Oh the hypocrisy!

The United States receives 8% of its Crude Oil imports from Russia.

(on another note, 2% of its oil imports come from Iraq and a further 1% from Libya)

The U.S. have announced a release of 30 million barrels from their Strategic Petroleum Reserves.

Various news reports carry the sub-text that the release will assist to ‘end the weaponisation of Russia oil’.

The United States import 30 million barrels of oil from Russia ALONE every 2 months.

In fact, the Biden administration is on a run rate (so far) of importing more Russian than during the Trump years.

Don’t let the headlines and spin mislead you.

#context

March 3, 2022
by Rob Zdravevski
rob@karriasset.com.au

Is blood thicker than money ?

I think Russia and Ukraine may re-unite in the years to come. It’s quite plausible.

I predict that Ukraine will do so willingly following a few more years of economic coercion by the Russians.

Some other questions I’m debating include;

In terms of its citizens, are Russian’s and Ukrainian’s actually ‘brothers’ and ’sisters’?

Well, polls I have seen suggest that Ukrainian’s view Russian’s in a favourable light.

While I understand the ideology, Ukrainian politicians will tow the line of protecting their sovereignty because they would not be able to reap ‘corruption dollars’ if they are swallowed by Putin and Russia.

Perhaps a ‘merger’ is better for the Ukrainian citizens but not for the corrupt elite and more so, the politicians?

Ukraine is Europe’s most corrupt nation, ranking 122nd out of 180. Russia isn’t any better with a rank of 136.

https://www.transparency.org/en/cpi/2021?

It would be foolish to believe that people become politicians in highly corrupt nations driven by an urge of public service.

Let’s take the current Ukraine 🇺🇦 political set-up.

President Zelensky was a comedian and sitcom actor.

He is funny.

In 2003, Zelensky co-founded a television entertainment production company called LLC Kvartal 95.

One of his best mates from childhood, Ivan Bakano was the head of LLC Kvartal 95.

In May 2019, Bakanov was appointed as First Deputy Chief of the Security Service of Ukraine (SBU), while Vasyl Hrytsak was the Head of the Security Service.

Following this announcement, Hrytsak went on vacation, and Bakanov began to perform his duties.

Hrytsak never returned to his post in the SBU and Zelensky officially appointed Bakanov as his successor on 29 August 2019.

The star of the TV shows is now the President and his childhood friend is the head of the intelligence services.

The October 2021 Pandora Papers revealed that Bakanov and Zelensky and his chief aide, Serhiy Shefir (another co-founder of the TV production company), operated a network of offshore companies in the British Virgin Islands, Cyprus, and Belize. These companies included some that owned expensive London property.

On February 1, 2022, Boris Johnson meets Zelensky in Kyiv offering aid to the tune of GBP 1.7 billion pounds to help build naval bases. Johnson also said the U.K. will provide an additional GBP 2 billion pounds for joint infrastructure and energy projects.

The news flow actually carries onto other promises too.

You couldn’t make up this stuff.

Irrespective, how the media frames the current palaver, does Johnson think building naval bases can be completed quick enough to pose a deterrent to the current situation?

Hey Boris, building naval bases isn’t a quick proposition.

Secondly, I bet British taxpayers won’t be too impressed with this.

Let’s see how much of British naval base building money makes its way into bank accounts controlled by Zelensky, Bakanov & Shefir.

February 21, 2022

by Rob Zdravevski

rob@karriasset.com.au

Biden will save the day


Russia says they will not invade Ukraine and are open to using diplomacy while America says they will invade and are poised to do so very soon.

I believe Russia will not initiate an invasion.

Firstly, Putin doesn’t have the money nor the troops.

Also, you don’t invade in the mud. You wait until the ground has dried.

However, Russia will retaliate and blame NATO if they throw the first stone.

Russia may already have a claim if they cite the threats of sanctions.

For the U.S. has already sanctioined companies involved in the NordStream 2 pipeline. Germany isn’t happy.

An outlier call is that Russia walks across the border and Ukraine accepts their terms of a ‘merger’.

My belief is that Biden is ‘creating a war’ for various reasons. He needs to improve his fall in the polls and he’ll do that by being tough on Russia (and China) while also increasing government spending.

Remember than Obama was softer and friendlier to Russia, which included assisting Russia joining the WTO in 2012.

Obama was also continuing the austerity measures adopted at the end of the Global Financial Crisis.

The Democrats lost heavily in the 2014 midterm elections and Biden has not forgotten Obama’s soft and friendly stance.

With Biden’s infrastructure spending bill not being passed, another way he can spend money is to increase military expenditures, especially as the Iraq and Afghanistan campaigns have ended.

The charts below show the ebbs of current U.S. military spending in the form of 1) as a percentage of GDP and 2) as a percentage of general government expenditure.

Beyond flooding his mates in Ukraine with more American weapons and ammunition, other incentives for Biden to cite that a war is imminent is that he’ll be able to blame Russia’s aggression for the higher oil and gasoline prices his citizens are experiencing. 

(It’s also plausible Ukraine has some ‘dirt’ on the Biden’s too)

In turn, higher energy prices creep into corporate operating costs which may lead into a lower GDP figure in the coming quarters.

Then corporations can also be blamed for passing on higher costs.

The main point is that Biden isn’t blamed for rising costs and inflation because he really needs to wins these mid-term elections in December.

Also, have you noticed France’s involvement in trying to broker talks.

In 2019, Macron declared NATO brain-dead.

Today, Macron has ‘arranged’ for a summit between Putin and Biden.

In the interim, I am surprised by Blinken’s rhetoric recently changing from pacifist to belligerent, to side more with Biden’s stance.

This is contrary to the paper Blinken wrote in 1987, titled Ally vs Ally.

Should Biden ‘negotiate a retreat’, he will certainly take credit for his toughness hoping this elevates his standing in the polls.

Although, if a war does eventuate, it’ll be brought to you by CBS News, CNN and the lobbyists for various U.S. military manufacturers and suppliers.

February 21, 2022

by Rob Zdravevski

rob@karriasset.com.au

The Delicate Game of Interest Rates & Inflation

Brazil lifts interest rates by 1% to 5.25%. It’s seen as its most aggressive move since 2016.

2 weeks ago, Russia, (another commodity reliant economy) hiked rates too.

It looks like both central banks are trying to curb inflationary pressures. Rising commodity prices are a notable contributor.

Invariably, rising inflation will send government bond yields higher.

Why are the central banks in other commodity sensitive economies such as Australia and Canada still holding interest rates around the 0.50% mark?

Are the Bank of Canada and the Reserve Bank of Australia foolishly towing the same line as other Western economies?

The British, German and French economies are vastly different.

This may turn out to be a perilous policy error.

Are the BOC and RBA not entirely politically independent?

Can it be that the Russian Central Bank is acting for the good of the economy and citizens or is it because Putin doesn’t need to worry about being re-elected and Scott Morrison does?

Or perhaps it’s because the Household Debt to GDP for Russian’s and Brazilians is 22% and 37% respectively,

while in Canada it’s 113% and Australia’s is a world topping 123% ????

August 6, 2021

by Rob Zdravevski

rob@karriasset.com.au

Russia aggressively hikes interest rates

I found this news interesting.

https://www.reuters.com/business/finance/russia-raises-key-rate-65-sharpest-move-since-2014-2021-07-23/


Is the world’s 11th largest economy ahead of the curve and crowd when it comes to managing inflation or does its strengthening currency hinder growth and exports?

Incidentally, South Korea and Australia are ranked 12th and 13th

Alaska Might Be Next ?

It’s quite simple.

Starting a war is generally good for the economy of the aggressor. Just think of how World War II mobilised the American economy. Putin needs a war to keep his people occupied and distracted from their ailing economy. Putin and his government have talked of a “New Russia”. I think it’ll be Russia who decides whether to start a war, not the United States.

What is more complicated to understand is how and when countries go to war when you consider their debt position, electoral cycle, policies and the effect on their economies.

Sanctions:

I’m not sure that sanctions will work on a country with a relatively large population, land mass and economy (or in Russia’s case, possessing vast commodity resources). Funnily, I find it interesting that the United States government is much more involved in the Russia, Ukrainian & Crimea story that it was or has been in the Syrian civil war.

Oil & Gas Prices Will Rise:

If America places heavy sanctions on Russia, the price of oil will go up. If Europe is not happy with Russia’s territorial expansion, then the price of gas will rise too.

The U.S. Dollar Will Rise:

Money is leaving Russia and it won’t be converted into Euros, especially with it trading around the 1.38 mark. You may see the Swiss Franc and British Pound rise, but Billions of Rubles will be converted into US Dollars by global money managers. A rising USD will disrupt the currently sweetened competitive position of U.S. products in the global markets. War with Russia won’t help an indebted United States especially given that they have been financing military exercises for the past 12 years.

Please Consider The Neighbours:

Picking a war on Russia will somehow involve China, North Korea & Iran. This will test the various Asian Pacific relationships that the U.S. has been nurturing. Indirectly, it will involve Venezuela too, who will add to the pressure on the oil price. Russia will have little trouble financing a war.

Russia may be pursuing an old imperial model of domination by land acquisition.

As investors, we need to understand the effect on various assets and which ones to own if a scenario of war develops, ’cause China may not choose to buy anymore U.S. government debt and even elect to sell its current holdings.

Imagine if China sold a lot of their Treasuries thus placing pressure on bond prices, which would send U.S. interest rates higher. Consider this in tandem with a rising U.S. Dollar and coupled with rising oil prices. Now that would be interesting.

As a closing tidbit, the U.S. acquired Alaska in 1867 for $7.2 million which is equivalent to 2 cents per acre. Alaska has no naval base and has barely 20,000 U.S. military personnel.

A freeze of a different kind

Over the weekend, the European Central Bank (ECB) decided to steal up to 40% of the bank deposits held in the Cypriot banks above EUR 100,000.

This will specifically affect a large amount of Russian owned deposits. Moreover, the Russian government was humiliated over the weekends decision for they were not consulted after having been courted earlier in the week.

Furthermore, when banks re-open, capital controls will most likely exist to prevent the free flow of money out of Cyprus.

I think Europe themselves needs to prepare for a different type of freeze.

Come this winter (December 2013-Feb 2014) I would expect Russia to re-coup some of “their” money by turning off the gas pipelines to Europe.

Energy prices will rise, utilities will be affected and the consumers pockets will be hit.

A population doesn’t like being hungry and especially freezing cold. Watch out for any growing social backlash against Europe’s politicians.

 

 

Hope equals complacency

Something that I have difficulty explaining tells me that the Cyprus situation can’t end well. This feeling is biased by the complacency exhibited by European politicians.

Loosely, there is an assumption it will be fixed by somebody. Almost a similar feeling that permeated prior to Lehman Brothers collapsing. There is also a distancing by Germany, that someone else will save Cyprus.

Keep in mind that Angela Merkel has an election in September 2013. Why would she use German money to save Cyprus following the backlash she experienced in Greece.

But here come the Russians.

I have read that $40 or $50 billion of private Russian deposits sit within Cyprus’ offshore banking haven.

Here is how you would do a sovereign bailout deal.

For a $10 billion bailout, Russia gets to protect its citizens deposits in Cyprus, take over a huge slice of Cypriot debt (which they’ll eventually make a profit from, as it’s currently trading at 65 cents in the dollar) and take ownership or security over Cyprus’ Aphrodite gas field.

The Aphrodite gas field has natural gas reserves of about 7 trillion cubic feet (tcf) worth around $45 billion. That is enough gas to meet the energy needs of 7 million households for 20 years. Cyprus only has a population of 1 million people.

Incidentally, Aphrodite sits next to Israel’s larger Leviathan (16 tcf) and Tamar (8 tcf) fields.

It possibly makes for some interesting scenarios involving the politics of Israel, Lebanon, Turkey, Syria, Iran & Russia????

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