Lebanese government came out and declared all of Hezbollah's military activities illegal. Effectively said, any Hezbollah member with a gun going to the south can be arrested. And that was unthinkable even three, six months ago. So it was a huge statement of intent. Now, Hezbollah still has relative freedom in the southern suburbs of Beirut and southern Lebanon in the Beqar Valley. It is an armed group and a very strong one. But increasingly, the sounds we're hearing from the Lebanese government is that it wants to minimise Hezbollah's ability to act outside of the state.

9:02Now, if you're the USA and Israel, what they want to see is the Lebanese army confront Hezbollah head on and maybe even fight them. And for the army leadership in Lebanon, that's just not going to happen. And I think what the government's strategy is, we take them out of institutions of the state. We cut off their funding. We cut off their ability to make revenue from drug smuggling or bringing weapons in from Iran. This is where we go back to the situation with the airport. And I think the government's strategy is to gradually weaken them without directly confronting them.

9:35Rosie Blau:So where does that uneasy truce between Hezbollah and the Lebanese government leave the ceasefire between Lebanon and Israel? I think that Israel will be willing to maintain the ceasefire as long as they feel that the Lebanese government and the army is doing something about Hezbollah. the moment a consensus forms that actually the Lebanese government is going to do what it has done in years gone by and avoid confronting Hezbollah avoid this sort of economic suffocation and strangulation of the group then that ceasefire could be in jeopardy certainly. Gareth thank you very much. Thank you Rosie.

10:23Rosie Blau:If you've got to Friday and feel like it's been another whirlwind of a week, you'd be absolutely right. And on the current issue of Economist Insider, our video series, our editor-in-chief Zannie Minton-Beddoes and deputy editor Edward Carr have gathered a crack team of economist journalists to talk about one of those big moments, what the closing of the Strait of Hormuz means for the world, and if disruption continues, how high oil prices could go. The Insider is really a look behind the scenes of The Economist newsroom. Each week we debate a particular story or issue and thrash out what today's events mean for tomorrow.

11:00Rosie Blau:If you're a digital subscriber, you can watch Insider already. There's nothing extra to sign up for. And if you're listening to this free, you can see extended clips from Insider. and I've put a link to that in the show notes.

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11:59Josh Roberts:The bursting of the LeBouBou bubble is maybe one of the strangest stories I've covered.

12:06Rosie Blau:Josh Roberts is our Capital Markets correspondent.

12:09Josh Roberts:You get bubbles all over financial markets, in AI stocks, earlier in dot-com stocks, even earlier in railways. We had a massive bubble in tulip bulbs in the 17th century. But this one really is very strange. LeBubu dolls, we've got one here. They're these small, strange, creepy elf dolls. They have nine sharpened teeth. And people have been queuing around the block to buy these things. And more than that, they've then been selling them on to each other for thousands of dollars or even more.

12:39Rosie Blau:Josh, satanic is the word I always choose for LeBuboos. But where did this secondary market emerge from?

12:47Josh Roberts:I agree with satanic. It looks like a baby that's been possessed by the devil, doesn't it? People have been buying these and they've become really buzzy. Popmart, the company that makes them, has enhanced the buzz by selling them in blind boxes. So there are lots of different types of LeBuboos. When you buy it, you don't see which one you're getting. It's a little low stakes gamble. The gamble is made higher stakes by the fact that some of these Lububus you could be able to sell on for a lot of money. But people are really viewing them as collectibles. And another thing Popmart did to keep the buzz going for a long time is that they restricted the supply of these things.

13:20Josh Roberts:This is why you've got people queuing around the block. You'd get a delivery of box loads and box loads of them to a Popmart shop and then they'd be gone within 20 minutes.

13:30Rosie Blau:Josh, I've also been reporting on toys recently. And one of the fascinating things I thought when I went into a Popmart store was these aren't kids buying these toys. These are adults. Tell me about that.

13:42Josh Roberts:Yeah, I mean, so maybe the people you see most often buying them are Gen Zers, people in their early 20s. But I've been to a Popmart and seen people who are far older buying them. They're not actually the only collectible that's become really popular with adults. So when I was growing up in the 90s, Pokemon cards were really popular with people my age. Pokemon cards are still really popular with people my age. So recently we had one selling for, I think it was$16 million. It might have been even more. So I think there's this trend where adults are into the collectibles that they have always been into, but they obviously have more money than they did when they were kids.

14:17Josh Roberts:It's a kind of generational thing. And they're no longer buying them even just on special occasions, birthdays and Christmas. They're buying them throughout the year. So it's great if you're a company that's making some of these things. I think companies like Nintendo, like Popmart have done very well out of it.

14:32Rosie Blau:Where does the value of these toys actually come from and therefore the resale value?

14:38Josh Roberts:Well, so this is one of the oddest things about the bubble. Think about the other bubbles that you can get in finance. We say share prices, for example, are in a bubble. If prices have risen out of all whack with what fundamentals, corporate earnings, corporate profits could justify. You get bubbles in other things like property. That's, you know, if they rise well above people's wages. What exactly would the fundamentals that you would judge the value of a LeBouBou doll be? I'm looking at it. There's no cash flows that are going to come off it. Nobody's going to buy it to try and live in it. So I can't really see what it is.

15:11Josh Roberts:It really is just about what people are willing to pay for it. So this is the kind of archetype of the bubble. It's just about animal spirits. One of the things, as with lots of collectibles, is that they are more valuable if they're in pristine condition and in their original packaging. So people will buy these to collect and never actually take them out and play with them.

15:31Rosie Blau:Josh, does it matter if there's a bubble in a weird satanic product that most of us don't want?

15:38Josh Roberts:So I don't think we should necessarily worry about this in the way we might worry about a bubble in bank stocks, for example. The Lububu bubble is actually mid-bursting now. You used to get these things selling for thousands of dollars each. There was an example last summer of one selling at a Chinese auction house for$150 ,000. That is not happening anymore. Some of the rare ones are still selling above their retail value, but we're talking like tens or maybe hundreds of dollars. As they fall in price, one of the things that we have seen, that we see in other bubbles, is scalpers, people who have been buying them just to sell them on, have been going out of business and trying to very quickly offload their old stocks of Libuboos.

16:13Josh Roberts:What happened this time to prompt it is that Popmart actually expanded their supply. They're now making 10 times as many Libuboos as they were this time last year, and that's kind of what popped the bubble.

16:23Rosie Blau:And why would Popmart undercut its own products and produce so many more LaBubis?

16:29Josh Roberts:Well, for a start, they can sell more. So it's good for their profit margins. But I think Popmart also doesn't want to be seen as a one hit wonder. They sell more than LaBubis. They sell all sorts of similarly mildly disturbing odd toys. And they want to focus on those as well. And more than that, they want to convince their own shareholders they can deliver reliable, solid earnings growth into the future, that they're not just reliant on this speculative bubble that could evaporate after all.

16:53Rosie Blau:And we're not just talking about Popmart and LeBuboos here, are we? I mean, we've got the Funko toys, we've got a jelly cat egg in front of us. There's a whole range of these sort of collectibles and usable products that people are reselling.