investorpolitico

North Korea is currently out of sight – but still an issue.

The window of opportunity for the US is circa 18 months (at which time North Korea will have a ballistic missile to hit the US).

Kim Yong Un is in full paranoia mode (using cars of subordinates, all identical) and not appearing in public, as on the US aircraft carrier there is the SEAL Team 6 that killed Osama Bin Laden (on the same carrier that was the base of the operation…).

China seems to have stopped the sales of gasoline fuel. This could be really crippling for North Korea …it could bring Kim of his knees…or making him attack before is too late. China National Petroleum declared that it stopped delivery as it fears North Korea could not pay. If this is true and maintained the North Korean reserves will last 3 months.

Probably is a temporary closure to send a message.

Funny enough, from the Malaysian police, I found out why Kim killed his brother.

The police released the fact the the brother met a renowned CIA contact the day before and going through is room (as he was under surveillance) they found an exchange via UBS stick and USD$120,000 in cash. A real spy story from the North Korean spy agency RGB, not just crazy Kim.

The bond market has been stunned by the latest speeches of the various Reserve banks.

The European bank was pro rising rates. Canada surprised with a hintn of rate rise increase (and as per previous post Canada is really similar to Australia).

The Fed is in the rising path and the Bank of England had full on dissenters in his last meeting where it kept the rates stable.

On top of this an ex member of the RBA yesterday say that, if the economy is good, the RBA could increase 8 times between 2018 and 2019.

This is a major shift – all the accommodative policies that favour the share market and real estate are winding down.

A misstep could really crash the market – the Central Banks need to be really alert on what they are doing. I am not bearish, but we are in a minefield.

The Australian real estate market (and with it the Aussie banks) is in full on danger as the Australian bank takes their loans from overseas.

My personal idea is that they will not succeed to increase much the rates, but everything is changing.

In a few months we have two major cyber attacks.

Those cyberattacks are provoked by normal criminals, not even terrorists or state adversaries and still cripple the net.

And this tools are simply some basic tools stolen by some hackers from the NSA.

It makes you wonder what would happen in a real cyber war.

Courtesy to Snowden we know that the US has planted a killswitch in the water and energy supplies of friendly countries like Germany, Japan and Austria (in case they decide to be not that friendly). If you do that to friends…imagine what you plant on Russian and Chinese systems. And what they do plant on our systems could be even more worrisome as now, with the internet of things, also your car, television, fridge can be exposed.

It is literally a killswitch “lights-out” scenario and probably the first things you will notice in a full war scenario.

What you can do about it? Quite a few survival things essential to give the government the time to restore services in a week.

-Keep some long conservation food (and water!) – I was in Italy when Chernobyl happened…the supermarkets ran out of food in circa 2 hours.

-Have some camping gear (gas camping stove, barbecues, lights, candles etc)

-Keep some cash (the ATM and banks will be some of the first targets)

-Keep at least 50% of fuel in the car (well, if it is internet-connected, get a bicycle)

If it last more than a week, you better leave the main cities. There are war games scenarios that show that the crippling of the water systems for a week will bring back cholera and other nasty illnesses.

You never know when if happens, but unfortunately it will be always more frequently.

Now that the Syrian anti-IS war is almost finished, the real war start to appear.

All the war in reality started due to two competing oil/gas pipelines. The Qatar/Saudi/Syria to Europe and the Iran/Iraq/Syria/Lebanon one.

The first one was devised to render Europe independent from the Russian gas supplies. (if you do not believe you can check that the Russian gas supplies pass via….Ukraine…and Russia is trying to diversity via…Turkey).

So now all is fitting for the real showdown USA vs Iran …logically involving all players, including Qatar and Israel.

You can see all the picture now. 

The major point is a place in Syria called Al Tanf, the midpoint Iran/Lebanon. 

As they say, above all fears. 

Canada is often used as “Australia forecast”.

Canada is very similar to Australia – both legally and as landscape and even…weather.

All people live towards the border (coastline for AU) with US, population is scarce and concentrated in big cities. The weather is harsh – freezing winter’s (hottest summers in Australia).

Also investment wise, Canada is focussed on Canadian shares (banks) and commodities and super expensive real estate.

In the last few years the US hedge funds made a killing shorting previously high flying Canadian blue chips.

The reasons why are different, but since May the US hedge funds seem to have turned their attention to Australia.

The importance of overseas diversification is becoming of utmost importance.

I like the Middle East it is really like a good book avere you cannot guess the end.

The current situation actually started with the shale gas  in the US that allowed the US to be more independent and less caring of the Middle East.

President Trump is simply accellerating something that would have happened anyway.

Trump visit to Saudi Arabia somehow emboldened the Saudis to take matter into their hands.

So they started the Qatar siege and became more active against Iran and warned Turkey to stay out of the Gulf.

The key piece of this chess play is Prince Salmon, the new young prince (Macchiavellian indeed) and future king of Saudi Arabia. 

 He is considered the mastermind behind the Yemen war and the founder of the Vision 2030 plan for Saudi Arabia.

Vision 2030 in very short words is using the cash from oil to remodernize Saudi Arabia and pushing it towards an IT mastermind role.

So he is the one who pushed for the Aramco IPO (he wants it in US to be liked by Trump, other losing factions in London as they are scared of the potential legal issues in US (terror laws)).

In light of this he pushed heavy investment in high tech and a new friendship with Israel (very advanced in IT ).

On the other side is very aggressive and impredictable and a fierce enemy of Iran.

His Vision 2030 is very interesting,  but Iran could have another vision. Or maybe is just a ploy to raise the spectre of a Saudi/Iran war and oil prices, after having flushed out the oil speculators in the current sell off. He needs good money for the Aramco IPO.

As I say a great book with real consequences. 

Finally Chinese shares have been admitted to the MSCI Indexes.

A good outcome, but more symbolic than anything else, at the moment.

At 0.73%% of the index initially it will bring in USD10bn in a USD6.8Trillion market (drop in the ocean) in 2018. Over the next 5 years USD210BN.

The inclusion will be done in two parts may and August 2018.

But the road is clear as, at the end, the inclusion will be 5% (and Chinese related shares will be 40% of the MSCI EM).

Chinese related stock are now 18.1% and will become 28.55% by August 2018.

There are now three main geopolitical stress points.

North Korea: the death of Otto Warmbier complicates the issue. President Trump acknowledged that China tried, but could not convince North Korea. As the main secret service point to the development of ballistic missiles capable to reach the US is approximately 18 month away, the latest date for a real decision on a military attack is 12 months.

Syria: the US shot down another drone (this time Iranian made). This is putting pressure on President Putin (already down in the polls).

This is a big issue.

Not reacting makes him look weak (and you cannot look weak in Russia).

His allies (Syria and Iran) could start questioning his real support – does the famous red line really exist – or not?

Even more, do the famous anti aircraft Russian missile (S300 and S400) really work against the last generation of US fighter jet – or they are a kind paper-tiger?

If it responds, are we getting close to a US/Russia confrontation?

Saudi/Iran: Iran has accused Saudi Arabia to be behind the IS attack on the Iranian parliament and Saudi apparently have captured a Iranian vessel with spies ready to blow up some Saudi’s gas infrastructure.

The 14th June has been an important date. President Trump delegated the Middle Eastern wars to General Mattis.

In Obama times all the war decisions were taken by bureaucrats, now they are taken by warriors.

This means less wars, but more brutal (a more civilian deaths as you cannot fight an enemy that hides within civilians without killing civilians).

General Mattis knows the power and the limits of the US and that cannot take against all at one.

He has a hit list, that follows as

1. Afghanistan (so not to lose 15 years of gains)
2. Iraq (get rid of IS and limit the Iranian influence)
3. Syria (contain Iran/Syria…but avoid escalation)
4. Yemen (support the Saudi, eliminate Al Qaeda) and end the war under UN rules)
5. Somalia (eliminate Al Qaeda)
6. Target Iran

A lot to do. This tell you that, notwithstanding the new Syrian issues, the US is not escalating the Syrian battleground.

It is a good plan, but I don’t think that Iran will wait to be number 6.

It is always good to follow up what happens in the Middle East, as you do not know when the next issue will come up.

In Syria – we have an increasingly worrying scenario.

The battleground everybody against Islamic State / PKK against IS and Turkey proxy/ Syria and Russia against Islamic State and Free Syrian Army and US is mutating.

There have been several accidents (2 bombings and one airplane downing) on behalf of the US against Syrian near Al-Tanf (which is the cross road Iran-Iraq-Syria). Lucky enough no Russians or Iranians got involved, yet.

The issue is that the US says is protecting the “good” Free Syrian Army – while for the Syrians are close to impossible to distinguish one from another.

You can debate how much you want – but last year some of the trained rebel groups under the US command switched over to IS just a month after entering Syria.

This conflict is slowly morphing into the new war US/Iran. Hopefully they will keep on fighting via proxies.

Iran, not to be left behind, shot several medium range ballistic missile into Syria against the Islamic State positions in Syria (first use since the Iran/iraq war) in retaliation of the Parliament terror attack. I presume it works also as a warning.

Not to be content, the Iranian navy had military training with China last week.

Qatar is still isolated and two blocs are appearing the Qatar bloc – Turkey, Iran (allied with Russia and China) and Iraq,  versus  the Saudi bloc (Israel (allied with the US), UAE and Egypt).

Also here the issue is the definition of good and bad terrorists. Qatar defines good terrorist the Muslim Brotherhood and Hamas in Palestine – while the Saudi have other definition of good terrorist (more Islamic State like)

The US is in the Saudi bloc, but, as its main Middle East base is in Qatar, is maintaining a low profile.

Russia, as it needs the Saudi for the oil price, is also maintaining a low profile. China, as usual, very smart, is there – but pretty much invisible to the media (China is also “invisibly” supporting Syria).

Unfortunately terrorist are useful, so no one agrees that all terrorists are bad.