Tuesday 4 March 2014

The Fog of War.



Baltic Dry Index. 1258  

LIR Gold Target in 2019: $30,000.  Revised due to QE programs.

Pursue one great decisive aim with force and determination.

Carl von Clausewitz.

What to do in a situation with no good outcomes? Sometimes it’s just best to wait out further developments and not act rashly. Keeping one’s head when all around you and all that. This was certainly the message from leading US investor Warren Buffett, who advised investors against selling stocks at this time. Unsurprisingly a gap opened up yesterday between US politicians and Europe’s. Continental Europe is more closely integrated into Russia’s economy than either America or the UK, and any hasty application of meaningful anti-Russian sanctions risks plunging much of Europe into a deep recession or worse. Despite strong words against Russia from Europe’s pols and bureaucrats, reality was somewhat different, and London came under pressure not to join America in pressing for immediate sanctions. The biggest casualty of Russian sanctions is all too likely to be Germany and the usual suspects in Club Med.

I suspect though, that we will not have to wait out developments for more than a couple of days. If Russian policy is to engineer a divided Ukraine, move two will not be long delayed. Sanctions would follow like day follows night, continental Europe be damned. While the UK and America might hardly notice the hit to their economies, the hit to continental Europe might be the black swan that does for the European Monetary Union as we know it. If Russia retaliates by choking off the Ukraine’s wheat exports, come summer Europe’s food price inflation might well achieve the same thing. As always, stay long fully paid up physical gold and silver.

A messy west against east retaliatory trade war has no good outcomes for any, and might well end in the crash of the Great Nixonian Error of fiat currency. All this of course assumes that we don’t start and actual new European war in the Ukraine. In Asia, this morning, the betting is that Russia will call the west’s bluff and the west will do little. It’s back to business as usual it seems.

War is the continuation of politics by other means.

Carl von Clausewitz.

Asia Stocks Snap Two-Day Fall as Investors Assess Crimea

Mar 4, 2014 6:46 AM GMT
Asian stocks rose, rebounding from the regional index’s first back-to-back declines in a month, as investors weighed the crisis in Crimea and ahead of the National People’s Congress annual meeting in China starting tomorrow.

----The MSCI Asia Pacific Index added 0.2 percent to 137.01 as of 2:27 p.m. in Hong Kong after falling as much as 0.4 percent. Investors are considering signs of a global economic recovery against tension in the Crimea after Ukraine said Russia has 16,000 troops onto its soil and that Russian forces are threatening to seize its warships. The Asian stock measure fell 0.8 percent yesterday, while global developed-market shares sank the most in a month. The yen weakened in the afternoon on a report Russian President Vladimir Putin ordered troops in military exercises in western Russia to return to base.

“These are definite buying opportunities,” Andreas Utermann, who helps oversee $442 billion as chief investment officer for Allianz Global Investors, said in a Bloomberg TV in Hong Kong. “This crisis is going to be resolved probably without a shot, with the end result being that Crimea will end up as part of Russia, and without a war. It’s going to stabilize.”
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Goldman Sees Russia Taming Ruble Losses After Plunge to Record

Mar 3, 2014 11:58 PM GMT
Goldman Sachs Group Inc. predicts Russia will contain losses in the ruble as policy makers pledge to curb volatility after ratcheting up interest rates and selling billions of dollars in the currency market yesterday.

Bank Rossii, which ING Groep NV estimates sold as much as $12 billion yesterday, said it will start setting ruble intervention parameters daily, a move that will give the central bank more room to ease swings. Goldman Sachs analysts anticipated a change in tack, writing in a note to clients before the move that Bank Rossii may favor a policy that allows for “discretionary interventions” while predicting the ruble has limited “downside” after sinking to a record low.

----Bank Rossii sold between $10.5 billion and $12 billion to support the ruble yesterday, Dmitry Polevoy, chief economist at ING in Moscow, wrote in an e-mailed note. The central bank is scheduled to release data on the size of the sales tomorrow, in accordance with its policy to post figures with a two-day lag.

Russia’s foreign reserves have fallen $40 billion since May to $493 billion, according to data through Feb. 21. ING said the country’s “net” war chest, excluding its sovereign wealth fund, gold and International Monetary Fund reserves, is about $270 billion.
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As Prime Russian Trading Partner, Germany Appears Crucial to Ending Crisis

By LANDON THOMAS Jr.MARCH 3, 2014
In the face of the diplomatic maneuvering over how to confront a bellicose Russia in Ukraine, one country appears to hold the key to any long-lasting entente: Germany, Europe’s economic powerhouse and one of Russia’s primary trading partners.

Whether it is importing fuel from Gazprom or selling Mercedes-Benz to billionaire oligarchs, trade with Russia has played an important role in Germany’s emergence as an economic superpower over the last decade. Germany is now heavily reliant on Russia for its energy needs, importing more natural gas from Russia than any other country in Europe.

But Germany’s enhanced status on the world stage — combined with the end of the commodity boom and the onset of economic stagnation in Russia — has also shifted the balance of power. Some analysts argue that it is Russia that has the most to lose if economic sanctions are ever imposed.

This dynamic could offer insight into the role that the German chancellor, Angela Merkel, will play in any negotiations with the Russian president, Vladimir V. Putin.

So far, German diplomats have tacked away from a plan, pushed by the United States, to impose sweeping sanctions and remove Russia from the Group of 8 developed economic nations. Instead, the German chancellor has called for a more diplomatic solution, preferring more limited actions like many of her European counterparts.
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Or maybe not, depending on President Putin’s next move.

It is even better to act quickly and err than to hesitate until the time of action is past.

Carl von Clausewitz.

Crimea Crisis Worsens as Ukraine Says Russia Threatens Navy

Mar 3, 2014 8:21 PM GMT
Ukraine said Russia threatened to seize its war ships in Crimea amid the worst standoff between the West and Russia since the end of the Cold War.

Russia told the ships to surrender, Ukraine’s acting President Oleksandr Turchynov said today in televised remarks. Russia earlier denied a report it had given the ships, located near the port of Sevastopol, until 5 a.m. to give up weapons and capitulate. Western diplomats are seeking to calm tensions, with U.S. Secretary of State John Kerry arriving in Kiev tomorrow.

----“Russia would most likely like to maintain its pressure, and this will continue to create tension,” Nomura Holdings Inc. said by e-mail. “We wouldn’t expect any military involvement outside the Crimean peninsula at this stage, but direct military action between Ukraine and Russia can’t be excluded.”
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Below, yesterday’s action amid the fog of near war.

All action takes place, so to speak, in a kind of twilight, which like a fog or moonlight, often tends to make things seem grotesque and larger than they really are.

Carl von Clausewitz.

Ukraine market impact at a glance: Stocks, gold, oil, bonds, wheat in play Monday

March 3, 2014, 4:17 PM
With the Ukraine crisis escalating into an East-West standoff, Monday shaped up as a “risk off” day, with traders shunning stocks and other assets perceived as risky for the presumed safety of U.S. Treasurys, the Japanese yen, and shiny metals, while other commodities, such as oil and wheat jumped on concerns about potential supply disruptions.

Here’s a roundup of how markets reacted:


Stocks: Warren Buffett isn’t running scared, but U.S. stocks got hammered in the early going, sending the Dow down as much as 250 points, before recovering a portion of those losses in the afternoon.

The Dow industrials DJIA -0.94% and the S&P 500 SPX -0.74%  still saw their biggest one-day percentage drops in a month. Read: Which major U.S. firms are at risk with high exposure to Russia
Earlier, Russian stocks, unsurprisingly, took a sharp hit, with Russia’s MICEX index dropping nearly 11%.
That spells trouble for the Market Vectors Russia ETF Trust  RSX , fell nearly 7%, bringing its year-to-date loss to more than 21%.

Russia-exposed shares and ADRs were also vulnerable, with Russian Internet search engine firm Yandex N.V.  YNDX +0.37% — known as the Google of Russia — dropping more than 14%, while ADRs for Dutch telecom firm VimpelCom  VIP lost 5%. According to The Wall Street Journal, analysts at Citigroup said Russian-listed companies most exposed to Ukraine include Gazprom, Mobile Telesystems, VimpelCom, VTB Bank, Sberbank and Evraz.

In an interesting case of collateral damage, Yandex’s woes translated into heavy pressure on the Global X Social Media ETF SOCL -2.42% , which slumped 2.4%.

Among Russia-exposed firms trading in Europe, Germany’s Metro AG  DE:MEO -5.54% and Danish brewer Carlsberg DK:CARLB -5.26% each dropped more than 5%; Finnish tire-maker Nokian Renkaat fell 6.6%.

European banks also fared poorly, with Austrian lenders in focus due to high exposure to Ukraine. Raiffeisen Bank International  AT:RBI -9.56% fell nearly 10% in Vienna, while Erste Bank  AT:EBS -4.71% dropped 4.7%.
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Ukraine crisis: On Crimea's new border the Russian Army waits

Dispatch: Cossacks and Russia's army are digging in on a new de facto border with the rest of Ukraine

By Roland Oliphant, Chongar 8:13PM GMT 03 Mar 2014
On the bare grassy banks of the network of salt lagoons and marshes that separate Crimea from the Ukrainian mainland, two decrepit artillery pieces point at the sky.

These are relics of an old conflict, not part of the Russian 'invasion' force that has fanned out across the peninsula since last Thursday.

But the strategic causeway they guard across the Chongar strait is one of only two roads linking Crimea from the mainland. And this natural border is rapidly becoming a political one – and a military front line – once again.

On the northern side of the causeway, a small tent city marks the de facto frontier of what is becoming the autonomous republic of Crimea.

Chicanes built of tires and wooden pallets block the road, while the flags of Russia, the Russian navy, and the Kuban Cossack flutter over the frontier post, where cars and articulated lorries queue up to be allowed into Ukraine proper.

"We're here to prevent provocations," said a man who identified himself as Igor Zlobin, the massive lyobese commander of the detachment of Kuban Cossacks who man this checkpoint.

"There is no one here but Cossacks. We're here because our brothers are here," he said.

Mr Zlobin did not explain by what right his men had set up this checkpoint, to whose authority they answered, or how he came by the Kalashnikov assault rifle that dangled over his camouflaged paunch like a compass needle on a pivot.
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Ukraine crisis: UK prepares to rule out sanctions against Russia amid threat to global economy

Downing Street document indicates British concerns over economic impact of Crimea stand-off as Russian aggression intensifies

Britain is preparing to rule out trade sanctions against Russia amid fears that the Ukraine crisis could derail the global economic recovery.

Stock markets around the world fell sharply on Monday as Russian aggression intensified yet again following last month’s revolution in Ukraine.

----Russia sought to justify its action in Crimea by producing a letter from the Viktor Yanukovych, the deposed Ukrainian president, asking Mr Putin to intervene.

The letter said: “Under the influence of Western countries, there are open acts of terror. I would call on the president of Russia, Mr Putin, to use the armed forces of the Russian Federation to establish peace and defend the people of Ukraine.”

Barack Obama and other senior American figures led a renewed round of international condemnation. However, the capacity of European leaders to react decisively has been hampered by the dependence of much of the European Union on Russian oil and gas. Any economic stand-off could derail Europe’s fragile economic recovery.
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March 3, 2014, 11:15 a.m. EST

Which Major U.S. Firms Are at Risk With High Exposure to Russia?

U.S. trade with Russia amounted around $33 billion in 2013, down from around $40 billion the year before. Russia had a tough year and, the Winter Olympic Games notwithstanding, 2014 is shaping up to be no better than a repeat of last year.

According to the U.S. Chamber of Commerce, U.S. businesses have about $10 billion invested in Russia, mostly in mining, manufacturing and banking. That number is probably too low, and in any event had been poised to rise as some major players are ramping up spending in the country. Here are some companies with 
substantial assets in Russia.
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Never forget that no military leader has ever become great without audacity.

Carl von Clausewitz

At the Comex silver depositories Monday final figures were: Registered 52.36 Moz, Eligible 129.67 Moz, Total 182.03 Moz.  

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

Today China. Real reform to come or just more of the usual smoke and mirrors? Whose side is China on?

China Banks Show Too-Connected-to-Fail Link to Shadow Loans

Mar 4, 2014 4:25 AM GMT
Du Ronghai received an urgent phone call from his private banker at Industrial & Commercial Bank of China Ltd. about an investment opportunity promising a 10 percent annual return. Only for the privileged few, he was told.

Du, who owns an apparel manufacturer in southern China, said he hopped on a plane the next morning for a four-hour flight from his home city of Harbin. That afternoon, at an ICBC office in Guangzhou, he looked at the sales contract he was required to read in person and invested 3 million yuan ($488,000), his first foray into the high-yield world of shadow banking. The employee kept telling him the product, called a trust, was so good that bank staff were pooling money to buy it, he said.

“I knew nothing about it, but the return was very, very tantalizing, and the way they presented it was like if I don’t buy it now, someone else will grab it in seconds,” said Du, who at the time, about two years ago, had almost 30 million yuan parked at Beijing-based ICBC in deposits earning less than 3 percent annual interest.
“I was thinking, if I can’t trust ICBC, who else can I trust?”

More than 700 ICBC clients including Du invested 3 billion yuan in what was known as Credit Equals Gold No. 1. The product was issued by China Credit Trust Co., one of 67 companies with license to act as intermediaries between banks and borrowers in providing shadow financing. In January, it almost became the nation’s biggest trust default in at least a decade, jolting global markets until an 11th-hour bailout.

The drama highlighted the risks of shadow banking, which over the past three years has evolved from underground lending among individuals and small companies into a complex and interconnected web, estimated by JPMorgan Chase & Co. to be valued at $7.7 trillion, involving the nation’s biggest banks, state-owned firms, local governments and millions of households.

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Is China Siding With Putin in the Ukraine Crisis?

China’s leaders are struggling to come up with a comprehensible position on the crisis in Ukraine. The Chinese might naturally sympathize with Vladimir Putin, someone willing to stick it to Western leaders such as President Obama. However, China has long opposed actions that smack of interference in other countries’ internal affairs, in part to keep outsiders away from such sensitive issues as Tibet and Chinese dissidents.

So for now, the government’s solution seems to be simple: obfuscate. The Chinese and Russian foreign ministers spoke by telephone today, and while Russia’s Sergei Lavrov said afterwards that the two countries are in agreement about the crisis, China’s official spokesman shied away from taking a stand.

First, the Russian take: According to the Voice of America, Putin’s foreign ministry said today, “Russia and China have coinciding views on the situation in Ukraine.”

But do they? China’s official Xinhua news agency yesterday reported China’s position, as articulated by a Foreign Ministry spokesman: “China always sticks to the principle of non-interference in any country’s internal affairs and respects the independence, sovereignty, and territorial integrity of Ukraine.”

Then, late today (China time), came what might seem like a word-salad of a statement from official spokesman Qin Gang elaborating on the one from Sunday. “China upholds its own diplomatic principles and the basic codes for international relations, which have also been implied on the Ukraine issue,” Qin said when asked for comments on Russia’s actions. “Meanwhile, we have also taken the historical and contemporary factors of the Ukraine issue into consideration.”

Xinhua helpfully explained that this comment “clarifies” China’s position on Russia’s actions in Crimea.


And strangely enough, it might. Without stating publicly that they’re giving Putin a pass for interfering in Ukraine, the Chinese seem to be leaning more toward the Russians and against the West. Or, as Qin cryptically put it, “there have been reasons for today’s situation in Ukraine.” Hard to argue with that. There have indeed been reasons for what’s going on in Ukraine, just as there have been reasons for what’s going on in lots of places. Do the Ukrainian reasons mean China’s willing to look the other way when Russia interferes in a neighboring country?

The Chinese aren’t saying that just yet. But with China possessing veto power on the United Nations Security Council, the government probably won’t be able to keep quiet much longer.

The political object is the goal, war is the means of reaching it, and the means can never be considered in isolation form their purposes.

Carl von Clausewitz.

The monthly Coppock Indicators finished February.

DJIA: +203 Up. NASDAQ: +353 Up. SP500: +255 Up. The new Fed bubble continues, but the DJIA and S&P seem to be running out of momentum.

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