investorpolitico

The US has been long time player behind the scenes (well, they are the major investor in the IMF), but yesterday they started to apply pressure directly and officially.

Apparently in the apparent stand off, they are seen an increasing probability of Graccident.

It is not true that they are greatly worried about the collapsing Greece and economic consequences, what they are worried about are the geopolitical consequences.

Greece is like an unsinkable aircraft carrier, that can block the Black Sea access (Ukraine) and put pressure on Turkey.

If you remember that already Cyprus “tends” to Russia, a fall of Greece (bankruptcy, exit from Euro and then exit from NATO) could lock the US to practically all North East Mediterranean (Syria,  Bulgaria, Romania, Ukraine, Georgia) and put even pressure to Turkey and Israel.

If then you consider that Russia and China are becoming more and more friendly, you will understand why the US has to weigh in.

In May there has been a subtle, but important change in the markets.

Real Estate

The regulator APRA finally started to push the banks to be more careful about real estate investment lending.

Slowly the banks start to tighten the rules around “investor finance” (which is 80% of new finance in Sydney and 65% in Melbourne.

This will mean that the rally in housing market will start to flatten or even go down as there are less investors looking for properties – or the same number of investors, but with less capital available

Share Market

As the banks make 70% of their property from lending will start to lose their shine (as Westpac showed in the latest results).

So the big yield play will give way to more cyclical position and secondary yield play such as regional banks

The ETF model strategy starts to be in danger.

China just signed a currency swap agreement in Chile on top of the currency swap with Argentina signed in October 2014.

It also signed agreements with Brasil and Peru for an advanced study of a transcontinental railway.

This will allow more agricultural trade with Brasil (it will also help Brasil to become the “hegemon” in South America.

On the point of view of China, this agreement comes on top of the proposed Silk Road between Europe and China and ports constructions in Pakistan and elsewhere.

It is not an aggressive move towards the US – but more a statement of “peer status” – not submission.

It has a strategic importance as the seas are US dominated – for all the China Sea dominance – China is still far from being able to project power very far its coastline.

But it is a clear way to say to the USA – we are the “other” superpower.

It also helps economically China – as China is slowing down – these massive projects keeps the industry (and Chinese) busy. Also it is preparing for the economic shift from low cost producer to high end producer.

But all this strategy is based on the IMF October decision. China needs the Yuan to be part of the world reserve basket (currently USD, Euro, British Pound and Yen) in order to finance all these projects.

As the US teaches – once you can print the money you need – no amount of financing (or mega-debt) can trouble you!

Again China and US are asserting their intentions on the South Pacific.

China is expanding its “island constructions” as a way to have almost unsinkable aircraft carrier in the midst of the Pacific (much closer to Philippines than China).

The US keeps harassing them with the surveillance flights…but there is nothing (short of a war) that can do, but watching and pushing allies (Japan) to re arm itself.

The real battle in reality is a crescendo of hostility for October/November.

In October/November the IMF (International Monetary Fund dominated by the US) discusses the Special Drawing Rights basket – practically which are the accepted reserve currencies (currently USD, EURO, GBP and YEN).

In October China wants the Yuan to enter this basket (that is why they increased so much the gold reserves and even bought gold mines).

For them it is extremely important as all the projects (as ports in Pakistan, the Silk road China-germany) can be then financed in Yuan, not in US Dollar.

For the US this is an issue. It could mean the starts of the downfall of the USD and would give away one of the primary advantages of the US over China as a superpower.

On the other side, they could block them, but, as China showed in Asia with the new Asian Infrastructure Bank, China could well found its alternative IMF and be pushed more towards Russia and a real cold war.

No easy solution for the US – I am not sure if we are seeing the downfall of an empire (never underestimate the US, specially when is cornered) – but the cards are stacked against them this time.

UPDATE

The media attack and focus on the South Pacific increased pace in the last two weeks. It seems the US Government is preparing the public to a more aggressive positioning of US against China.

So prepare for tension ramp ups leading to the November IMF meeting.

A week ago I mentioned that there is an Iranian humanitarian help ship heading for Yemen.

The situation is similar to the accident that happened between the Turkish humanitarian flotilla and Israel a few years ago  with two complications.

– An Iranian official said that any tentative of stopping or boarding the ship by the Saudi coalition will be considered an act of war versus Iran

-The ship is escorted by military vessels.

Saudi Arabia has a blockade in place and would lose face if it does not stop it. It calls for the ship to be diverted to Djiibouti

The US does not want to upset the Saudis nor the Iranian (as the nuclear deal is almost done).

There is the potential solution of inspection by a third party (Eg UN), but who knows.

Well by Friday, 6pm GMT time – we will know (that is when the ship is bound to arrive in Yemen).

The economic implications of this is again in oil and gold.

Update

Currently the ship is anchored out of Djibouti. No one knows if it is waiting for a UN inspection or orders to go forward.

Greece has practically used all his cash to pay off debts – even using the reserve it has in the IMF (which has to replenish).

They hope that the mere threat of Grexit or Graccident would be enough for Europe to disburse money.

Maybe there is a miscalculation here.

Even if it pays all his debt, Greece will have no bailout and no money.

Syriza will not be able to maintain his promises and it will be ousted by a new Government more in tune with the European creditors.

Is Europe trying to have a change of Government in Greece?

Please note this is not advise.

The split has been positive.

BHP clearly has the advantage to have all the best assets -also on the revenue point of view. Now BHP is more focussed and can return to be a growth stock in the near future.

South 32 – it has all  the bad asset (aluminium, manganese, coking coal, silver, lead, nickel) with small revenue attached – but it is my preferred. Why?

It is quite unique as it has no debt and no exposure to iron ore (only one of the bigs). At leats three of the 6 commodities listed are at the lowest level and I am quite positive on Nickel). It is in a position to do cost cutting and capital operations (maybe buyback which would increase dividend). In essence it could surprise on the upside.

Finally a good news from BHP…and the entire ASX index (BHP is the single biggest drag that does not allow the ASX to be at the top like the US indexes)

The new king of Saudi Arabia is shaping a new foreign politics for  the kingdom. It is important to understand the new foreign policy of the kingdom as it was an important piece in the last 40 years of world history.

In the various interactions with US President the kingdom clearly showed his displeasure with the policies versus Iran and at the same time realignment towards France and Asia (China).

There is also a sort of good relation with Israel and a presumably temporary .

The economic repercussions will be various – beyond the scope of this blog.

One that stands out is that the status of the US Dollar as a reserve currency was practically established in the 1970s with a pact between US and Saudi that imposed the payment of oil in USD. The petrodollar rule.

Now we have China Saudi and Russia working against the dollar. A change in reserve status of the USD is like a tectonic shift. If u go back in history since the Roman Empire to the English Empire and before you will get an hint of what I am talking about

The Australian Budget was released this week – and there was hardly any surprises.

There are lot’s of commentaries out there – so I will not be be too deep.

– We had to have this kind of Budget – even last year – as there is NO debt emergency in Australia in comparison to the world.

Even the mania with Budget Surplus is a bit an obsession. It is like if we were 4 friend paying a $100 meal….and each of us put $30 instead of $25 – Just put $25.

So it is a mildly good Budget…but as usual misses the mark.

– This budget pushes a lot on the small enterprise. Nice, but no small enterprise will turn around a country (think about it – BHP can hire 1,000 easily enough…you need 333 small companies to hire an extra 3 people to reach the same result – definitely with less efficiency and profits.

– All the items that provoke a serious structural imbalance for the society (Super tax offset for ultra rich, negative gearing etc) have not be touched.

Practically this Budget relies on growth to tackle the country debt.

It will not succeed, as it did not tackle the serious issue. The idea is that if we get the desired growth level Debt/GDP ratio will peak at 27%.

But the growth does not pick up, the growth level debt/GDP will peak at over 30 – still not an issue in the global context, but it will seriously endanger the AAA rating of Australia with serious consequences (increase in yield so even more difficulties in restricting the Budget growth.

But the issue is in our three year political mandate….the Australian governments always look at the next elections and not at what is best for the country in the long term!

PS Did you notice the new media trend? Scaremongering campaign before the Budget…and then a not so bad Budget so we are all happy lambs (to the slaughterhouse)!

Syria

Things looks rapidly changing and there is the distinct possibility of an “end” of the war.

Syria Government lost some important battles and seems unable to get enough manpower and ammunition to solve the situation.

This has been provoked by the re-alignment of Saudi-Qatar-Turkey. Also a lot of talks from the US  to Iranian and Russians looks suspicious to me.

It is possible that President Obama would want to leave  is end of Presidency term with the end of the Syrian war (there is still ISIS, so it is the end of the “main” war) by getting rid of Assad and get a more acceptable new Syrian leader to agree to a Syrian peace.

Yemen

The 5 days truce is started. We will see.

There is only a very risky bit: an humanitarian cargo ship from Iran is saling towards Yemen – currently under blockade.

An Iranian military representative (so not a political figure) affirmed that any attempt to interfere (stop or inspect) that ship (with military escort) will be interpreted as an Act of War against Iran.

Bluffing…or not?