Archive for September, 2013

China resurgence

Posted: September 11, 2013 in Uncategorized
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The Chinese market formed a nice bottom in August and now everybody starts jumping on the boat….which will be very fast for the next 6 months.

The new political class now it is in charge and will have to show that they are great and wonderful…with a lot of fake data.

The funniest example is the jump in retail sale is great….but in China is accounted as number of units that left the factory…….can I repeat…not sales! Just how much increase of production.

Then in six months (after the Chinese New Year) there will be a lot of unsold items and factories winding down production and the evaporation of the miracle.

The issue is that the Chinese issues are much more deeper and a lot of them are social:

– the Chinese are some of the biggest savers in the world

– the Chinese “saving face” is extremely important. Even the Government does not know if the figures from the various region are correct (well they are not).

The GDP growth is 7.5%pa (in reality will be 5.5%pa if my calculus is correct)

But until everyone believes everyone else all will go all right. Enjoy a rally at least until end of the year (probably after October, I mean)

It feels a bit like the movie “Inception”.

The first bluff was Obama’s Red Line on gas attack (by the way everyone forgot that Saddam, with Reagan approval, gassed 1,000s of Kurds and Iranians in the ’80s…but that was a cold war).

The second bluff is Putin saying that the UN could secure 50 sites with over a 1000 tons of gas in the midst of a civil war.

The third bluff is Assad agreeing in the destruction of gas which he knows nobody can do thoroughly (well one point….nobody knows 100% where all the stockpiles are)  

The fourth bluff is the discussion in the UN that they cannot even agree on the consequences of Syria not respecting the destruction of gas (imagine when they will have to discuss which troop to send to do the job, who pays the bill etc)

The fifth bluff is the market, now it will look like heading into a new rally (it was hard to see a crash from 1,630 – some technical would not have permitted it) going towards the top SPX 1,710.

In case anyone forgot the 18th September there is still the Fed meeting on tapering.

No one can predict the market…I just say that I feel like being on the Titanic. You could avoid all icebergs…or not.

PS and the poor Syrians?….well they keep on dying. It has never been about them. It is US and Russia litigiousness (Russia is still upset about Serbia/Kosovo and Ukraine), it is between Saudi and Iranian Middle Eastern supremacy and – well you should have guessed it – a project of an oil pipeline Iran/Iraq/Syria.

As I say in this blog often…shadows of grey

Syria: US and Russia

Posted: September 9, 2013 in Uncategorized
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The market are rising on the hope of a done deal.

I am investigating more on the issue, but I am  skeptical.

1. The example of Iran tells me that often these are just delaying tactics, usually

2. Russia will want to get something of the negotiation and it has to be seen if the US agrees to it

3. Even if they do agree – the Syrian gas stockpile are secret and not really known (nor where they are, nor how much). So how anyone can broke such a deal is unknown to me.

But as usual there will be something else going on under the fog of war.

Meanwhile enjoy the rally, but treat it as a trap.

Update

After further studies I can confirm it is a trap to weaken the already weak position of Obama by Putin in real KGB style, The Russian proposal is un-achievable for various motives

1. Syria just said that it welcomed the proposal (not accepted)

2. The stockpiles are unknown – presumed more than 1,000 ton in more than 50 sites

3. The best Chemical Disposal units can dispose a max of 25 tons a day…so u would look into an operation of many months with chemical specialist teams and strong UN defense complement (given by whom)  per site in the middle of a civil war.

A great move in the warm war against the US – President Putin was Lieutenant Colonel of the KGB in Dresden, East Germany. Once KGB, always KGB. And President Obama is in a tight corner indeed.

And the Liberal won! As I suspected the outcome was pretty much in the market. Anyway there will be some winner and losers.

Looking at the main industries

Winners

Builders (carbon tax)

Miners (carbon and mining tax)

Energy extraction companies (carbon tax)

Transport (carbon tax)

Gaming

Infrastructure

Losers

Healthcare (no new spend)

IT Services (Less public Service)

Diversified Financials ( 2 years freeze of the increase of the concessional contribution) 

Utilities (specially gas retailers – green energy)

Anyway, in the short term 4 to 6 weeks, the global events will be too important.

Tomorrow we have the Australian Federal Election and the market has already discounted a Liberal election. You can see it in the strength of our market in comparison with the US and others.

Liberal are always better for the corporation and share market at least apparently. In reality they are now so similar that a comedian called to merge the two party and call them Laberol. And I think he had a point.

But that will not save you (Au Market) from the large events unfolding in the world.

Apart Syria, the big worry is Larry H. Summers. the potential new Chairman of the Fed.

In Washington there are insistent voices that Summers has been pre selected as next Federal Chairman.

Summers is clearly against Quantitative Easing (it openly said that QE distorts the market and create potential asset bubble. So guess what happens….

PS. Even if Summers is the favorite candidate for President Obama, the game is not done. Summers is a love or hate figure (specially from the Republicans)…so it could become part of the horse trading for the Syria support…let’s hope!

A warm war: Russia vs USA

Posted: September 5, 2013 in Uncategorized
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There seems to be a lot of “cold war” feeling between the two ex super enemies.

The reality is actually vastly different and the point of negotiation is actually vastly different from the current media play (confrontation on Syria).

The reality is all this fog of war is part of the negotiation between Russia and the USA as Russia feels very threatened by the US on three issue

– US actively campaigning against the “evil” President Putin (yes he is evil….but just a different shade of grey from the other players as  John Le Carre would say).

-Russia is wanting to build its own free trade bloc and naturally the US are trying to take away those countries and integrate them in Europe.

-Most of all 70% of Russian profit derives from energy and the US shale oil/gas could become a scary competitor if the US decides to export (well scary also for all exporters country, including Australia). Moreover most of the technology used in oil are often Made in USA.

So in the next meeting Obama/Putin the media will talk a lot about Syria…but the real deal is different. It will be more about what Russia can get out of agreeing in a Pax Americana on Syria and Iran 

Wag a dog was a beautiful movie about how a Government can fake a crisis in order to distract people and achieve other objectives. That is what I think of Syria and why, in the end, it will just another buying opportunity in the market – unless there is a serious miscalculation somewhere.

A gas attack is a terrible thing. But in the 1980s thousands of Iranian and Kurdish died of gas attack (from the US supported Saddam) and nobody said anything….because there was the greater issue of the Cold War and a nice terrible 8 years war was distracting two large Arab country.

Now we have the US which has to answer because a red line has been crossed (nothing to do with the gas poising…less of a 1,000 people on a 110,000 death war). But it does not want Assad to collapse as the projection give Al Qaeda as a clear winner of an Assad fall. That is the real motivation before the delay in action and the call for limited strikes.

Moreover it has the side benefit to distract everyone from the US Fed tapering…..but more important solve the looming Debt Ceiling debate in October.

It also opens a realpolitik alliance with Iran (apparently Oman’s leadership went to Iran with nice US messages and openings). If you noticed Iran has been much more restrained than usual in their threat.

Israel actually likes the situation of a weakened but not out Assad (apparently the Occupied Golan Heights have a lot of oil underneath and if no-one is there to contest it is all theirs….or better the contract of oil  extraction has been already assigned to Genie Energy (owned by…guess (and cry) by Jacob Rothschild and Rupert Murdoch)  – Please note in international law is illegal to use resource of an occupied country (Singapore vs Japan, International Court of Justice sentence 1945)

The party that really wants the fall of Assad are actually the Saudi as they fight for the Middle East supremacy against Iran (there is even a theory that if it was not the Government to use gas – it could be some Saudi sponsored element).

In effect all brings to a “show war” more than a real war. Also Russia show is more to get credits in other negotiation than anything else.

Yes there will be some real consequences as some Hezbollah actions against Israel (nothing new there….it just usually does not make the news).

As usual with any war, there could be unintended consequences: Hezbollah and Assad’s brother are the one to watch. And the master puppeteer – the Saudis

September highlight

This month there are a number of dangers in the market which we are not comfortable with,

as one of the main objectives of our strategy is capital preservation.

– Australian election: at the moment the polls indicate a Liberal win and that would be a positive for the market

– Syria: a potential war could lead to volatility both because of potential oil price spikes or, even worse, potential spillover of the conflict in Israel, Lebanon, Iran and Turkey (member of NATO).

– End of Quantitative Easing. This could lead to a sudden outflow of capital from the share market, in particular from emerging markets. Emerging markets, in particular India and Indonesia, are already starting to suffer a liquidity crisis .

– Reach of the US Debt Ceiling by 15 October. In 2011 the ensuing battle between Democrats and Republican has been what provoked a 10% fall in the global markets.

-Nomination of the new US Federal Reserve Chairman: Bernanke, current chairman, will resign in January 2013. Within the next month President Obama will announce his successor.

The two main candidates are Mr. Summer and Mrs. Yellen. Mr. Summer is currently seen as the winning candidate and the his ideas are against Quantitative Easing and so his election would spur a market retreat. Mrs. Yellen would be viewed as a positive for the stock market.

-German election (21 September): at this moment the polls indicate that Mrs Merkel will be re elected and this should be a positive for the market

– Soon after the outcome of a challenge of the German Supreme Court to the European Stability Market (ESM) system powers will be notified to the public. This could be a mildly negative for the market as the ESM is the mechanism that allowed to contain the European Crisis.

As you can see there are too many random events to predict with any kind of certainty what the market could do – even if the odds are clearly on the negative side.

In Depth

Australian Election

As of now it seems PM Tony Abbott will win. I am not going to delve into the various policies as there are already plenty of analysis in the various newspapers. A Liberal Party strong win will be seen as a confidence booster for the Australian share market as the Liberal party is seen as favorable to business condition.

Syria

 

The Syrian battlefield is, in reality, a proxy war between the two emerging Middle Eastern powers: Iran (Muslim Shia) and Saudi Arabia (Muslim Sunni).

In August 2011, US President Obama clearly stated that the usage of chemical weapon against the population was a clear red line that would warrant intervention. With every probability he thought nobody would have dared to cross that line.

 

Even if the US clearly does not want to enter another Middle Eastern war, a non intervention would send a clear message to Iran, North Korea, Russia and China that the US is not anymore a world superpower, but more a “first between equals”. This could even be seen as the start of the US decline by its enemies.

On the other side an attack could lead to help Al Qaeda seize power in Syria or, at worst, a Middle East war that involves Syria, Iran, Saudi Arabia, Israel, Turkey (and consequently NATO) and the flaring up of a Second Arab Spring and cyberwarfare – this option, although threatened – is pretty minor as it would escalate a conflict that Assad cannot win. More likely we would see some cyberwarfare increase and an increase of Hezbollah terrorist activities against Western and Israeli targets. This is why Obama is seeking Congress approval and a broader alliance.

 

US Federal Reserve New Chairman

 

The two main candidates (quite often there is a last minute candidate) are both academics, but very different from each other.

 

Mrs Yellen is seen as an astute negotiator and is seen as a continuation of Bernanke’s pro-market policies. She is currently Vice -Chairman of the US Federal Reserve System. Per converse she has very few political alliances and she is seen with hostility by the Republican for the “dovish inflationary views”.

Mr. Summers, instead, is a pretty controversial figure that openly declared that the Quantitative Easing (money printing) does not have any effect and he will terminate it as soon as possible. He is one of the fathers of the financial deregulation in the US and, moreover, when he was Harvard University President he lost almost all of the entire endowment fund of the University (USD2 Billions). He is a very keen politician with a lot of political alliances and personal friend of President Obama.

 

All this negativity will have just a temporary effect on the market as the Syrian war, if it happens, will be most likely soon over and the US Fed Chairman has to act within a board and build consensus as in any democratic institution.

 

So, at all effect, this September will be a “buy the dip opportunity” than a second 2008 Global Financial Crisis. But we are prepared for every eventuality

People is starting wondering what is happening.

The issue is that when Obama laid the RED LINE (August 2011) he thought that no-one was going to cross it.

The facts have now disproved him and now he has to face the consequences: punish Syria in a not really wanted confrontation or let the red line be crossed and be considered a “paper tiger”.

Unless he attacks all the red lines with various countries (Iran, North Korea, but also China and Russia) will be rendered invalid and the US will not be seen as a credible superpower with consequences on the entire US foreign strategy for the year to come.

The only potential other solution is a coup d’etat that takes out Assad. The issue with this solution is that only Iran or Russia could try to orchestrate such an event…and they will ask for great compensation for the favor. Probably too great.

So Obama is opting for the best option of asking the Congress for approval – so taking time to form a “coalition of the unwilling”.

Who could have called Obama’s bluff?

There are two parties who definitely could have achieved that:

a rogue part of Assad’s army (like his brother)

a Saudi sponsored faction (rebels or even Saudi’ General Intelligence Presidency’.

I personally lean towards the first.

But all the Middle East is on a tension alert…some news that have been missed by the media:

– Egypt: A Panama’s ship as been attacked in the Suez Canal (insurgent defeated)

-Egypt: A bomb as been found and rendered useless in Alexandria main train station

-Israel: a bomb as been found and rendered useless in Jerusalem

Update:

One of the reason of the delay of the attack has to do more with Realpolitik than anything else. The US need to make a show of force with a limited strike that does NOT topple Assad. Why? The two main rebel forces (there are close to 1,000 rebel groups operating in Syria) are clearly Al-Qaeda supported group…so their victory against Assad would be even more dangerous than Assad itself