The Contrarian Marketplace wishes everyone a Happy New Year and prosperous 2018.
As oft the case people are busy making new year’s resolutions. CM mission doesn’t change. It aims to further energize the spirit of enquiry. To be the maverick voice that will not be silenced. We live in a world where we need to become comfortable being uncomfortable. We can no longer hide behind group think Because we feel it is dangerous to challenge consensus views. CM won’t buckle to identity politics, victimhood or social justice.
However that will never exclude us from criticism and we welcome feedback to improve the offering. We will not take The Guardian approach of refusing to acknowledge the content might be the problem when appealing for readers to ‘donate’. CM is self funded. It will remain so because it never wishes to be beholden to others to peddle tailored messages to keep the lights on. If CM doesn’t survive on its own merits then it dies through market forces.
In 2017, Brandon Tatum showed what impact a Tucson, Arizona police officer can have on today’s media. His videos have gone viral (50mn+ views) on topics from the NFL, BLM to anti-Trump protests. He is now working for the Conservative Tribune such has been his impact. He speaks in cold hard truths. One doesn’t have to agree with what he says but he makes compelling arguments. No accolades from the journalist associations to self congratulate. As we used to say at high school sports competitions- “look at the scoreboard.”
CM started two years ago to challenge conventional thinking on all manner of topics. It was born out of a growing realization that the mainstream media on both sides of the fence was too biased. Investigative journalism has all but disappeared, replaced with clickbait headlines and little more than biased piffle for what can only loosely be described as content. It seems that journalists are paid on the number of shares or likes rather than the quality of input. As Ariana Huffington once said, “I’ve long said that those of us in the media have provided too many autopsies of what went wrong and not enough biopsies.”
2017 has been a continuation of the ridiculous pandering to political correctness and our lawmakers seem even more determined to avoid censure from social media, somehow thinking it speaks for the majority. Gender neutral toilets, removing statues and same-sex marriage take priority to the oncoming fiscal/monetary train wreck and a fracturing geopolitical landscape. It is almost as if our elected leaders have the blinkers on.
2018 is shaping up to be one that our political class is ill prepared for. Out of one’s depth is not a harsh enough criticism. Too many governments (including conservatives) are running up the national credit card trying to bribe bewildered constituents into tolerating more of their nonsense. However at some point, appeasement will not work because government’s can’t economically afford it.
Silent voices are increasingly pushing back. Traditional parties are seeing their constituents abandoning them. Australia’s conservative Liberal Party is Exhibit A. It is no longer a party true to its core. After the Turnbull coup it has taken its constituents for mugs but they have left in droves. While the Libs champion superior leadership, how is it One Nation has taken a huge bite out of it’s support base? It doesn’t add up and its this sense of denial that guarantees they’ll be destroyed at the next election.
Look at the growth in nationalist parties in Austria, France, The Netherlands, Germany, Italy and even America. While they may not have outright majorities in every case the reality is that all of these parties surged in the most recent elections. Mainstream parties can mark it down as a one-off or ‘they’ll be back’ mentality but this time is different. Take Trump. His GOP hate him almost as much as the Democrats. While the mainstream media ties itself into knots over the relevance of well done steak and tomato ketchup to running a country or the fact he paid millions in tax, his brand of political incorrectness is refreshing.
Sure his words are vulgar at times and Obama knocks the sports off him for eloquence or as a nice guy but we are in a world of ruthless people. The geopolitical landscape is rapidly changing. The last US administration allowed a free-for-all for nations such as China and Russia to roam free on the global landscape. Russia’s actions in the Ukraine, Syria and Iran or China building man made military bases in contested Asia-Pac waters have filled a vacuum vacated by the US. We should be glad that we have a Trump who is putting his foot down that things have changed.
While Trump’s use of ‘Rocketman’ to describe North Korea’s leader may seem juvenile, China hasn’t fully worked him out. They stroked his ego by allowing him to be the first President to dine in the Forbidden City after his rhetoric saying that if they don’t deal with Kim he will. The resumption of Chinese oil trading with North Korea in full defiance of UN sanctions tells two things. China thinks the UN is a waste of space and it is testing Trump’s resolve to carry out his threats to take care of business with minor provocations. China’s military is nowhere a match for the US so this could backfire badly if they miscalculate. This will escalate again in 2018.
Don’t rule out India’s growing frustrations with China. China’s built a naval port in Sri Lanka’s Hambantota. Recently the Maldives signed a FTA with China which should be ringing alarm bells in Delhi. For the last decade, China has been strengthening its armed (ground and air) forces to India’s north too, including the funding of the upgrade of the 1300km construction of the Karakoram Highway (aka China-Pakistan Friendship Highway). It is no surprise that Russia has been replaced by the US and UK as preferred arms suppliers to India.
As written several days ago, the Middle East seems to be an unstable powder keg. The way the stars are aligning with respects to the death of the former Yemeni President Saleh, the cleaning of the House of Saud, the repudiation of Qatar by the Gulf states and ructions in Iran point to something larger to kick off. Do not be surprised to see Israel and Hezbollah clash again in 2018. It won’t be an Arab Spring. Afterall this is more a shift toward a more direct clash between Sunni and Shia, not just played through proxy wars in Yemen, Syria or Lebanon. One can’t sink Saudi and Emirati naval vessels off Yemen’s coast with Iranian Revolutionary Guard support indefinitely.
These geopolitical problems will only put pressure on global markets which are already overstretched asset bubbles in almost every form – equities, bonds and housing. The realisation that unfunded pensions are likely to wipe out the retirements plans of millions causing even more pressure on economic growth. There is no escaping the fact that the can has been kicked down the road for too long. Whether 2018 is the precise year it unfolds is still a moot point but we are moving ever closer to the impending financial collapse which will be uglier than 1929.
Central banks have no plausible ammunition left to play with. Bloated balance sheets filled with mislabeled toxic assets (liabilities). Record low interest rates offer next to no policy flexibility and tapped out consumers face oblivion if asset prices keel over. A systemic banking collapse is absolutely plausible. No amount of QE will work this time.
Yes, it would be nice to see 2018 trump 2017 for good news (it wouldn’t be hard) but sadly the punch bowl at the party is empty and the hangover won’t be pleasant. No amount of painkillers will let one avoid a throbbing headache which will last a very long time.
Forewarned is forearmed.
The US State Department seems to be openly welcoming the outbreak of spontaneous demonstrations in Iran selling it as the early steps of regime change. In fact it is more likely to help President Rouhani force economic changes he has been prevented from making due to deep seated corruption within the regime itself. Rouhani has tried to make economic changes for years to boost the economy but the regime has kept monopoly power over multiple industries which has impeded his ability to do it.
The Iranian banking system holds 10s of billions of dollars in non-performing loans which is weighing down the economy and undermining the potential for private-sector-led recovery. Given the increasing vulnerability of Iran’s financial system, the government urgently needs to restructure and recapitalize the banks. Iranian banks were weakened by a sluggish economy caused by the sanctions, state interference in lending decisions and lax regulations causing excessive competition with unlicensed financial institutions.
The country’s recovery could well slow since Trump has raised the possibility that sanctions could be reimposed or new sanctions introduced. It should come as no surprise that this has deterred many banks and other foreign companies from operating in Iran.
The Iranian government directly owns and operates hundreds of state-owned enterprises (SoE) and indirectly controls many companies in the private sector. Inflation (9%), price controls (e.g. milk, energy) designed to tame it and rising unemployment (12.4%) are really behind the protests than a direct call to overthrow the Islamic Republic. Still don’t rule out the US State Department rubbing its hands with glee to try to throw a spanner in the works. Easier done by crushing its economy by redeploying sanctions given the financial system is in such a precarious position.
We shouldn’t ignore the timing of the assasination of former Yemeni President Saleh in the last month. His death now gives Saudi Arabia more will to take heavier action against the Iran backed Houthi in Yemen. Now that Saudi Arabia has recently cleaned house with the arrests of royal family members to tighten the inner circle, it almost seems the stars are aligning for the ante to be upped on Iran.
While much has escaped the mainstream media, at the narrow Bab al-Mandeb Strait separating Yemen and Djibouti/Eritrea, multiple US, Saudi and Emirati warships have been attacked by Houthi rebel forces. In January 2017 a Saudi al-Madinah frigate was sunk in the strait. An Emirati HSV-2 swift naval craft was also put out of action in late 2015. Cargo ships (10% of global trade) make their way up the Red Sea via the Bab al-Mandeb Strait to the Suez Canal, could suffer if tensions rise here.
While many are distracted by the decision to move the US Embassy to Jerusalem as an unnecessary ‘in-the-face’ action, most Gulf States want Israel on their side to help them defend against and ultimately defeat Iran. It is only 7 months ago that the Saudis pushed to expel Qatar from the GCC for keeping cosy relations with Iran and supporting Hamas and the Houthi in Yemen. The South Pars/North Dome Gas Condensate field – the world’s largest natural gas field – is jointly owned by Iran and Qatar which means divided loyalties between the GCC and Tehran.
Get ready for lots of fake news. Something tells CM that there is something more sinister at play.
Even before the Arab Spring, CM (in a previous life) wrote that Yemen was a trouble spot. It’s former President Ali Abdullah Saleh (Sunni) has died of natural causes – he was assassinated in a spate of tribal violence in the capital Sana’a yesterday. No stranger to being an oppressive tyrant during his rule, after being ousted in the Arab Spring he was in recent years working with the Houthi tribe (Shi’ite) to regain power before switching back to a US backed Saudi-friendly deal maker. He proved that power is more important than religious sect. However the Houthi weren’t prepared to suffer a turncoat who betrayed them so Saleh was duly dealt with.
Why is Saleh’s death important? What it now does is give Saudi Arabia more will to take more decisive action against the Iran backed Houthi. It is no surprise that Saudi Arabia has cleaned house with the arrests of royal family members to tighten the inner circle. It smells like the early stages of broader tit-for-tat skirmishes before all out conflict ensues. Yemen is often argued as a proxy war between the two.
While many are distracted by the US Embassy to Jerusalem as an unnecessary ‘in-the-face” action, it is a very firm line in the sand to where the US cards already lie. No big surprises. For now most Gulf States want Israel on their side to help them defend against and ultimately defeat Iran.
At the narrow Bab al-Mandeb Strait separating Yemen and Djibouti/Eritrea, cargo ships make their way up the Red Sea to the Suez Canal, could become a major choke point. This year multiple US, Saudi and Emirati warships have been attacked by Houthi rebel forces. In January 2017 a Saudi al-Madinah frigate was sunk in the strait. An Emirati HSV-2 swift naval craft was also put out of action in late 2015.
Safe access to the strait is crucial at present because of Egypt’s reliance on imported LNG to maintain stable electricity supply. One LNG tanker heads to Egypt each weeknight through the canal. Just under 10% of global trade goes through it as well. Any blockage or restricted access would force ships to sail the long way around the Horn of Africa adding another 40% to the journey. This would have significant impacts on shipping and trade. Markets aren’t factoring anything at this stage.
The problem with naval conflict is that Yemen is backed by Iran which in turn is one of Russia’s best clients. Iran possesses the SS-N-22 Sunburn missile which is a supersonic anti-ship missile which even the US has no answer for. In recent years this has been upgraded to the Super Sunburn (P-270) which is even more lethal. It is a ramjet which travels at Mach-3 meaning if fired inside a 100km range then the target is likely to be toast (video here). It can be launched from a ship, submarine or land.
Iran could blame a whole host of tribes (Sunni or Shia) sick of being under the jackboot of effective Saudi control/influence for an attack.
On December 2, Israeli jets bombed an Iranian military weapons base in Syria. Israel has warned Iran it won’t tolerate any military presence on Syrian soil. We shouldn’t forget that China has also deployed its special forces to Syria to help Assad. Clearly the Chinese see a good opportunity to clean up some of the spoils in the region. China is always happy to help out nations that are under sanction. It adds more mess into the geopolitical sphere.
While the GCC has stepped up its air attacks on Yemen post the death of Saleh, he was the only one that has been able to unite the country. Indeed it is possible that the secession of the south becomes an issue. At the time of reunification of North and South Yemen in 1990 many in the south felt their northern neighbors were pillaging too much of their oil reserve wealth. Even their private land was appropriated and spread among the Sana’a elite. Now that Saleh has gone, and Yemen fragmented again, we may see old scores settled. The Southern Movement (loyal to exiled President Hadi) in Yemen wants to take back what was stolen from them. So Saleh’s death may open a vacuum of more instability.
Iran would relish the opportunity of a fractured Yemen to further build its influence. Bab al-Mandeb may become a flashpoint to fight the proxy war. It is extremely messy, creates proper disruption and pushes Saudi Arabia and Iran closer to conflict.
Which ever way you cut it, diplomacy in the Middle East (what little there is) looks set to worsen. In a sense we are dealing with two large clients of Russia (Iran) and America (SA). Now China is siding with Russian interests by using it as a test run of its military muscle. China isn’t committing anything major but it wants to be at the negotiating table when it all goes pear shaped.
It smells very similar to the lead up to the Arab Spring. More turmoil and complacent markets which are not quite absorbing the realities of “local problems” spreading to another neighborhood. Sure we’ve seen many leaders overthrown in Libya, Tunisia, Egypt and so on in the last uprising but the pressure on Saudi is mounting hence the recent crackdown internally.
The other dark horse is Erdogan in Turkey. He is facing a corruption probe over money laundering to help Iran evade sanctions and he seems keen to externalise his problems so he can shut down the local threat. He is threatening to cut off ties with Israel if the US relocates the embassy but for a man with clear ambitions to revive the Ottoman Empire that fell less than 100 years ago that is a mere formality in the future.
The flashpoint remains Yemen. It has the perfect storm of a pawn in a global game of chess. While it whiffs of local tribes seeking revenge there are too many willing to help them achieve their aims which only plays to the broader ructions throughout the rest of the Middle East. Last week Houthi rebels launched a missile attack against the UAE nuclear power plant under construction. Power corrupts. Absolute power corrupts absolutely
Bloomberg has written a puff piece wrapped in surprise on how the Saudi’s are likely to seek Israeli approval for a bridge which crosses from a new city Neom to Africa. There is one reason and one alone – Israel has a naval base at the Port of Eilat (in blue) at the southern tip of the country. If the height of the bridge is too low and surface naval ships can’t pass then the navy would be boxed in. Almost like ships in the Black Sea. So of course the Saudis won’t do it single handedly.
As much as people might think the Saudis hate Israel, they acknowledge the security Israel buys them vis-a-vis defending against a mutual enemy in the form of the Iranians who are active on SA’s southern border with Yemen. The Iranian Revolutionary Guard has been active in Yemen, Syria, Gaza, Lebanon and Iraq in recent decades supplying weapons and training. So sometimes mutual benefits (peace between the two countries) outweighs trying to pull a fast one on them. It is likely the US State Department might send a friendly reminder of what is at stake geopolitically. In actual fact this discussion has been ongoing for a long time.
One would have to be as isolated as a Japanese Imperial Army soldier discovered 40 years after the war ended to be surprised at Trump’s strike on Syria after a gassing. Do people honestly think drawing criticism from Iran or Russia is some mysterious happening? This is sadly the result of 8 years of impotent foreign policy which made America a laughing stock to despots. From Michelle Obama hashtagging Boko Haram on Twitter to release kidnapped school girls to allowing China to build man made islands in disputed territories.
Blowing up infrastructure in another sovereign nation is always going to create its own set of problems and questions. However the response from bully nations who have been used to running the school yard in recent times are naturally going to feel precious when given a taste of their own medicine.
As mentioned in the previous dispatch, geopolitical jigsaws aren’t first derivative. They’re usually 2nd,3rd and 4th interconnections.
Iran has long used Syria as a ‘highway’ into Lebanon to maintain influence in the region. Russia has only been too glad to be its arms supplier of choice. The Iranian Revolutionary Guard has been present in Syria for decades and ever since the Arab Spring has been making sure Assad keeps the highway open to Lebanon. Does it surprise you that Iran has been active in Yemen with the Houthi tribe to overthrow the Saudi loyal government in Sana’a and create instability in Riyadh?
When the US pulled out of Iraq in 2011 they left a huge power vacuum which was filled with pro-Iranian elements. Then Shi’ite Iraqi Prime Minister Nouri Al-Maliki had worked with the US to clean out pro-Sunni Saddam- loyalists and when Obama withdrew al-Maliki sold them out. He then accused the US of backing ISIS to reestablish a military presence in Iraq in 2014.
For Russia, Syria gives it a naval port and access to geopolitical weapons to exploit against the West. If the US puts missile defenses in Poland or the Czech Republic, Putin can flare up a crisis in the Middle East.
Saudi Arabia values Israel. Not on any religious grounds but as a buffer against Iran. Far better to have a strong power act on their behalf than risk direct confrontation. It makes sense. Iran use Syria and Hizbollah to supply Palestine with rockets to nip at the heels of Israel and make them look like oppressors. That brings worldwide condemnation and led the likes of Obama to abstain from a vote to undermine a loyal ally.
So people need to separate fact from fiction. Trump is keen on reestablishing American dominance on the world stage. Foreign policy is never a pleasant or easy business when dealing with nations who have long histories and longer memories. The missile strikes in Syria were multi faceted. On one hand to counter chemical attacks. On the other to put Russia back in its box showing a new kid is on the block and Putin will gain far more being inside the tent pissing out than on the outside pissing in.
Of course the foreign ministries are sending strong messages of anger, condemnation and a halt to cooperation. That is page 1 section 1 of the manual. Cooler heads prevail and countries move to working out how to turn an ugly situation that allows Russia to keep skin in the game, the US to look tough again and the overthrow of Assad (he can live in Zimbabwe) without leaving a huge vacuum. In case you were wondering most of the pro-Iranian Syrian Army top brass are Sunni. To them the luxuries they are afforded as elites outweighs their religious preference.
Markets will react. The mainstream media will dig up conspiracy theories and predict we’re on the brink of war but this is Trumps’s first message to the world – That guy you had for the last 8 years is no longer around. Things are different under new management.
Trump is unpredictable and whether we like it or not that actually makes the best leader to tackle such crises. One always has to second guess the real intentions of someone who can change on a whim.
Don’t believe the hype.