investorpolitico

After the flare up in the news – the Houthi advance in Yemen just disappeared as another small war in Middle East.

Unfortunately you will found out that the flare up will continue as they are continuing advancing towards the south (unknown to the media, apparently).

They are not Muslim terrorist, but a sort of liberation front against the de facto rule from Saudi Arabia.

As the Vietcong once showed the US, a force fighting for freedom and with full advantage of the terrain is not easy to defeat.

Their core positions are in the mountains which are hard to take and they are well prepared for battle…their battle against the regime actually started in 1994 as secession war between the North and the secessionist South (they won) and then, after a short bit the war against the current pro Saudi/US regime since 2004 (they won again).

They are also well armed. There is a lot of talk of Iranian support – which is there, but it is bloated by the media.

But probably the big bounty would be the approximately half a billion USD in US armament, leftover by the previous government.

The Saudi air campaign did not even stopped them and probably we will have a land campaign of mainly Arab/Egyptian force.

Apart the extremism, it is a similar environment to Afghanistan, but the Saudi army is much less prepared than the US to counterinsurgency.

As the world goes, the Houthis do not seem to have the capacity to block the straight (Al el-Mandeb, circa 25 km), but a few well placed terrorist attack in Saudi Arabia (maybe the East West pipeline near Medina) or in the straight would definitely spark the media attention.

The American are still not participating, but two warships are already in the area (and yesterday they retrieved two Saudi pilots as their plane went down for apparent technical problem- which could be a technical fault ..or something else).

PS. Al Qaeda and Islamic State are active, but secondary actors in this conflict.

Australia: a time to change

In the next month or two, the Australian Federal Government will announce two very important documents that will change how you deal with your financial affairs and the future of this great country: a complete tax overhaul review and a competition review.

It is important that you acknowledge these changes, as there will be issues that will affect you both positively and negatively.

Naturally the details are not yet out, but our clients can always call us to ask for clarification and what they can do about it..

The Tax review

The leading driver behind the tax review is the fact that the Australian tax system receives 70% of its revenue from income tax (corporate and individuals).

This is not sustainable, as a large part of the population reaches “pension age”. It also has a negative effect on growth, as it discourages investments and hard work.

The various speeches from Treasurer Hockey are pointing towards a modification of the GST (increasing or broadening the applicable base), a potential tax on cash in bank accounts and a potential review of concessional/non concessional contributions to Super, franking credits and even negative gearing. Practically no aspects have been left out.

It is not useful to speculate at this point, but such dramatic changes will definitely need to be addressed at a personal level. Moreover, any proposed changes will need to go through Parliament.

The Competition review

The Government is looking also at the competition review.

Specifically, weekend penalty rates are in review, as they increase the cost of services and decrease operating hours due to a “Christian” holiday. This would automatically reduce the cost eating out – but also every shop that opens on Saturday and Sunday, including fuel stations.

Other interesting points are the availability of a larger range of medicines in supermarkets and an overhaul of the taxi industry. Again, this is just the start.

Internet and Globalization

This is the elephant in the room. The ease of technology and the various free trade agreements and general globalization will introduce new competitors in the Australian market – specially now that Australia, due to the Great Financial Crisis, is one of the wealthiest region in the world.

Internet makes easy for companies to set up shop here. You can see every evening the insurance phone/small loans companies advertising (mostly subsidiaries of US giants) and this will just increase without even touching the giant such as Ebay and Paypal (which is making great headways with credit card transactions, specially now with mobile phones).

We already saw some effects  as a market giant such a Woolworths has been under pressure by a new entrant such as ALDI and soon also LIDL (another German giant supermarket, slightly more upmarket than ALDI).

In time it will happen in every industry.

In 2020 we will have Apple and Google cars.

The big prize not yet  bitten is the Australian retail banking system. While the big foreign investors are constantly nibbling at the “side dishes” of finance (Wealth Management and Insurance) – no one has of yet attacked directly the big four banks.

But there is already a discussion at Government level, prompted by the regulator, about how to deal with the fact that a great disruptor like Google could enter the market with a “Google Bank”.

So everything is changing and you will need to change with it to take advantage of the new situation.

Our clients will receive updates as soon as the changes will be confirmed.

Big development Saudi Arabia started, together with other 9 countries (Gulf countries US backed) are   intervening in Yemen against the Houthi (apparently backed by the Iranians)….another front opening in the Middle East implosion.

As of now only air assets are involved ….but Saudi also moved heavy equipment near the border.

A little bit north, the battle for Tikrit (Iraq) is becoming more of a stalemate and actually the US Air Force is backing the Iranian ground force (the enemy of my enemy is my enemy) as Islamic State is offering considerable resistance.

As usual, all this offers a new set of geopolitical challenges and a possible lifeline for gold and oil.

PS. The USA is taking a back stage, providing just intel and guidance.

Welcome to the new world of the regional balance of power without direct US intervention. Even if it is a “footnote” this is massive – first time ever after the Second World War that the US does not act as world policeman!

In our new “cold” war…old tactics come back again:

At 3.36 AM (California time) the US tested Minuteman III intercontinental nuclear ballistic missile – loaded with a test re-entry vehicle.

In case you did not understand, they spelt out the message – so nice of them:

“With these launches, we not only verify our processes and the ICBM (intercontinental ballistic missile) weapon system, we provide a visual to the world that the Minuteman III is capable of striking pretty much anywhere with extreme precision,” said Lt. Col Tytonia Moore of the 90th Missile Wing, based out of the Francis E. Warren AFB in Wyoming, according to the statement.

There are 530 of these toys with an range of 6,000 miles (ca 10,000) – potentially loaded with three nuclear warheads (currently down to one due to treaties). Each bomb carries a 350 kiloton yield (Hiroshima’s one was 10).

This happens just when the Russian have their largest anti NATO exercise.

Not very subtle messaging systems!

I always follow closely French politics as a Front National win in 2017 could really spill real issues for the European Union as its leader, Marie Le Pen, is anti Europe.

While in previous election it looked like 2017 would be an easy win for Marie Le Pen – these elections shows that it will be not so easy.

The return of pro-Europe Sarkozy brought a victory to the center right UMP – while Front National came second…stalling its dramatic advance.

There is still a run off to be held end of March and there is quite a bit of bickering within the UMP (as in the run off they need the support the center left party of Hollande….that could bring also damage).

Anyway….not such an easy win in 2017.

Some data to show how quickly things can change in France

Presidential election Year 2007  Socialist Party (Hollande)   25.9% – UMP (Sarkozy) 31.2% – Front National (Le Pen) 10.4%

European Election year 2014 Socialist Party (Hollande)   13.4% – UMP (Sarkozy) 20.9% – Front National (Le Pen) 24.9%

Local Election year 2015 Socialist Party (Hollande)   21.85% – UMP alliance  (Sarkozy) 29.4% – Front National (Le Pen) 25.19%

What is really hindering Front National is the “missing” of the local regional network (before this they never performed well in the local election (local election 2008, Front national 4.8%).

Le Pen will need to work hard to increase its electoral base before 2017 to win. But also if they do not – the anti Europe force is now mainstream and cannot be ignored.

Curiosity: now in France every election candidate has to be a “binome” (two persons team, a man and a woman) – this is an advantage for Le Pen as every “win” will get her two advocates.

As I always say one “hidden” side of the Cold War Reloaded is the De-Dollarization.

Practically both Russia and China understood that the basis of the US power is the US Dollar. As long as the US Dollar is the world reserve currency, the US can run infinite budgets and a super powerful defence force.

Most of the flows is due to the fact that oil is priced in USD.

In the last years, the attentive observer would have seen numerous deals avoiding USD – in Egypt, in China, in Argentina and specially in Russia.

In October, China, Brasil ,Russia and South Africa founded the New Development Bank (commonly known as BRICS Bank) as a sort of “anti IMF” US backed bank.

In 2015 the issue is clearly stepping up a notch.

China is reading to launch by September/October 2015 the new SWIFT interbanking money transfer service CIPS.

China also launched the Asian Infrastructure Investment Bank (AIIB).

UK, even publicly rebuffed by the US (!!) joined it . Luxembourg and Australia have applied. Germany, Italy,France just announced they will join. South Korea is leaning towards it. These are biggest allies of the US!!

Also Gold, previously an unregulated market, just became regulated and it seems (not yet confirmed) that some Chinese banks will assume a principal member role (11 members are requested).

This is a different aspect of the Cold War Reloaded which will have immense consequences.

As I already posted on the 3rd March….the market is an euphoria mode: the Reserve Banks of World will save us from everything.

As usual when Goldman Sachs (specially), Morgan Stanley etc they agreed that we are (their words) in a “secular raging bull market”….I get suspicious.

Moreover every little drop is considered an opportunity to jump on (guess)…CBA for its dividends.

Apart being contrarian…a few real food for thought.

March is the first US earning season that have to deal with the impact of the high US Dollar.

2015 is the first year since 2007 where the Central Banks have different agendas (US tightening and Europe/Japan/China loosening) which also produce ripples on the currency markets.

The oil price crash helped the retail economy, but one third of the SP500 is composed by energy companies which are faring not so well (and also they are often been financed by the US high yield bond market…)

China keeps on reshuffling issues, instead of solving them.

Greece issues were never solved, just postponed 4 months and now (well between now and May) there are the real negotiations.

So in my opinion there is a market topping situation to say the least. This technically could go on until May – but one cannot know.