Best comment in 2014

1   US sanctions against Moscow could come as early as Monday - FT.com |... 26 April 2014

I am pessimistic. The effects of sanction are rather slow and meek lagging behind strategically the pace their opponent (Russia) acting which is solid and to the point. It is a bad deal, inimical to Ukrainian either by losing their territory in exchange for further sanction. Those ex-soviet secessionist countries are wary intensely. Is the kind of protection they will receive from the West similar to that of Ukraine? I am also wary of the jarring EU members’ resolve and solidity to counter Russian’s aggression.

One third of gas supplies are from Russia to Europe. Some European members can’t endure the short- term pain of gas supply shortage to look for long- term solution of energy dependency. There is no spirit of sacrifice; what happened in Ukraine has not, in a least, imminent threat to them; because they are not one of ex-soviet, and Russia is far and away that stand them in good stead. To rest on their laurels for the false dawn of peace in no small measure, as ill luck would have it, is an omen of sound the death knell. Revanchist’s ambition will not just stop at reverting to Soviet which is a gospel truth.

Without NATO, it is not clear a bloc which cutting defense expenses profusely can withstand immense pressure by the incursion of Russia in nick of time. Or are they still dreaming Russia is an affable lion in the jungle. It is realized now, more than at any other time that as global police, the US should envision where the global hot spots are?  And draw up its military plans by training regional military forces at those hot spots(self-governing), so that it will not firefighting sending troops round the globe, be they in  middle East, Europe, or Asia pacific. This regional security structure will alleviate the financial burden of the US; the regional security is borne out by regional countries per se.

What the overarching teething troubles facing Ukraine are obligatory allegiance to the country and the concept of sovereignty. A divided country is ungovernable. The new government will find allegiance problem, at the very worst, continue to haunt them, enfeeble them, be it in cabinet, military or man in the street. It was a history baggage by the decision of the dictator-- Stalin; Russians migrated to the Eastern part of Ukraine. Now those Russians must make a choice either choose allegiance to Ukraine or return to Russia; so that the splitting country can move on. Those Russians living in Eastern Ukraine have weak concept of sovereignty, they thought Ukraine is still part of Russia and by no means, a sovereign country. That mindset must change and it takes time.

How to turn around Ukraine economy? 

Ukraine is predominantly, in the main, an agricultural and mining country. Ukraine should not rush to transform its economy by large scale industrialization. That way will never succeed. It must take stock of current capability by playing a complementary role in the world market, tapping into advanced skills from the West to improve productivity in agricultural sector, and push for clean coal and nuclear power for energy sustainability. 

But in spite of all this, Industrialization is a process where Ukraine must determine what role to play in the value creation process and assessing its capability, build capability around the chosen role and migrating to it.  It takes time to change and train the existing resources. Least of all, don’t tear down factories, and all hell makes loose, leaving wandering unemployed on the street creating chaos and social unrest. On all these grounds, the reform must one step at a time; by this, in the course of time change will happen.

2.  UPDATE 1-Russia's Gazprom says Ukraine did not pay for gas on time Reuters 9 April 2014

Russia does not disrupt gas supply for now of course not due to mercy in earnest, but has scruples about evocative effects of downstream supplies to Europe which reminisce the danger of energy dependency plaguing the EU in the past. That shows Russia is reticent if disruption will precipitate the losing of big customers from EU. Globalization accentuates mutual dependency. But there is a difference in leveraging power in between energy supplier and customers. As EU has built up their energy reserves, they can withstand the shock of short-term supply disruption that tips the balance. In other words, they are better leverage than the Russia is.

But anything can happen for now, as nationalism of reverting to old Soviet imbues in Russia, to Russians, the dissolution of ex-Soviet was above reproach, Putin’s incursion by means of nefarious tactics to the secession of ex-soviet Federations endears fervent support domestically, some describe it as revanchism that pushing up Mr Putin's rating. For that, Mr Putin may hell-bent on making aberrated decision, a brink of abyss


3 .No, Russia Isn’t Going Broke Any Time Soon

Rising bond yield signified higher risk intrinsically inherent in bond issue; i.e. higher cost of fund. If you want to judge whether Russia is going broke. The fund use tells the entire story whether it is ominous. If the bond’s proceeds are gearing towards maintaining existing structure, probably the writing is on the wall. It means the government is running out of tax revenues, fiscal condition is deteriorating.

To punish Russia’s annexation of Crimea, the West’s retaliation is reactive, and impotent. Russia does not take it seriously. The West is still harbouring the illusion that Russia will cave in by  limited sanctions and will withdraw troops from Crimea. It is really making Mr Putin pooh-poohed. That is how he can maintain upper hand pitting against the West, making the West dumbfounded and crestfallen, gritting their teeth; it is because his every punch was forceful.

How he deliberately annexed Crimea and legalize to make it a fait accompli, how he countered Western sanction by imposing doubling gas price to Ukraine. So, the aids from US, EU or IMF are transferred to left hand of Ukraine and right hand pay for the gas bills, also his plan to build Crimea as the special economic zone.   The jarring west is still pondering until the next step if Russia’s incursion will cover the whole of Ukraine, and then possibly step up further economic sanction. If Russia does not feel the pinch of the sanction, then possibly the punch does not carry any weight at best. That is why Russia is still talk big.

The crux to cripple Russia’s economy as I mentioned in my previous comment is to boycott any energy trading with Russia. It is quixotic! Russia can’t build gas pipes fast enough to the East to make up the short fall. China can’t fill the vacuum to absorb all the needs. The question is the West till now does not have a nifty concrete plan for alternative replacement to blunt the imminent impacts of Russia energy supplies. Russia just gave an onslaught quick punch by raising Ukraine’s energy price. Ukraine has to seek EU for alternative energy supply.

 

In fact, Ukraine can play tit for tat afoot by cutting water and electric supplies to Crimea (80 % of Crimea depends on Kieu for importing electricity and water) or raising the price to make up for gas price increase. Since the peninsula is not self sufficient  

4. Putin No Mad Man to Russians as Power Play Trumps Economic Risk (Bloomberg) 17 March 2014

There are two interesting arguments here:

1. Does the Russians live in Crimea have the rights to change loyalty to another country by annexing a sovereignty of the country they live to their origin by way of referendum?

In my previous comment, I cited Russian does not respect international law, military might and nuclear threat say much louder. From the Russian point of view, Crimea was once part of Russia. And majority of Crimean are Russians. They are parochial. Today, some Russian political analysts even criticized Khrushchev a drunkard by giving up Crimea to Ukraine during the dissolution of ex-soviet.

In other words, Few Russians know or respect international law but indulge in nationalist territorial ambition of the old Soviet Federation. It is same argument like China citing historical reason that hundred years back, South China Sea was once annexed into China’s territory, therefore is a legitimate claim, but vehemently oppose other claiming party to bring the dispute to international court for settlement. 

               2.  What is the optimal outcome of the crisis?

The Russian has engineered Crimea return to them. It is unlikely to cough out its prey they devoured easily. Even the fragile sanction by the West is lacking the fire power that emboldens them.

The worst case will be: It arouses political upheavals in the East of Ukraine or where Russians are  the majority inhabited. It doesn't have to vanquish the whole of Ukraine, but exhibits their existence by harassments of the local government, using Ukraine to create a buffer zone to avert NATO’s encroachment. Putin is not an economic czar but superb in political manoeuvre. Their is an energy economy. He can’t turn Ukraine economy around, conquering Ukraine only adds to the burden of his own country. Energy sale dependence becomes his Achilles heel.

If the West is in unity to boycott Russia’s energy supplies that will cause a big dent to their energy revenues. For this, it will draw Mr Putin to the negotiation table, and both sides will find palatable middle ground. For Russia, it will avert colossal economic failures. But what is lamentable is Ukraine, being a seed of the chess board in the new Cold War's game plan

5. US to release oil from strategic reserve - FT.com | US Politics &... 13 March 2014

The caption is tantamount to imply that whether direct confrontation in between Russia and China is eminent. Many political analysts' short answer is no. Citing the era of Cold War is over, as the world is gearing toward globalization. Each economy is now intertwined. I am particularly lamenting the West put their economic interests above rescuing a democratic process. It is not clear how adamant the US is willing to go for war for the Ukrainians. It was said that there are some oil and gas contracts with Russia are impending, and the US without the EU cooperation is rickety, there is little headway. US does less trade with Russia, but not as vulnerable as her Europe counterparts.

The American is warm; John Kerry was the first leader to give physical support to the Ukrainian’s interim government that saw he held hands with Ukrainian’s leaders, on TV screen, the non-verbal signal exuded on the face see grinning. Ukrainian has little hope that the EU what they longed to join has given them cold shoulder. The Germany is depending on the natural gas from Russia, and France lucrative navy contract, UK is for financial center making them reluctant to uphold justice. Especially is the warm tie in between the big brother in the EU, the Germany and Russia for some historical reasons, making imposing economic sanction near impossible. There is a big leak in the imposition.

The shrewd Russian has made calculated moves; they know they can replay the episode of Georgia without any threat. They don’t believe in international law, but military might with nuclear threat. They fired a long range missile to forewarn the US of their military capability. The Cold War is not over, less ideological, but competing on military might. This applies to China, and North Korea. That is the reason why China is flexing its muscle to show strong-arm tactic to their neighbours and North Korea never be naïve to give up nuclear weapons hope. They pragmatically learn from one another how to survive in this contemporary jungle. 

The Russians foresee the US will not involve in military intervention and they can easily get away with incursion to the soil of Ukraine without any punishment. And now Crimea is under Russia military control. This is strategic. Russia may not want to further its military expansion to cover the whole of Ukraine with no clear advantage, because Ukraine is almost economically broke, and the repercussion of the world haranguing. It is a sad story for a weak country hectored by its far stronger neighbour.

6.Renminbi’s fall marks seismic shift FT .com 3 March 2014

It is not hard to engineer the FX rate in all possible ways, if you have amply kept fabulous foreign reserves that form a major market force to influence the currency trends. It is as if the Japanese Yen fallen against the greenback in the past year. Of course, we want to check the justification for currency devaluation against the fundamentals. It was said that devaluation will curb the teething trouble of hot monies flowing into China. This foreign fund was deemed as real culprit for speculation sloshing around blowing up property bubbles.

 A change of direction will be a showpiece that there is a limit to currency appreciation; especially to speculators that long RMB, in the thought that uptrend will continue perennially. Those got their hand burnt will likely to think again their currency strategy that will help to cool the influx of foreign funds. There will soon come a time when the wider band of currency fall also engrains the currency policy reform towards free float.

At this slowing economic environment, PMI and manufacturing data indicating bleak economic prospect, currency devaluation gives the export economy a boost, as the coastal areas are fighting for increasing wages, intensive competition as cheap source of supplies, more expensive input in pursuit for a razor thin margin. It certainly will give a breathing space for manufacturing front amidst the restructuring process in the sector. It is not clear how it will boost domestic consumption by cheaper import in Chinese stance (No clear evidence of demand elasticity in foreign goods), neither would the devaluation will elevate price level, so the impact I see in no uncertain terms is neutral.

7. What's going on with emerging market stocks? 4 Feb 2014     CFO network

I see it as a litmus test to the financial health of the emerging market. If the emerging market observed fiscal policy rectitude early, it would have had better fortified its financial position. The rout of funds from equity market and the risk of currency gyration would not make a big dent to the emerging economies. Look beyond Indonesia, Turkey, Argentina, India or Brazil. 

2014 started at the wrong foot, the world economy did not cut the mustard. Contagious or not, or blame the Fed withering stimulus process , There was bubble hyping the equity market by the idle cash speculation, and now the market is back to its normalcy.

Nevertheless, I am viscerally of the view that the world economic growth is an undulating path and convulsive; it is too early have a jaundiced eye to devoutly envision an ephemeral phenomenon as trends going forward, and oblivious to the fact that the incipient world economic recovery is gradually gaining strength.

  8,    Thai Default Risk Soars as Funds Pull $4 Billion: Southeast Asia 21 Jan 2014

If I were the investor, I would shelve my investment plan for the inveterate risk of political ambivalence in Thailand despite some Thai businessmen optimism's about quick rebound once the crisis is over. I don't share that euphoria for there is no solution in sight, as the protestors’ unyielding stance wanting the Prime Minister Yingluck Shinawatra to step down.  Whereas Yingluck adamantly stays put. She was accused to be the puppet of her brother Thaksin Shinawatra who went on exile after indicted of corruption.

Though many Thais believe Thaksin is the person ruling Thailand behind the veil. Unlike her ousted brother, Yinkluck comes clean and not a despot besides her controversial unsustainable rice purchasing policy placates rice farmers in the North which almost depletes the government cash reserves, and now owing the farmers for several months most likely will induce political upheaval if that populist policy boomerangs.

It is also the discontent of the opulent Bangkok middle class accusing Yingluck using their tax money to subsidize farmers in the North. (According to a paper, Farmers in the North also pay tax, the amount goes into subsidies probably is negligible.) For this policy, Ms Yingluck will also face indictment by anti-corruption committee.  So there are many hurdles hobble ahead waiting for her to stumble. And it was said that the upper house lawmakers, Judiciary members, even the monarchy, and the army are all not on her side, the army is supposed to assist the government to maintain the rule of law, but Ms Yingluck requests the army to be neutral, rather than on her side. 

The whole situation is the army doesn’t take side means on the side of her unrelenting opponent Mr Suthep, because without the military backing, her position is precarious. The arrest warrant serves to detain Suthep of little avail, no action by the police force thus far. A commander in the crisis can‘t bestride the country by mobilizing forces to maintain law and order, and then her position probably is precarious. Mr Suthep is taking advantage of her political naiveté and ineptitude. She thought without using force, she will be at the political high ground. By any western standard, the protesters have crossed the red line, should be dispersed by force.

The aim of the protestors is tantamount to overthrow an elected government. Nothing more than that! Ms Yingluck might be a puppet of her brother, and implemented the wrong policy that now backfired. Her opponent can’t prove that she is corrupt. There is no compelling reason to topple her because her brother was indicted. Her opponent was going too far by planning an unelected people to change the constitution to suit his clique than to all in Thailand. Mr Suthep knows that he has skin in the game, if he fails to vanquish Yingluck; he will be bereft of hope but facing severe sentences. Only he wins this political game will he be exonerated. That is why he refuses to batten down the hatches.

Can see the gridlock why there is no easy solution for the time being, and why the prolong stalemate is the inherent dark cloud overshadow any efforts seeking for middle ground.

              9  How Germany Just Undercut the Euro  8 Feb 2014

While the Germany was on the one hand to prevent a riven Eurozone from dissipating during the crisis; on the other hand, on major policy, it acted intransigently, snootily blushing aside ECB's achievement-- when the southern Eurozone countries were badly in need of funds inject to their financial systems, and ECB came to the rescue.

What should come first? The positive result of an act or an outdated yesteryear's law? Apparently, ECB acted correctly when all hell breaks loose, Eurozone was prostrate, and many Eurozone countries were tenuous on the brink. And now the crisis is near over, the German nitpicking over the past, Look very much archetypically petty politics!

10.   China Auditors Appeal U.S. Ban as Ruling Endangers Diplomacy 15 Feb 2014

Many Chinese listed firms are fraught with earning quality problems, not only in the US, but also in this part of the world. Auditor should have unfettered access to document in order to validate the truth and fairness of accounts presented. We should weight the cost of losing business of noncompliance with opaque Chinese law with maintaining overall audit quality that has been established as our brand over the years. If regulator in favor of more IPOs and Chinese audit clients, then it should get ready for more frequent fall out of accounting shenanigans, a price to pay for.

11,   Austerity drive crimps gift-giving by China’s rich - FT.com | China                    17 January 2014

This change of bureaucratic and business culture is long overdue. It epitomizes rampant corruption practice in disguise. Only Xi JingPing has the mettle to eradicate this aged-old practice. This episode is part of the larger picture of anti-corruption movement. Xi and other communist leaders fully aware that if they fail to stem it. The party's legitimacy would be at stake. Imagine its prevalence encroaches into central committee, like Zhou Yongkang. A culture of power entwine with money. There are good chances to get rich quick at any level in the hierarchy. Even in the hospital, you must give red packet to the surgeon to receive surgical operation. Look absurd, but is true in China..

          12     Baltic Dry Index Crashes 18% In 2 Days 14 Jan 2014

The New Year was heralded with the rout of Baltic Dry index that frizzled out the proverbial analysts’ very much raved about exuberant optimism. Speaking in earnest, the realistic scenario probably will envision a mild one, the raison d’etre is the pernicious feeble demand which overshadows among economic powers, such as the US, China and Eurozone, albeit light in the tunnel, bereft of  momentous intensity to propel the world economy toward faster growth. Baltic Dry index‘s rout is just a prognosis of how low trade demand ensnares the world economy to a supine low growth environment. 

13  Fears after key China debt level soars 70% - FT.com | China 1 Jan 2014

Not particularly alarming at this stage by looking at the Balance Sheet as a whole which amassed with foreign reserves. The latest changes of sharing of tax revenues in between the central government and the local in a way will help the deleveraging process.

The public debts can take it in own stride for the time being, unbeknownst to us is the flimsy level of private debt which accentuates to have a bash of debt restructuring process at full throttle may be on the card for now to avert the bane of a hastening full blown crisis in times.