Archive for August, 2017

North Korea saga

Posted: August 29, 2017 in Uncategorized

Yes another missile launch and this time over Japan. Only another time, in 1998, a North Korea missile flew over Japan (a supposed satellite rocket- not a missile).

 

What is good (not much), is that it flew over  the northern part of Hokkaido – with few people and very little potential of misunderstanding.

 

What is particularly bad, apart the obvious, is that this shatters a negotiation possibilities.

 

Since the “fury” words of President Trump all seemed to go quiet. The US did not respond to the three missiles launch over the weekend and the media at large did not even report a simulated NK special forces attack on 2 islands.

So everybody was counting on a reprieve and secret peace talks. This shatters the idea.

 

Now the calculus is shifting.

Does Kim think that the United States is bluffing, or does he think that the U.S. will strike North Korea to prevent it from advancing its nuclear weapons program? If Kim thinks the U.S. will not intervene, or if he thinks he can survive a U.S. attack, then he will continue to pursue a nuclear weapons program, integral as it is to his grand plan to unite the peninsula. Or if the regime is really brought to collapse due to sanctions he could decide to go out in a ball of fire instead of Saddam or Gaddafi with a whimper.

However, if Kim thinks the U.S. is willing to go to war and, in going to war, defeat him, he will likely subordinate his long-term ambitions to more pressing matters of survival.

President Trump is different …can he afford a red line to be crossed and look like President Obama and treat North Korea as USSR of old age.

Or, attacked by every side in the US, decided that a war with North Korea is a good escape out of his problems. No one impeaches a President at war.

Dr Strangelove is more actual than ever. Viewing of the movie is highly recommended. And fun, until is real (for how old the movieis, in the Oliver Stone “Putin Interviews”, Putin, after watching the movie, said to Oliver Stone – you would be surprised to know how many people still think like Dr. Strangelove).

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Like it or not, Australia is fully dependant on China – a quasi economic colony.

Even aside politicians the reality is that China imports between 50 and 100% of any commodities. And Australia exports are commodities (over 65% of total).

If you understand that you understand the basis of the Australian market.

This year in November there is the all-important Chinese Party Congress – a specially important one as it a re-election Congress.

So this year, for President Xi, it was important that the Chinese economy looked good. As a consequence iron ore would have rallied and Australian Dollar would have rallied – and notwithstanding all the bad signs, Australia would have fared not so bad, at least.

The issue is that President Xi, after the Congress in 2018 will have really to address some issues (eg debt) in the Chinese economy and will have to slow down everything.

So next year, it will be much harder for Australia to rally hard.

Also the Chinese regulator has issued a list of banned (core military technology, gambling and sex industry, investment contrary to the national security) restricted investments (property development, hotel purchases, film, sports, entertainment, investments that contravene environmental standards)).

China will also stimulate investments in infrastructure as part of the One Belt Road (Australia has not signed yet), agriculture, fisheries, technology and advanced manufacturing, natural resources.

This will have to be a roadmap for any Australian investor 2018.

While everyone is watching North Korea, China and India are really closing into a real war.

The Docklam standoff started in June and probably China could give an ultimatum to India before the Brics convention in early September.

Docklam is part of Buthan which is independent but is kind of an Indian protectorate.

For China is important as per the Chinese One Belt Road. For India is important as as gives direct access to its main north region and moreover control the waterways (water, but also monsoon floods).

And contrary to North Korea, the belligerants are moving military assets for a confrontation.

In a battle the Chinese, like in 1962, have the superiority as the Indian Army just started to upgrade their systems. The only advantage of India is in aviation system as the airports on the Chinese side are at high altitude (over 5000 meters) and aircraft have difficulties in take off at those height due to air rarefaction and weather).

But we are talking about 2 nuclear powers going potentially to war. And Trump just supported India in the standoff (Russia is not clear which side stays).

The risk factor is also that wars (North Korea, Doklam) could link and become.

It will not happen…but nobody can predict war as history teaches.

Really? Yes – military wise.

The four  naval accidents have been made possible by Obama and the Congress. Their idiotic Debt Ceiling battles of the last years cut the budget of the military and the navy had to cut 20% of its ship workforce so it is overstretch and less serviced (and it does not help the investments in super expensive new ships like the littoral).

Also, in Afghanistan, the new strategy probably will not make much difference initially, but goes in the right direction.

The surge is very minor (at the top there were over 150,000 troops). But under President Obama they were there without consideration of the surrounding and declaring to the enemy the strategy.

Talks  with Taliban (even if they are not a cohesive force) are needed as most of them are from Afghanistan. In Vietnam, for example, the US could not win as for most Vietnamese the war was not communism versus capitalism, but a liberation against invaders.

With Taliban is similar. Or you apply a Stalin like solution (population replacement) or you need to talk.

Now President Trump will not say what the surge means (very good against an enemy that is able to watch TV). Moreover addresses the Pakistan sanctuary (it is more an unlawful region of Pakistan than a direct Pakistani force).

Also the direct support of India against China and Pakistan is very interesting, Pakistan is already been lost to Russia and China – so India, clearly against China and Pakistan, is a very good choice.

Why this? Well remember my last posts ….now the US foreign policy (at least) is driven by a military triumvirate of real generals, not politicians like in President Obama times.

Season reporting

Posted: August 22, 2017 in Uncategorized

We are midway season reporting and Australian companies has been quite underwhelming with a 49% beating consensus and an amazing 65% lowering their forecast for 2018.

This compares quite badly with the US companies beating consensus by circa 80%.

Quite a gap!

The fall of Bannon

Posted: August 19, 2017 in Uncategorized

Another week another piece in Trump’s kingdom falls.

Bannon was an important piece in Trump elite. He was extreme right and the brain of the most controversial ideas. Trump’s attack dog.

His fall, although welcome, brings some not so good consequences.

Bannon was the link between Trump and his voter base. They will claim Trump has been neutered by the Deep State powers.

In effect the fall has been organized by General (Ret) Kelly.

There are unconfirmed report that was a rift on North Korea.

The military triumvirate (Kelly, McMaster, Mattis) is for an intervention while the Banning faction thought that North Korea was just a distraction versus the real enemy, China.

We will find soon as now the military triumvirate is in charge of the US foreign affairs at least.

Usually military people are less likely to start a war as they know what it is. But if they start they will take no prisoners.

Time will show.

Currencies behaviour

Posted: August 18, 2017 in Uncategorized

Very interestingly last week a never seen before behaviour changed in the currency space.

Every Time there is a scare event like North Korea usually the USD strengthened. And this is happened since the 2 World War until last week.

The other usual refuge currencies (Yen, Swiss Franc, Gold) strengthen.

But the US Dollar weakened and the Chinese Yuan strengthened.

This is really a shift of power from the US to China.

A classic sign of the fall of an empire.