Archive for November, 2013

China: Agent Provocateur, why?

Posted: November 29, 2013 in Uncategorized
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So why is China so provocative in its establishing a defense zone within the national waters of Taiwan, Japan and South Korea?

The oldest reason of the world….distract its own citizen from issues and “hidden” agendas.

There are few things that enrage more the average Chinese than Japan (read the history of the 2 World War and lack of saying sorry…and you would understand).

There are the Chinese reforms announced in November. Very ambitious and certain to disturb a lot of powers against Xi.

There is the general population angry at the scandal and corruption level of the political class, pollution levels, income disparity and lack of Western standard.

So a nice tension act as a general distraction.

For this to work it must not spark anything serious. And it shouldn’t. The drones are always what worries me most. They are easy to deploy and easier to shoot down and provoke a major incident.


The US flew two unharmed and old B52 over the disputed Chinese/Japanese islands as a sign that the Asian Pivot Strategy it is here to stay.

The Chinese did not react, but it is a clear sign of open escalation.

The more worrying signs are others….much less evident.

The US is starting to redeploy its military bases to unused old “WW2” including India in order to be able to be less prone to a Pearl Harbor style attack  initiated via Chinese missile attack.

This issue will make it easier for Japanese PM Abe to push for a full re militarization of the Japanese forces.

Again we are very far from a war, but accident can happen:

– Drones are very easy to fly to the target and so to get shot down

-Both Chinese and Japanese air forces have very limited combat experience (vs the US) and someone can get trigger happy or simply have an accident (in 2001 a Chinese jet fighter collided and crashed while trying to intercept a US surveillance aircraft)

So tensions are bound to increase.

The deal US/Iran can be very important for you.

Iran currently exports 750,000 barrel of oil per day, while its non- sanction capacity is 2,500,000 barrel of oil per day – practically the difference is a full 10% of the US oil consumption!

The Oil (WTI) now still trades within its “band” around USD 94, but specially after Christmas there will be a slow descent which will increase under USD92.

Now Iran will be allowed to export 1,000,000, not the full $2,500,000. The oil will probably slowly descend towards is  no risk price of $75/80. When and if Iran will be allowed its full capacity (probably 2015 if nothing goes wrong) we could even see oil around USD 65.

This is practically a boost of 10% in every company and even in your wallet when you go and refuel your vehicle.

China – Japan

Posted: November 25, 2013 in Uncategorized
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The situation between China and Japan continues to deteriorate.

China unilaterally declared an extension to the  “East China Sea Air Defense Identification Zone” that includes the disputed island. This is another blow in the spat between the two countries.

Japan, apart protesting, announced the doubling of the fleet of on-air refueling airplanes and plan to introduce new faster and more agile patrol boat.

The war scenario China-Japan is extremely unlikely also due to the strict economic links between the two giants. But a misunderstanding (let’s say a downing of a drone) can happen with clear repercussions.

The US, once again, just criticized the new escalation….but it could be that also the new US Asia Pivot could be called to see if it is a bluff (like the Syrian ultimatum) or not. The US should do better its homework to be prepared as Russia will be already preparing another KGB style masterstroke like Syria.

It looks like the classic November consolidation has been done and the market is prepping up for a Xmas rally.

The last hurdle will be the Fed Meeting 18-19 December (any indication of tapering). But starting tapering in the midst of the holiday season with the recent speeches of Yellen seems unlikely.

This week is Thanksgiving week – typically with light volumes (Thanksgiving is Thursday) and Black Friday will show us the mood of the retail spender in the US.

Also one of the last geopolitical hurdles is dissipating (deal with Iran).

The US Senate Democrat changed a rule that requested to have 60 Senators to end a roadblock to a US Presidential nomination..

Practically if President Obama wanted to elect a judicial or executive representative (except US Supreme Court), unless he had 60 Senators, the nomination could be blocked by a small minority (read Tea Party). It has been a symbol of the US Congress gridlock and survived dozens of attacks, but not today.

This is just a small insight on what is happening in the Congress in trying to decrease the gridlocks caused by the Tea Party and in preparation for the new showdown in January.

If this pattern continuous and its ramifications get pick up by investors we could see an early start of the Stock Christmas rally.


One of the outcome of the Third Plenum is that there will be 5 major accounting standard adjustments between now and start of 2015.

While that is all good as they are trying to bring up the always dodgy accounting standard to more international standard.

Well all is good what finishes good. These changes will also bring increase of GDP numbers by +5%…the markets will be happy.

By the way, not just the Chinese are dodgy. The US revised this year its accounting standard and added +3% to its GDP.

It’s all legal, all false.

The Chinese are really masters of disinformation….the pre- Plenum were plenty of promises. The document press release just after the Plenum it was a delusion (apart taht in my last comment I warned it could have been a way to deal with the enemies) and now the full document is full or surprises.

In a very short way

– Loosening of the One Child Policy

– Extra rights for farmers (practically now, if they move, they will be able to sell their property at market value (before they had to sell it back to the local government, at very low prices). It will take time as the local governments will lose a lot of revenues

-Clampdown on Local Debt (biggest issue)

– Easier competition against 113 State Owned Enterprises (30% of the profit will have to be returned to the State and used for social security by 2020 (now it is about 5 to 20%) will be easier and resources better allocated.

-Private Capital will be allowed to participate to Government project

-China will allow to set up private banks

-Foreign investor will be allowed to invest in green energy projects

-Public Officials will be allowed to live in official home (lame try against corruption…but signal a direction)

-Water, electricity, transport, natural gas and telco prices determined by market forces

-Reform to the household registration system (allows the citizen to move to another city and work there and still use their access to the welfare system

– continuous push towards liberalization of interest rates and currency

The first communique out of the Plenum is full of rhetoric and very short on action.

There seem to be no concrete action in liberalization and it reiterated the full support  of the State Owned Enterprise. It seems that the Party hard liner have won.

The only three concrete steps – for now – is a softer approach to the one child policy, the introduction of a new National Security Committee (which integrates the various Armies in a Central Command) and a “Central Leading Team for Comprehensively Deepening Reforms” (no specs there).

This could be a real set back for China. And I mean real. But we need to see the real communique and if the National Security Commitee will be used by Xi Jinping to deal with the adversary before committing to reforms.

US : Yellen – QE Infinite!

Posted: November 14, 2013 in Uncategorized

The nomination is not yet settled, but in a speech Yellen confirmed her vision that the US economy is far underperforming and liquidity will be used until the US reaches its potential. This is a first positive sign