Showing posts with label Russia. Show all posts
Showing posts with label Russia. Show all posts

Monday, May 11, 2015

Financial Sarcasm Roundup for 05/11/15

The foxes are in the hen-house, the inmates run the asylum, and perversity remains a hallmark of the financial sector.  Here I sit in my San Francisco sanctuary, pondering it all.

Japan's public debt continues to balloon out of control.  Abenomics is no more sane than the Bernanke/Yellen paradigm.  How many yen Japan will have to print to hyperinflate the debt mountain away is anyone's guess.  I won't guess the number of yen I should hold; it will be precisely zero until Japan wises up.

Fitch raised the latest alarm about real estate collateral under Chinese banks.  No one really listens to Fitch anyway because they're the smallest of the three main ratings agencies.  It's good that they went on the record so Moody's and S+P will look bad in hindsight for not badmouthing China.

China is eager to do business with Russia.  Sanctions are for law-abiding countries, not single-party kleptocracies.  Russia knows it's the junior partner here and doesn't care as long as it gets cash up front.  Expect Putin's circle to steal that cash and leave Russian infrastructure to languish further.  The scheme will come back to haunt Russia in about a decade when Chinese colonists try to slice off Siberia.

The ECB is getting excited about the prospect of QE driving up inflation.  The stupidity is so hot it just burns.  Runaway inflation will destroy the value of whatever bonds the ECB and others are buying.  Choosing fiscal sanity is the furthest thing from the ECB's planning process.  They instead prefer a junkie's rush into a bond-buying addiction.

In other news, I'm sure someone did something nutty in San Francisco today.  I'm just as sure it wasn't me.

Monday, December 22, 2014

The Haiku of Finance for 12/22/14

First Russia bailout
Low oil price spreads default risk
Moscow unready

Monday, August 11, 2014

Financial Sarcasm Roundup for 08/11/14

I have yet to find a financial expert on the Internet who is more sarcastic than me.  David Stockman's Contra Corner comes pretty close but he doesn't do haiku.

Russia thinks it can win a sanctions war against the West.  America sends a paltry amount of exports to Russia but Russia imports a huge portion of its food.  The Russkies will be hard pressed to find substitute exporters in Asia and Africa, unless of course they want to eat boatloads of rice.  The good news is that fewer Russians will get drunk on vodka if they have to eat their potato crops instead of ferment them.

Europe doesn't like US high yield bonds anymore.  The phrase "impending selloff" is really cute.  That is exactly what triggered pricing chaos in the financial markets back in August 2007 as an early warning that fixed income securities were mispriced and illiquid.  A whole bunch of shaky US companies are going to watch their cash reserves dwindle as investors turn down their junk bonds.  stock prices.  Watch out below.

China's moderate inflation stats got the West's attention.  The West ignores the low quality of China's source data, focusing on headline numbers.  Wall Street still does not comprehend the extent of fictionalization in Chinese economic statistics.  Even surveys of economic activity from private media outlets are suspect.  "Forget it, Jake, it's Chinatown."

The US Treasury is reconsidering its view of MLPs.  The Kinder Morgan restructuring may be a prescient move to get out ahead of any future regulatory rollbacks.  America's tolerance for proliferating tax shelters is reaching an apotheosis.  It was fun while it lasted but Uncle Sam needs to broaden the tax base in ways that don't frighten major donors.  Word will eventually trickle out to upper middle class tax donkeys through their tax accountants.

The best item above is the high yield debt warning from Europe.  I will be overjoyed to watch a whole bunch of yield-chasing hedge funds implode when they can't sell their synthetic securities.  Bring it on.

Monday, May 05, 2014

Financial Sarcasm Roundup for 05/05/14

I have been quite busy these past few weeks and I have not had much time to generate a whole lot of analysis.  You people will have to busy yourselves with my haiku until things settle down.  Here's some sarcasm to keep you motivated or make you upset.  I truly don't care how any of you feel after reading my genius language.

The National Stock Exchange is preparing to cease operations.  Who are these people anyway?  I've never heard of them and I'm really in step with the markets.  They should have done what IEX Group did to beat the dark pools at their own game but I guess routing slower trades never occurred to them.  Maybe a couple of squirrels could use their system to trade acorns after they turn the lights out.

Norway is transferring its sovereign wealth fund from JPMorgan to Citigroup.  Oh for crying out loud, that is a dumb move.  Switching from the Rockefeller's family bank to a bank that needed massive government bailouts shows how little the Norwegians understand about the American aristocracy.  The Rockefeller institutions have proven remarkably resilient.  JPM is one domino that will stick straight up as others fall thanks to its elite connections.  Just ask Warren Buffett, who has owned JPM in his personal portfolio.

American banks are cutting their exposure to Russian transactions.  I think a lot of bicoastal preppies will run short of imported caviar if Russian exporters can't get credit lines at US banks.  Further sanctions could very well force these banks to sell off what remains of their Russian loan portfolios, in a discounted gift to any European banks able to line up bids.  Our banks have very limited exposure to Russia anyway.

Here's something that America's home-grown conspiracy nuts won't like.  Deutsche Bank is telling its US clients to close their accounts because FATCA's reporting requirements are too onerous.  Our Treasury notes these concerns by saying it won't stringently enforce FATCA through 2015.  That noise is small consolation for non-US banks that don't want to comply with US assertions of sovereignty outside American borders.  The stupid Americans who opened accounts overseas thinking they can escape federal tax scrutiny are about to get their fingers broken hard as foreign doors slam shut.  American citizens will comply with federal tax reporting and they will learn to like it.

There hasn't been a whole lot in the news lately to make me angry.  I have been quite happy lately noting that there are a lot of attractive women walking around my local area wearing shorts, tight skirts, and yoga pants.  I just might invite them over to my place where they can unburden themselves of said clothing, if I can find the time in my schedule.  

Monday, April 28, 2014

Financial Sarcasm Roundup for 04/28/14

I found exactly one item that deserves sarcasm today.  There are undoubtedly others but this one shall be mine.  The multinational energy sector is starting to freak out over the West's sanctions against Russia.  They haven't reached complete screaming mode yet because their stress is confined to legal counsel and risk managers.  The worry really begins when Russia makes its next move.

Ukraine's oil drilling concessions to Western supermajors and its gas pipelines to Europe are very attractive assets.  Russian forces are likely to seize those assets if they enter Ukraine under the guise of peacekeeping.  Russia's state-sponsored energy companies act as arms of its national grand strategy.  President Putin and his allies in the Russian deep state desire more than a recreation of the 18th Century Novorossiya.  They covet Ukraine's assets as compensation for the payments Ukraine has been unable to make on its debts.  Ukraine's own deep state elites, aka its nationalist oligarchs, got a little too greedy after many years.  Now it's time to pay the piper.

Nation-states don't look like debt-collection rackets in history books but Americans never had the patience to read much history.  That's why Russia's aggression in the Donbas takes so many Americans by surprise.  Lower-class Americans only experience the repo man when he comes for their automobile after they can't make car loan payments anymore.  Transnational repossessions happen when strong nations want their weaker neighbors to pay their debts.  

Sunday, March 16, 2014

Deep State Financial Order Of Battle Between Russia And The West

Mike Lofgren's "Anatomy of the Deep State" for Bill Moyers sheds new light on the elite actors shaping national and global policies.  This analytical framework allows consideration of both state actors and non-state actors shaping the confrontation between Russia and the West over Ukraine.  Military analysts discuss "orders of battle" when nation-states face off in a military confrontation.  Financial analysts may compile a financial order of battle in parallel for a conflict's non-violent dimension.  Ukraine Crisis' excellent infographic depicts the financial battlefield.  Here is the Alfidi Capital contribution to the global dialogue.

DEEP STATE Russia

Radio Free Europe / Radio Liberty identified some of Russia's deep state players in 2012.  The Carnegie Endowment recognized in 2011 that Russia's deep state security operatives periodically emerge to harm the Putin regime's opponents.  Anywhere from a few dozen to a few hundred people close to Vladimir Putin control a blend of public and private mechanisms that apportion wealth in Russia.  They have large but not unlimited financial resources.

Russian billionaires have lost significant wealth since the crisis began.  The advance warning that allowed them to escape forced bank recapitalizations in Cyprus is present in this crisis, but the escape routes to more hospitable climes may not be available this time.  Repatriating personal assets to Russia will make them subject to the kinds of political schemes they sought to avoid by relocating abroad.

Gazprom is Russia's state-connected private energy behemoth.  It presents "Gazprom Ukraine Facts" (do a Google search for that term) telling its side of the Russia-Ukraine gas dispute.  Reuters notes that Rosneft is interested in buying an Odessa oil refinery if Russia's state bank VTB forecloses on its unpaid debts.  The tension between Russia and Ukraine over Ukraine's unpaid gas subsidies was one of the triggers for this crisis.  Alfidi Capital believes that any Gazprom and Rosneft financial interests in Ukraine provide both a pretext for further Russian military provocations and pain points the West can target with financial restrictions.

The Financial Times reports that Russian companies have moved large amounts of cash out of Western banks in anticipation of sanctions.  Where those assets end up is anyone's guess but there aren't many places they can go to avoid SWIFT transfer restrictions.  The record drop in Treasuries held in custody at the Fed has Bloomberg and other media wondering whether Russia's central bank is moving its holdings beyond the reach of US sanctions.  It is too early to tell whether Russia intends to sell some or all of its Treasuries.  The ruble's value against the dollar has severely weakened in recent weeks, so the longer Russia waits to sell, the less local cash they will receive.

Putin's Palace is an impressive redoubt that sanctions cannot reach, but the oligarchs who helped build it may not have the patience for a protracted conflict that hurts their fortunes.  There is no evidence in public media  that Russia has the financial equivalent of a Tsar Bomba it can drop on financial markets.  No one would expect a financial WMD that will show Kuzma's mother to the world.  Then again, Dr. Strangelove ended with the detonation of a Soviet cobalt bomb after several Americans were admonished not to fight in the War Room.

DEEP STATE Ukraine

Alfidi Capital has already assessed Ukraine's financial condition.  Many Western commentators have missed how things got so bad.  Ukraine was the third largest recipient of US development aid during much of the 1990s.  Much of that aid appears to have been wasted or looted.  Yulia Tymoshenko, a key leader of Ukraine's nationalist political coalition, is by some accounts an oligarch.  Ukraine's oligarchs are divided against themselves; Dmytro Firtash, a Tymoshenko opponent, has been arrested for allegedly gouging Ukraine to help Gazprom.

Ukraine's dire financial straits and rich physical assets define the country more in the role of prize than combatant.  This East European Gas Analysis map of Ukraine's gas pipelines depicts two very important characteristics that other maps ignore:  compressor stations and gas fields.  Russia cannot cut off gas supplies to Ukraine without cutting off its European customers as well.  Russian forces would have to control all of those stations throughout the entire country to apportion gas flows as rewards or punishments.  Chevron agreed in 2013 to develop the Olesska shale gas field in Ukraine's west.  Shell agreed in 2013 to develop the Yuzivska field in Ukraine's east.  It should go without saying that infrastructure and fields in Ukraine's east are in more immediate danger of falling under Russian control than those in the west.  Control of the Ukraine pipeline network and untapped oil/gas fields is a major strategic prize at stake in Ukraine.

DEEP STATE United States

The White House published an Executive Order on March 6, 2014 authorizing the government to act against anyone who facilitates Russian armed intrusions into Ukraine.  The term "United States person" is defined to include corporate entities, and this includes the foreign branches of US banks and corporations.  This EO is clearly targeted against a handful of Russian citizens and Ukrainian collaborators who have directly interfered in Ukraine's internal politics.  It is not intended to silence any foreign policy debates here in America.  Paranoiacs can relax.  The Magnitsky Act provides further US leverage against specific Russian officials who commit human rights violations.  It is unclear at this time whether American sanctions will prohibit American ownership of Russian-derived securities (ETFs, mutual funds, ADRs of Russian companies, etc.) traded on US exchanges.  That is another shoe waiting to drop, depending on which Russian companies appear on the US Treasury's Office of Foreign Assets Control (OFAC) lists and how the SEC interprets its role in sanctions.

A potential Russian sale of all of its central bank's Treasuries would liquidate about 1% of the US government's outstanding marketable debt securities.  The Federal Reserve has reduced its commitment to quantitative easing but this is an easily reversible decision in an emergency.  The Fed could buy all of Russia's liquidated Treasuries once they were released to the world market, although the difficulty of getting around sanctions barriers would delay the transactions.  I don't think Janet Yellen wants to run afoul of OFAC.  The US Treasury would probably have to authorize the Fed to deal with non-US financial institutions that aren't on the NY Fed's primary dealers list in such an emergency.

US companies may not be very farsighted; it is not clear whether they have considered moving cash out of Russia to avoid retaliatory sanctions from that country.  Indeed, Exxon still appears fully committed to its JV with Rosneft to develop multiple energy projects.  That may now be an untenable arrangement.  A new regime in Crimea will imperil offshore oil and gas leases granted to Western supermajors.  A lot of high-priced MBAs didn't see this one coming.  US-based multinationals that do not have contingency plans for non-Russian cash transfers remain exposed to any Russian financial countermoves.  

Implications for financial markets

The conflict between Russia and the West over Ukraine has a military dimension that is fortunately confined to small areas.  Alfidi Capital's Third Eye OSINT has already assessed Russia's likely military moves.  The remainder of this conflict will take place largely in financial markets and trade relations.  The deep states of the US and its allies have an overwhelming advantage in financial capabilities and will likely inflict more pain on Russia's deep state than the converse.  This is a likelihood, not a certainty.  Investors watching the crossfire can avoid getting trapped on a financial battlefield.

Full disclosure:  This author does not own any positions in any securities of Ukrainian or Russian companies.

Sunday, March 02, 2014

The Limerick of Finance for 03/02/14

Shock conflict emerged overnight
Global markets are due for a fright
Gas supply is at stake
Leaders should step on brake
Suddenly our future's not so bright

Wednesday, February 26, 2014

Ukraine's Financial Viability In The Midst Of Instability

Ukraine is in a tough spot.  Changing a government's top leaders under conditions of duress is never easy.  Regional divisions along ethnic lines make things obviously more complicated.  The international community stands ready to help keep Ukraine stable.  Let's examine the price of stability.

The World Bank reports that Ukraine's GDP was US$176.3B in 2012.  That's little more than 1% of the US's GDP.  This is a poor country.  The one other World Bank statistic I think is most relevant is Ukraine's current account deficit of -8.1% of GDP in 2013.  I'd need a 2013 GDP figure to make an apples-to-apples estimate of how big that deficit was last year.  The best I can do is review the IMF's first Post Program Monitoring Review for Ukraine dated December 19, 2013, which concluded that Ukraine's economy is under severe stress.

Transparency International ranks Ukraine 144th out of 175 in its Corruption Perceptions Index. That's really bad.  The Heritage Foundation ranks Ukraine 155th out of 178 in its Index of Economic Freedom.  That's really bad, once again.  Throwing relief money into the Ukrainian economy without serious structural reforms along the IMF's guidelines will be a waste of effort.  I believe the finance ministers of the G20 and other global bodies know this and will push for reforms along with their aid packages.

Here's a Cbonds snapshot of Ukraine's macro-level credit status in real time.  Its yield curve is inverted; in the US economy that is usually a sign of an imminent recession.  Contrast that with the prime borrowing rate, which absolutely explodes from single digits to over 20% in less than a month.  Lenders are seriously bidding up the price of capital in Ukraine.  Look at how the US dollar (USD) is appreciating against the Ukrainian hryvnia (UAH); that currency is at a 10-year low.  Any relief package from the US, the EU, and/or Russia needs to move fast to keep this economy on life support.  Reuters reports that Ukraine's foreign reserves have dropped to US$15B.  Contrast this with the IMF's data showing reserves of $20B in December 2013.  The National Bank of Ukraine appears to report currency exchange and interest rate numbers consistent with the open-source data I located above.  Good for them.

The world faces a tough choice in helping Ukraine.  The country is obviously in dire straits and needs foreign cash now to stop the bleeding.  Its governance is so weak that much aid will be wasted unless international monitors are on hand to directly supervise the country's financial management.  I hope the Ukrainian government's finance folks are used to working long hours and weekends.  They'll be busy making sure any aid the country receives is spent well.  

Saturday, March 23, 2013

The Haiku of Finance for 03/23/13

Moscow snubs Cyprus
Not about base or gas field
Let troika take risk

Cyprus Reaching Boiling Point After Russia Let-Down

Cyprus came away from a key meeting in Moscow with no bailout from the Russian government.  This throws the ball back into Europe's court.  Speculation is flying around the Web that Europe's pressure on Cyprus is designed to squeeze Russia, or alternatively that Russia is seeking a strategic breakout in the Eastern Mediterranean with a gas deal.  The intersection of business and geopolitics is always fascinating

First of all, Nouriel Roubini hinted in a March 20 Tweet that Russia wants a naval base in Cyprus as part of any bailout deal.  I'm not sure where Dr. Doom got that idea.  Cyprus has a heavy British military presence, so a Russian base there would make about as much strategic sense as a Russian base in Gibraltar or Malta.  The Atlantic Wire picked up on this idea too, citing speculation in a report from Ekathimerini.  IMHO Russia doesn't have an immediate need for a Mediterranean naval base unless it is concerned about losing access to its base at the Syrian port of Tartus.

The advantage to Russia of a Cyprus base is unclear until we consider sailing distances.
Cyprus is 238 nm (one day's sail) to the west of Tartus, Syria, measured to Kyrenia.
Alternatively, Cyprus is 206 nm (0.9 days' sail) from Tartus if the closer port of Larnaca is the destination.
Cyprus is 393nm (1.6 days' sail) from the Port of Suez, Egypt.
Tartus is 432 nm (1.8 days' sail) from the Port of Suez, Egypt.

Any Russian navy power projection into the Mediterranean would probably pass through the Suez Canal, so Russia would shave about 40nm off the trip of any warships it sends (depending on where in Cyprus it wants to relocate its floating workshop).  That seems like a negligible advantage unless it wants to add other things like a listening post to monitor British and/or NATO activities in the area.  I just don't see the strategic impetus for Russia to make this part of a bailout deal.

A much more likely deal would be for Gazprom to acquire Cyprus' natural gas rights if Cyprus takes Russia's bailout deal.  Gazprom likes its dominant pricing power over Europe's natural gas supplies.  This deal is now much less likely IMHO because the Russian government is unwilling to provide a backstop by bailing out Cyprus' banks.  It is also noteworthy that Russia is deferring to the European troika on further details of a Cyprus bailout and that European Commission head Jose Barroso was in Moscow together with Prime Minister Dmitry Medvedev when Cyprus came away empty-handed.  If there is any intrigue between Brussels and Moscow over Cyprus, or any daylight between their public stances, it is not apparent from these indications.

Cyprus' precarious finances pose an immediate economic threat to Europe.  S&P downgraded Cyprus' sovereign debt again.  No one but crazy hedge fund managers is going to buy that debt without a bailout from Brussels.  Europe is going to have increasing difficulty with further bailouts as its industrial activity continues to decline.  Cyprus is now scrambling to impose severe capital controls on its citizens and Germany is warning that Cypriot banks may be shut permanently if the country won't accept the troika's bailout offers.

The unraveling proceeds apace.  I've criticized public officials like Ben Bernanke on this blog but I can see how even he would look for a way out of the Fed's leadership before things get really bad in Europe and the U.S. ultimately feels the effects.  I'll wait until Helicopter Ben makes his resignation official before I send my resume to the Obama Administration because I don't want to look too eager.

Oh, BTW, Boris Berezovsky died today.  I guess he won't be part of any bailout deal.

Monday, December 17, 2012

Financial Sarcasm Roundup for 12/17/12

It's been some time since my last blast of outright sarcasm.  That's too long.

The U.S. has finally enacted permanent normal trade relations with Russia, more than two decades after the Cold War ended.  Uncle Sam sure takes his sweet time recognizing reality.  The Jackson-Vanik legal regime was a Cold War blunt instrument intended to hold the Soviet Union and its Warsaw Pact allies accountable for their human rights violations.  Now Russia's internal freedom is on par with that of the West, which says more about the West than it does about Russia.

Uncle Sam will probably be just as slow in recognizing the weak demographic assumptions underpinning entitlement spending.  The slowdown in legal immigration due to the prolonged recession is probably offset by the large numbers of illegals who remain here and have kids.  The irony of illegal immigration is that our own government encourages illegals to apply for benefit payments while they are paid off-the-books income that can;t pay into Social Security or Medicare.  Illegal immigration makes the unfunded entitlement problem worse and no one in our business or political elite even cares.  My solution is simple.  If you apply for benefits, please include your U.S. birth certificate or naturalization papers with your application.

Meanwhile, private equity firms have learned nothing since 2008.  They are using more leverage than ever to buy companies whose earnings will be destroyed in the next round of the recession.  Borrowing at record-low interest rates isn't such a great idea when the earnings needed to pay back those debts won't be there.  I'll be watching the headlines for the first private equity firms that go bankrupt next year.

Sell-side analysts have learned nothing from last decade's master settlement.  Some Morgan Stanley banker got his firm smacked for coaching Facebook on how to materially mislead analysts.  That $5M fine is peanuts, so this is hardly going to hurt anyone other than that one banker.  State regulators are paying attention while the SEC is asleep.  My readers should be grateful that all of my articles reference facts already in the public domain.  Anyone idiot can mislead analysts on a conference call.  Only a genius like me can tell the truth.

I think I'm losing my touch.  These boring news items aren't getting me fired up enough to be truly sarcastic.

Sunday, September 02, 2012

The Limerick of Finance for 09/02/12

"Brezhnev bonds" are still around
And courts have ruled they are still sound
A full-value pledge
Something Russia can't hedge
Old basements in which bonds abound

Sunday, December 18, 2011

The Limerick of Finance for 12/18/11

The WTO lets Russia join
Now that Moscow earns serious coin
State-owned assets did sell
We are like them as well
With stuff oligarchs will purloin

Monday, August 01, 2011

Debt Ceiling Raised To The Roof

This weekend, another brick was laid in America's long, winding road to financial implosion. Our leaders reached some kind of deal on raising the debt ceiling, which has been raised umpteen times already after World War II. We can now look forward to being the butt of jokes among those countries whom our financial strongmen at the IMF have bailed out and restructured.  Russia took the lead today in calling us out for our profligacy.  That criticism is likely intended for a domestic audience; no doubt Russia likes the rise in oil prices driven by our Federal Reserve's monetary expansion. 

Speaking of the IMF, it's coming off its leash.  Mme. Lagarde is gently admonishing us that maybe our Treasuries aren't such a hot product after all.  Good for her.  She knows the U.S.'s time as hegemon is drawing nigh.  Maybe Russia can be the IMF's new backer if it throws some oil money over the fence.  They can start planning new bailout packages for investors who are about to get burned by the new bubble in emerging market bonds

Monday, June 13, 2011

IMF Attack Implies National Fingerprints

A major computer security breach at the IMF begs the question of the instigator's identity.  Why, who could have done such a thing?  (I've always wanted to say that line.)  Let's run through a lineup of the most likely suspects.

China.  The Chinese have the most to gain from penetrating the IMF's databases.  They've been shopping for European debt for some time, both to seek discounted value (Greece, et alia) and to diversify away from investments in a shaky U.S. dollar.  They certainly have the computing horsepower and brainpower to pull off this kind of stunt.  Motive + Means + Opportunity = fun speculation.

Russia.  Other BRIC nations have money to spend and agendas to advance.  Some in the post-Soviet Russian establishment have never gotten over the humiliation of losing the cold War.  The IMF is a leading institution identified with the American power. 

Non-state entities.  Here's where wild cards can come into play.  Big hedge funds have plenty of computing power at their disposal.  Some hedge fund executives may just be amoral enough to authorize a little extracurricular adventure for their whiz-kid traders.  A small, tight team of computer PhDs could probably whip up a spear phishing algorithm in their spare time between arbitraging yield differentials.  The motivation is obvious.  Getting a special look at sovereign debt valuation metrics confers the ultimate inside trading advantage.  The fact that such action is illegal on so many different levels won't deter a determined hedge fund team staring redemptions in the face. 

This is all guesswork on my part.  I have no idea who did this and I condemn any such action.  Hacker shenanigans make it harder for honest investors like yours truly to operate.