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Syrian War Explainer

29 Nov

If you are someone like me, who are interested in geo politics and global wars, this can be an informational post. If you have already read much on Syrian war but missed out the gas pipeline factor, this will make sense. It seems most of the Middle East civil wars are just the outcome of crossfires between US and Russia. I had amazing insight reading it. Hope you have the same.

Is the fight over a gas pipeline fuelling the world’s bloodiest conflict?

IT’S buried more than three kilometres underground, but it could be the key to finally ending the world’s deadliest conflict.

THE Syrian war often seems like a big confusing mess but one factor that is not often mentioned could be the key to unlocking the conflict.

Some experts have pointed out that many of the key players have one thing in common: a billion-dollar gas pipeline.

Factor in this detail and suddenly the war begins to make more sense, here’s how it works:

IT’S THE GAS, STUPID

Many have questioned why Russia became involved in the Syrian war but often overlook the fight over natural gas.

As Harvard Professor Mitchell A Orenstein and George Romer wrote last month in Foreign Affairs, Russia currently supplies Europe with a quarter of the gas it uses for heating, cooking, fuel and other activities.

In fact 80 per cent of the gas that Russian state-controlled company Gazprom produces is sold to Europe, so maintaining this crucial market is very important.

But Europe doesn’t like being so reliant on Russia for fuel and has been trying to reduce its dependence. It’s a move that is supported by the United States as it would weaken Russian influence over Europe.

This has not gone down well with Russia, which uses its power over gas as political leverage and has a history of cutting off supply to countries during conflicts. It has even gone to war in Georgia and Ukraine to disrupt plans to export gas from other parts of the Middle East.

As David Dalton, the editor of the Economist Intelligence Unit, told The New York Times: “Russia has always used gas as an instrument of influence. The more you owe Gazprom, the more they think they can turn the screws.”

Much of Russia’s power comes from established pipelines used to transport gas to Europe cheaply. But other countries are now trying to get around Russia and provide new sources of gas to Europe.

Last year US President Barack Obama spoke openly about the need for Europe to reduce its reliance on Russian gas following the conflict in Ukraine.

The US also wants to use its own natural gas supply, recently developed through fracking, to undercut Russian supply. But it will be years before the US will be in a position to ship this overseas.

The US is not the only country trying to outmanoeuvre Russia, and this is where the role of Syria becomes more important.

TWO NEW PIPELINES

Before the civil war, two competing pipelines put forward by Qatar and Iran aimed to transport gas to Europe through Syria.

Qatar’s plans were first put forward in 2009 and involved building a pipeline from the Persian Gulf via Saudi Arabia, Jordan, Syria and Turkey.

The gas field located 3000 metres below the floor of the Persian Gulf is the largest natural gas field in the world. Qatar owns about two-thirds of the resource but can’t capitalise on it fully because it relies on tankers to deliver it to other countries and this makes its gas more expensive than Russia’s.

It was hoped the pipeline would provide cheaper access to Europe but Syrian President Bashar al Assad refused to give permission for the pipeline to go through his territory. Some believe Russia pressured him to reject the pipeline to safeguard its own business.

The proposed gas pipeline from Qatar via Saudi Arabia, Jordan, Syria and Turkey to Europe.

The proposed gas pipeline from Qatar via Saudi Arabia, Jordan, Syria and Turkey to Europe.Source:Supplied

In the meantime Iran, which owns the other smaller, share of the Persian Gulf gas field, decided to lodge its own rival plan for a $10 billion pipeline to Europe via Iraq and Syria and then under the Mediterranean Sea.

Pipeline from Iran via Iraq and Syria to Europe.

Pipeline from Iran via Iraq and Syria to Europe.Source:Supplied

These plans apparently had Russia’s blessing, possibly because it could exert more influence over Iran, which, unlike Qatar, did not host a US air base.

Assad signed off on the Iran plan in 2012 and it was due to be completed in 2016 but it was ultimately delayed because of the Arab Spring and the civil war.

Many countries supporting or opposing the war against Assad have links to these pipeline plans.

Failed pipeline bidder Qatar is believed to have funded anti-Assad rebel groups by $3 billion between 2011 and 2013. Saudi Arabia has also been accused of funding the terrorist group.

In contrast Orenstein and Romer noted the successful pipeline bidder, Iran, was believed to be helping Assad by running the Syrian army, supplying it with weapons and even troops.

Major Rob Taylor, an instructor at the US Army’s Command and General Staff College wrote in the Armed Forces Journal last year that the rival pipelines could be influencing the conflict in Syria.

“Viewed through a geopolitical and economic lens, the conflict in Syria is not a civil war, but the result of larger international players positioning themselves on the geopolitical chessboard in preparation for the opening of the pipeline,” he noted.

Just as the 2003 Iraq War has been linked to oil in the Persian Gulf, Syria may turn out to be all about gas.

WHY DOES TURKEY CARE?

One of the countries that has a lot to gain from getting rid of Assad is Turkey.

Turkish President Recep Tayyip Erdogan has been vocal in calling for the Syrian President to step down and has also been accused of helping Islamic State, something it has rejected.

While Turkey could have other reasons for supporting the rebels in Syria, such as Assad’s support for the Kurds, Harvard University Professor Orenstein told news.com.au that gas would definitely be one reason it was opposing the regime.

Turkey, which stands at the crossroads of Asia and Europe, is an aspiring member of the European Union, and some consider it to be the best option for facilitating the movement of gas supplies from the Middle East to Europe.

As a hub, Turkey would benefit from transit fees and other energy-generated revenues.

It could also insure, with US support, that all gas suppliers in the Middle East could freely export their product.

Qatar’s plans put Turkey at the centre of its plan.

As one of the countries relying on Russia for gas, freeing it from this dependence would be an added bonus.

But none of this can be realised if the pipeline bypasses Turkey and if Assad becomes instrumental in approving an alternative that does not involve it.

Now that Russia is stepping in to help the Assad regime in Syria — possibly to protect its own dominance in the gas market — Turkey is facing a formidable barrier to its aspirations.

When Turkey downed a Russian plane earlier this month, some speculated it may want to weaken any potential co-operation between Russia and the US which could see Assad continue his leadership.

Russia’s motives for its air strikes have also been questioned. CNN military analyst Cedric Leighton, a retired air force colonel, noting that its bombing of Islamic State extremists seemed to have hit Turkmen in northern Syria, who had strong ties to the Turkish government.

Prof Orenstein said the competition over natural gas could ultimately prevent co-operation between the two world powers on fighting Islamic State.

“I doubt there is much basis for US-Russia co-operation due to opposite interests in gas issues and Iran,” he told news.com.au

But despite fears that the world is facing a new Cold War, Prof Orenstein believes it’s more of a “free for all”, with the fight over natural gas acting as just another fuel.

(Source : news.com.au)

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A Tale of Two Charts: Are We 2007 America or 2006 Zimbabwe?

5 Nov

The US equity markets are back in record territory, at least in nominal terms.

The last two times they spiked this way, the following year was pretty brutal. See the next chart, which tracks the S&P 500 and margin debt, the amount of money investors are borrowing against their shares of stock to buy more stock. The chart seems to show that when investors are optimistic enough to use leverage to invest in already-risky stocks, then the good times have pretty much run their course and something nasty is imminent. If recent history is our guide, it is now time to either take some money off the table or short the hell out of the big indexes – or whatever else you like to do when the market looks overbought.

NYSEMarginDebt

But this conclusion is only valid if we’re in the same stage of the credit bubble as during those two previous sentiment peaks. In 2000 and 2007, to take just one measure of financial stability, the federal government’s debt was $6 trillion and $8 trillion, respectively, versus $17 trillion today. Plenty of other leverage metrics are also way up, indicating that the US is much further down the path of currency debasement than it was just a few years ago. So the question becomes: at what point does a quantitative difference become qualitative? When does the phase change occur? The next chart shows why this question is more than academic. In the early stages of Zimbabwe’s epic hyperinflation its stock market rose from 2,000 to over 40,000 in one year. Presumably a lot of indicators similar to margin debt were by then pointing to a blow-off top and screaming “sell” to students of history.

Zimbabwe

Then the market proceeded to run up to 4,000,000. What happened? The country ran its printing press flat-out and inflated away its currency, so the price of pretty much every tangible asset, when measured in Zimbabwean dollars, went parabolic. Since equities represent part ownership of companies, and most non-financial companies own tangible assets, their value went up as well. Not enough to increase in real terms (versus gold, for instance) but enough to make shorting that market a really bad idea.

So are we 2007 America or 2006 Zimbabwe? A lot is riding on the answer.

John Rubino

High spirits – Who drinks most vodka, gin, whisky and rum?

4 Nov

ASIA’S growing middle classes are driving demand in the global spirits market. According to IWSR, a market-research firm, consumption last year grew by 1.6% to 27 billion litres—and China, the world’s biggest market, quaffed 38% of that. The national liquor,baijiu, accounts for a whopping 99.5% of all spirits consumed thereso China does not even feature in rankings of the best-known internationally consumed spirits, below. The most popular of these is vodka, mainly because it is drunk in copious amounts in Russia. Russians downed nearly 2 billion litres of the stuff in 2012, equivalent to 14 litres for every man, woman and child. (Unsurprisingly, perhaps, Russians are among the biggest drinkers in the world, according to the most recent World Health Organisation data.) The Filipinos’ taste for gin can be attributed in part to good marketing and to the spirit’s long-established toe-hold in the local market. Ginebra San Miguel, a firm that makes the world’s two best-selling brands, started operations there in 1834.

(Source : Economist)

Who Are The Biggest Whiskey Drinkers In The World?

4 Nov

Hint: it’s not the Irish.

In retrospect, considering India has one of the highest inflation rates in the EM world, a plunging currency and the local central government has made purchases of gold – either foreign or domestic – virtually impossible, converting one’s deflating liquid net worth into liquid alcohol for immediate consumption, with a utility that is instant and needs no discounting, is probably not a bad idea. Finally unlike gold, one can drink whiskey,

(Article by Tyler Durden)

China’s Gold Hoarding Continues: Over 2,200 Tons Imported In Two Years

4 Nov

Paper gold in the developed world may trade based on the whims of marginal momentum chasers, and of course, the daytrading mood of the BIS gold and FX trading desk, but when it comes to physical gold and China’s appetite for it, one word explains it best: unstoppable.

After rising to a gross 131 tons imported from Hong Kong alone in August, which was the second highest ever monthly import tally, September saw a modest decline to “only” 116 tons: “only” because it is still 67% more than the amount imported a year earlier.

The total gross imports since September 2011 is now a whopping 2232 tons. Why September? Because that is when we posted: “Wikileaks Discloses The Reason(s) Behind China’s Shadow Gold Buying Spree.” The chart below confirms precisely said reason.

The gross imports year to date are now over 1,113 tons, 91.3% more than the amount of gold imported through September of 2012.

Netting out exports to Hong Kong, September was virtually unchanged from August, at 109 metric tons vs 110 a month earlier. In other words, September was tied for the third highest net import month in Chinese history.

And yes, we realize that to western thinking buying more when the price is dropping in explicable: ironically even the vast majority of gold bugs are merely interested in a momentum conversion in and out of fiat, thus treating gold as an investable, fiat-denominated asset and not as a currency. China, on the other hand, continues to show that when one’s only intention is to purchase as much gold as possible to preserve wealth and purchasing power and/or unleash the gold standard back on the world (either alone or jointly with Russia and/or Germany), dropping or plunging gold prices are merely the icing on the cake.

(Article by Tyler Durden)

Moneyball of Economics: How One Man Is Knocking it Out of the Park

23 Oct

Andrew Zatlin forecasted 146,000 jobs were created in September.

The Wall Street consensus for Tuesday’s jobs report was 180,000. Citigroup predicted 180,000. J.P. Morgan predicted 195,000. Barclays andGoldman Sachs predicted 200,000.

The actual number from Bureau of Labor Statistics: 148,000.

Andrew who?

Mr. Zatlin has a one-man economic-research shop called SouthBay Research, in San Mateo, Calif. On Monday, he put a note out to his clients predicting the government number would come in at 146,000, about as spot-on as one can get with the dart-game that is predicting the jobs report. (For the record, IHS Global Insight predicted 150,000.)

In fact, he’s had a three good months. While Wall Street continued to project jobs growth of about 180,000 a month, Mr. Zatlin’s forecasts have averaged 150,000, he noted. Actual growth the past three months has averaged 143,000.

Mr. Zatlin, who started SouthBay in 2009, likens his approach to the one employed by Oakland A’s General Manager Billy Beane, whose rigorous use of data mining made famous in “Moneyball” created a new approach to building a baseball team.

“It’s very much a ‘Moneyball’ kind of thing,” he said.

Economics, just as baseball, is steeped in tradition. Economics, to hear Mr. Zatlin tell it, is just as buried in its own past, and missing the great changes taking place in the world. That leads most economists to use outdated methods to measure the wrong things, Mr Zatlin says.

Mr. Zatlin engorges on data, from semiconductor orders to vices like escort services (yes, it’s a sign of discretionary spending). He produces a vice index he says has an 88% correlation to personal consumption figures – and a four-month lead time.

Other researchers are “measuring things that don’t matter, and not measuring things that do,” he said. “We want to know how people are spending their money, how businesses are spending their money, or not, and what do we do about that?”

Take his jobs prediction. Mr. Zatlin says he monitors the hiring practices of more than 1,000 companies, both large and, importantly, small; and separately monitors hiring in 50 metro areas. (While he shared his method, he would not divulge his exact sources.)

“I’m very good at capturing the small and mid-sized companies” that are critical to overall economic growth, he said. He takes this data, and once a week runs it through his system to produce an estimate for jobless claims, and once a month to produce the nonfarm payrolls estimate.

Mr. Zatlin’s background is in economics. He got his economics degree from Kyoto University and MBA from UC Berkeley. But he didn’t come through the finance industry, he came through Silicon Valley (the name SouthBay, in fact, is a reference to the Valley) during the dot-com years. He worked for years for Cisco and other companies there, in business intelligence, harvesting data to pinpoint trends. In fact, he considers his business experience a critical difference between himself and other economists.

The heart of Mr. Zatlin’s approach to economics can be found in something he expresses a funny passion for: semiconductors. These days everything from tablet computers to talking greeting cards has chips in them, he notes, and to him they are the critical ingredient in predicting where the economy is going. “In the industrial age, you track things like steel and oil. In the digital age, you track silicon.”

It was the chip sector led him to predict in March that German factory orders for January would fall  1.5%, when the consensus was for a 0.6% gain.

Orders came in down 1.9%.

But, while he didn’t acknowledge this in an interview, it’s not just the cold numbers that distinguishes him. After all, anybody can pull numbers. What makes the difference is having a way of making sense of the numbers, of having a feeling for what’s happening in the real world, and knowing where to look to find the data to either support or refute your assumptions.

Before MoneyBeat talked to Mr. Zatlin, we joked in an email that we’d have to cut off the Hall & Oates song we were listening to to do the interview – not mentioning the particular song. When we called, he picked up the phone and started singing.

“You’re a rich girl, and you’re going too far…”

Nailed another one.

(Source : WSJ)

Foreigners Sold U.S. Assets as China Reduces Treasuries

22 Oct

Foreign investors were net sellers of U.S. long-term portfolio assets in August as China reduced its holdings of Treasuries to a six-month low.

The net long-term portfolio investment outflow was $8.9 billion after a revised $31 billion inflow in July, the Treasury Department said in a statement today in Washington. Net sales of U.S. equities by official holders abroad were a record $3.1 billion, and China lowered its holdings of U.S. government debt for the second time in three months, the department said.

The Treasury data cover a period before the Federal Reserve opted against reducing its monthly bond buying at a Sept. 17-18 meeting. Since then, a 16-day, partial government shutdown slowed growth and created a pause in economic statistics releases that is expected to delay the Fed’s first tapering until March, according to a Bloomberg News survey of economists.

Today’s report showed China remained the biggest foreign owner of U.S. Treasuries in August even as its holdings dropped $11.2 billion to $1.27 trillion. Japan, the second-largest holder, increased its share by $13.7 billion to $1.15 trillion, the figures showed.

The Treasury’s monthly report on the cross-border flow of portfolio assets captures foreign buying and selling of U.S. securities as well as American investors’ transactions abroad. It also tracks holdings of Treasuries by countries.

The total cross-border outflow in August, including short-term securities such as Treasury bills and stock swaps, was $2.9 billion in August, compared with a net inflow of $56.7 billion the previous month, the report showed today.

Treasuries Selling

Foreign investors, both official and private, were net sellers of $10.8 billion of Treasury notes and bonds in August after net purchases of $33.9 billion the previous month, the report showed.

Net purchases of U.S. agency debt were $16.8 billion after buying of $22.2 billion in July, the Treasury said. Investors were net buyers of $2.4 billion of corporate debt in August after net selling of $922 million the previous month, the report showed.

The Standard & Poor’s 500 Index lost 3.1 percent in August. Investors in U.S. Treasuries lost 0.7 percent that month, according to Bloomberg World Bond Indexes. The Bloomberg U.S. Dollar Index, a gauge of the greenback’s value against 10 major currencies weighted by liquidity and trade flows, gained 0.8 percent in August.

(Source : Bloomberg)