What happens when you poke a Russian bear?


As written earlier in the week, regardless of one’s views on the righteousness of any attack on Syria, Putin is being faced for the first time in a long time, a leader of a foreign nation (nations as it turns out) prepared to stand up to him. Obama fled the Syria battlefield after being given a two hour window when Russia first went to the aid of Assad. If that wasn’t the ultimate sign of a bully in the Kremlin it is hard to think of what is. While sanctions may have bitten to a degree post Ukraine and the shooting down of a Malaysian Airlines flight, Syria is essentially a testing ground for Putin to weigh up Western (specifically Trump’s) resolve. If we look at Russia’s response post the Syrian strike,

The worst apprehensions have come true. Our warnings have been left unheard…A pre-designed scenario is being implemented. Again, we are being threatened. We warned that such actions will not be left without consequences…All responsibility for them rests with Washington, London and Paris…Insulting the President of Russia is unacceptable and inadmissible.

Kind of says it all really – Russia hasn’t been insulted. Putin has. He must have a glass jaw  like Trump! Two bullies flexing muscle. In a show down Should Putin wish to pick a direct conventional fight against 3 nuclear powers (explicitly mentioned), he knows that ‘mutually assured destruction’ is the very last option in the drawer and next to no chance of being selected despite all of the media beat up. On a conventional basis, Putin wins more battles by stirring up the hornet’s nests in other regions. Lending more support to Iran, Lebanon and Yemen. Destabilize Saudi Arabia and antagonize Israel.

CM wrote,

It is worth nothing that Syria is Rosoboronexport’s (Russia’s military export wing) 2nd largest customer after Iran. Putin is sick of having the West try to remove his clients. Assad is key to Russia’s foothold in the Middle East. With an essentially pro-Iran Iraqi government and Syria as well as Hezbollah Putin has a geopolitical doormat from the troubled separatist states to Russia’s south to Lebanon.

Some arguments have been made about the risks of the American, French or UK strikes killing Russian troops or civilians on the ground in Syria handing Russia free will to attack its enemies. Scroll back to November 2015 when the Turkish Air Force shot down a Russian Su-24 fighter it claimed entered its airspace. Two Russian pilots were killed in the shooting and subsequent rescue. The Russians were incensed but President Erdogan is still in power and Ankara isn’t flailing after seeing its capitol turned into smoldering rubble.

This argument that the Russians weren’t given advance warnings of the attack is ridiculous. Had the Russian defence forces been on proper alert (they most definitely weren’t passed out behind their radar screens after a vodka binge) they would have detected the missile launches. Wind back to the 59 missile launch earlier last year against Syrian chemical facilities. We didn’t hear a peep from Putin. Why now? Of course he is incensed over the booting of diplomats on the nerve agent scandal but this is a showdown of ego.

Think of the long geopolitical chess board here. Should Trump have backed down on Putin’s threats, wouldn’t China’s Xi feel equally empowered to annex Taiwan by telling POTUS that he risks ‘grave reprisals if he meddles with Chinese sovereign territory’?

For all the initial snubbing of Trump by Macron on his historic election win in France, there is no way he would have gone in alone to attack a chemical facility without the guarantee of the military might of America. It is unlikely Theresa May would have done it either. So for all of the ‘unhinged’ lunatic rhetoric bandied about by the media, foreign nations don’t gamble their own sovereignty lightly, especially over something like Syria.

General Mattis has said they plan no further strikes at this stage. Does Putin order his forces to sink a US destroyer in the Mediterranean which launched those missiles? Highly unlikely. He does have the best weapon available to do that (the ‘Sunburn’) but sending US naval vessels to the bottom of the sea on a strategic strike would seem a big response to a targeted hit.

Let there be no mistake. There is a new sheriff in town. Russia has a bloody nose it didn’t think it would find itself. Putin miscalculated that Trump isn’t all Twitter-fueled bluster. Uncertainty in foreign leaders is always a risk for enemies. Trump has shown Putin he won’t be bullied like his predecessor.

Putin doesn’t want a hot war with America. The best way to strike at the US is like the last 6 decades. Undermine her at every opportunity. Supply her enemies. As mentioned before, if the Russians didn’t think it worth hitting back at Turkey for deliberately targeting its fighters, it is unlikely that Putin, no matter how ‘insulted’ he might feel will take a strike not aimed at Russians as a pretext to pick a fight with Trump. Putin has worked out the US president’s measure. He miscalculated. He won’t make that mistake twice.

For the media, running all the scare campaign stories is not only highly irresponsible (as it did over Yemen’s attacks on Saudi Arabia) but proving the lack of depth of analysis. They can beat Trump over the head all they wish but should note the actions of Macron and May following him into the region as a tacit approval of the US leader. Was he the madman they portrayed him as in the first place they would have stayed well out of it.

Watch for Putin’s response (unlikely but will threaten it will come when the evil Americans least expect) and think deeply about why it is important that the real despots (Putin, Xi, KJ-U, Erdogan) around the world no longer have the ability to exercise free will in knowledge that the worst they face is a slap on the wrist from the UN.

Sounds more like grounds for congratulation than censure. 

Over 10.6 million Frogs want to jump out of the EU’s boiling pot


While the media and the EU will no doubt be jumping for joy they’ll overlook the fact that over 1/3rd of the French who voted, or over 10.6 million, want to jump out of the EU’s boiling pot. Think about that number – over TEN POINT SIX MILLION.  Le Pen’s father only managed slightly better than 5mn or 17.8%. Macron won convincingly (Twitter follower growth ratio accurate again) although one can hardly call 1/3rd of a population backing a far-right nationalist something to celebrate.  It is a damning figure. Period.

The extent of the Le Pen gains should be viewed by the EU as a terrible omen. However many of the Brussels brigadiers have ignored it already as their tweets make painfully clear.

After losing 15 out of 15 referendums against it  the EU desperately needs reform. The Dutch election was still a strong win for Wilders and Rutte only saved seats by adopting a more anti-EU stance. The pro-EU Dutch leftists were slayed. The Swiss recently handed back their long standing invite to join the EU. The Austrians almost voted in the far right FPO and after Greens President van der Bellen recently said all women may be obliged to wear the hijab to show cultural sensitivity they may well think to do that next time. The right wing Sweden Democrats are well ahead in the polls looking to win the 2018 election. The Italians are on the way to vote in the eurosceptic M5S party as their referendum last year on parliamentary reform became a free kick to boot out the establishment. Hungary’s Orban has had enough of the EU’s directives on migrants. Greece is being forced to sell its assets in order to secure another bailout and submit to being a Brussels’ (Berlin?) protectorate despite the EU bending over backwards with the help of Goldman’s creative accountants to get the Greeks into the club. This will not end well as Greece has 37% poverty, 58% youth unemployment and a soaring suicide rate. Now almost 10.5mn French now think the EU is not working. Brexit anyone?

The problem with elections is that even though Macron will serve 5 years, over 1/3rd of his citizens are not happy with the state of terrorism, unemployment and the EU. If Macron doesn’t solve for these problems, Le Pen’s 2022 chances grow and she’s already calling for a radical overhaul of Front National.

The press was making Macron to be a tough negotiator on Brexit. Let’s not forget that the ranting Jean-Claude Juncker has had to be brought into line by Angela Merkel and Donald Tusk over his Brexit negotiations skills (or lack there of). EU lawyers have said the other day that the  €100bn Brexit bill has no legitimacy. The U.K. Local council elections should speak volumes of May’s mandate to pursue full strength hard Brexit.

Macron’s win buys the EU time. Nothing else. In fact the truest test of how petrified the EU truly is can be summed up like this. If they were supremely confident in their own legitimacy there would be no need for the constant self-reaffirmation and shouting from the roof tops about what a great place it is. If indeed it was so, democracy would endorse them every time. As it stands the self-praise would even make Barack Obama blush.

Markets ignore UK sovereign credit downgrade and rightly so

UK Gilts

S&P cut the UK’s sovereign rating two notches from AAA to AA. Personally I don’t place much credibility on rating agencies. Given the explicit ‘selling ratings for fees’ during the toxic sub-prime scandal in the US I think markets don’t place much credence in them anymore either. The market is now searching for ‘safe’ places to hide and it is ultimately a far better judge of risk than the ratings agencies. The above chart proves it. It is the 10yr bond yield (when bond yield goes down, price goes up). Get a credit double downgrade and the value of the asset rose, not fell. The complete opposite to conventional wisdom. Forget CDS markets as they are notoriously illiquid and irrelevant. The market for the underlying asset is a far better indicator.

In the good old days, S&P, Moody’s and Fitch used to be revered for their accuracy and bond, currency and credit markets used to react to the changes chucking on massive risk premiums should such actions occur. Now they are ignored. A double notch downgrade a decade ago would be akin to a banana republic unable to service debt or running unsustainable.

As I wrote in a report looking at money supply growth, the BoE was the ONLY major economy to have seen velocity bottom out and climb. Everywhere else has continued to plunge new lows.

The biggest threat or the biggest minority?

Holy Grail

I’m sure many of you thought I was going to drag out the M word.Wrong. To the mainstream media, the biggest threat to civilization by their reckoning is the old, white , poor, uneducated  (i.e. stupid)  xenophobes (OWPUX). In a world where we are increasingly restricted from making any comments about other’s colour, creeds or religious affiliation for fear of being branded a racist, bigot or worse the OWPUX is fair game. In today’s world of political correctness, where is their safe room?

This incessant push by these inner and increasingly outer totalitarians is that they cannot accept a fact. The calls to remove voting rights from these people is an appalling attempt to drown out free speech. The elites living in the West End have no comprehension of how tough these so called OWPUX are doing on the fringes. Poverty in the UK is now 25% of the population. 15.2mn Brits live below the poverty line. 2mn more than 2009. The IFS showed that the cost of living was pushing them deeper into poverty.As I’ve mentioned in earlier posts, 47% of Americans (in a Fed survey) can’t raise $400 in emergency cash without selling something. That is an alarming statistic. 32% of Aussies would not be able to fund their obligations if unemployed for 3 months.

In the lead up to the referendum there was a spreadsheet doing the rounds on social media which listed those world leaders (Obama, EU leaders, multiple Prime Ministers which were mistakenly called Presidents, Kofi Anan etc), a plethora of economists, think tanks, environmentally organisations, the IMF, World Bank etc etc in support of Remain which sought to belittle Leavers by likening them to Trump, Putin and ISIS. It was this typically arrogant elitist view that somehow Leavers were stupid and without an Oxbridge education were not well placed to make an informed judgement on the referendum. I would argue the reverse. Those that voted leave came from a far broader spectrum if we sliced all 17mn of them. They came from Labour’s own heartland. They weren’t all OWPUX. What they do know is that they do not want basic democratic liberties removed.

This idea that the “youth” were robbed by the elderly in this referendum. Some even calling for an age cap on voting suggesting that senility, bigotry and the fact they won’t be around for much longer is reason enough to remove democratic rights. Disgraceful. It is a democracy and the message to these young educated people who are seemingly so self entitled in their teflon coated kevlar lined lives is that you can’t always have the outcome you want. They have proved without a shadow of a doubt that lowering the voting age is an absolute no no. Many of you have revealed you are too immature already for that. Calling for a new referendum was shameful. 28% of people didn’t show up. They had a democratic right and chose not to exercise it. All the social media around getting people to bully their MPs to get the motion to stop. I watched all of David Cameron’s replies in the House of Commons. The idea of a second referendum were shut down and the process of separation is already in effect.

Such is the divide in established party politics. This is not a fine surgical scalpel incision on the surface this is division to the core with a sledge hammer. People are sick and tired of the political class betraying the principles they promised their constituents they would uphold.  They aren’t getting it. It is the same as in the US. The rise and rise of Trump (and you can forget the polls) is because he is listening to these people who are suffering from decades of being ignored by the establishment. Brexit once again was used to defile the OWPUX in the mainstream media’s attack on Trump. It won’t work and it will only further push these people the other way. They are past the point of caring about being branded. To all these parties that brand Trump as racist he has got the highest approval from blacks, hispanics and gays of any Republican in history. Hardly a reflection of someone who so openly holds these views.

The mainstream media doesn’t get it. But as soon as Brexit was decided, the vilification of Leavers was outrageous. Once again they were mocked for being uneducated with the Washington Post suggesting that the surge in Google searches for “what is the EU?” after the result was indicative of their  having no understanding of what they had just voted on. On any measure, this doesn’t pass any smell tests. The only smell test it passes is the mainstream media’s utter inability to report facts, present unbiased informed and balanced views and these so called “uneducated” do get their livelihoods are at risk. No wonder so many media outlets are losing money and going out of business. It isn’t just about the way media is consumed it is mostly to do with content (or the lack thereof)

Branding people as bigots and racists because they don’t support the prevailing consensus view (proved wrong yet again) is unnecessary. I am sure on the fringes there is an element of that but this was a vote for protecting freedoms and the right to govern oneself not to be dictated to. Ironically, the OWPUX are a minority in today’s politically correct world. Ironically they are the group that least wants “protection”, “safe spaces” and other laws to prevent their fragile egos. They just voted for democracy for ALL, not just themselves.

This Monty Python sketch from the Holy Grail sums up the idea that the poor expect the same rights as the rich.

Brexit for Japan – easy solution


Fear not people. If there was ever a better time for Japan to be working to shore up the mutual growth with the UK, they should seek to strike a free trade agreement as soon as possible which ensures a continuation post leaving the EU. Not only would it create stability in financial markets, it would send a message that the UK isn’t going to be this emperor with no clothes. There is already an FTA between the EU and Japan so no reason why Japan shouldn’t look to be proactive here and assure the UK of its continuation.

The Japanese have often used the UK as a hub for Europe, not because it has the lowest cost production but the English language. The EU still have a FTA with Japan so they should be prepared to accept Japanese products from the UK save having the FTA fall with Japan which would be highly unsettling given the amount of Japanese investment in the EU.

This fatalistic position is ridiculous. The UK is still the 5th largest economy globally. There is no reason to think that countries around the world would let the UK drown as some pundits think so. It won’t be a smooth path but common sense and corporate level business ties will trump high level political posturing. Europe needs the UK more than the other way around.

For all of the threats and ultimatums handed down by the EU they need stability so I’ll bet Brussels grants them all of what was afforded before. The pound is a massive buy and the euro a short. It is that simple.

When sanctions were lifted on Iran or Pakistan look at how their market reacted to capitalism – if markets are given a free hand commons sense will prevail. If investors think that the UK will get a worse deal than these nations then they need their head read.