New Geopolitical/Financial Bombshells
by Stephen Lendman
January began with a bang. Oil and other key commodity prices keep heading south. Suggesting economic weakness.
The Baltic Dry Index (BDI) provides “an assessment of the price of moving major raw materials by sea. Measuring demand for shipping capacity v. the supply of bulk carriers.”
Demand depends on amounts of cargo being shipped. Less demand, lower the index. From Thanksgiving to December 19, BDI fell 40%.
Zero Hedge called it the fastest ever post-Thanksgiving collapse. Declines continued into January. Down to 749 from a one-year 1,621 high. Reflecting economic weakness.
Yesterday, Switzerland’s central bank (SNB) stunned markets. Scrapping a three-year euro/franc peg. Sending the Swiss currency soaring against the euro.
Hammering Swiss stocks on fears of harming the nation’s export-dependent economy. Especially to Eurozone countries.
Days earlier, SNB officials called the 1.20 euro/franc cap a policy cornerstone. No longer. The Swiss franc spiked 30% before giving back some gains.
Its equity market plunged 8.7%. After being down as much as 14%. Its one-day loss the equivalent of a 1,500 point Dow drop.
The euro fell to $1.16 to the dollar. An 11-year low. Gold rose $30 an ounce.
Societe Generale currency strategist Kit Juckes said SNB’s “move sees a major buyer of the euro leave the building and opens the way for further/faster euro weakness.”
“It will trigger further broad-based dollar strength as a result and this in turn has already been reflected in a revival of risk aversion, and increase in market volatility.”
SNB pushed its main interest rate further into negative territory. By 50 basis points to – 0.75%.
The Financial Times said “(a)ll Swiss government bill rates and bond yields with maturities up to eight years traded below zero Thursday.”
Swiss fixed income investors have to pay for the privilege of owning them. IFR Markets global strategist Divyang Shah said:
“What the SNB actions show is that policy action seems to be migrating from QE/zero interest rate policy toward negative interest rate policy, as central banks attempt to make holding cash unattractive.”
“We are in an environment where markets are still willing to hold safe haven assets, even at a low or negative yield as preservation of capital dominates.”
Gold rising to a four-month high is one example. Whether it keeps gaining value remains to be seen. Years of US-led Western market manipulative naked short selling keeps its price suppressed.
US bonds rose. The benchmark 10-year Treasury down 9 basis points to 1.74%. The equivalent maturity German Bund hit a record 0.40% low. Before closing at 0.42%.
The dollar is at a nine-year high. Money and Markets analyst Mike Larson called Thursday unlike anything he previously saw in currency markets.
SNB’s move was a complete surprise. Saying one thing days earlier. Doing another. Supposedly to prevent Swiss deflation.
Larson called SNB’s policy shift “just the kind of ‘shock and awe’ move that can change trends in a big way!”
It “puts one stake in” dollar strength, he believes. It shows “(y)ou can’t trust central bankers further than you can throw them.”
They promise one thing. Renege at their discretion. “(A) destabilizing force” and then some, said Larson.
SNB’s move hammered currency traders betting the wrong way. US-based FXCM and New Zealand-based Excel Markets said they “can no longer meet the regulatory minimum capitalization requirements.”
Because of “significant” client losses – $225 million for FXCM. Excel Markets said it “will not be able to resume business…Client positions will be closed within the next hour.”
Watch for more fallout ahead. Analyst Bruce Krasting said he wrote about SNB abandoning its euro peg twice in December.
Again last Sunday. Still he was “blown away” by SNB’s move. Its chairman promised “unlimited” support for the peg.
He “folded on his promise like a cheap suit in the rain. When push came to shove, (he) failed to deliver,” said Krasting.
Expect Switzerland to fall rapidly into recession, he added. A $100 billion SNB loss is likely, he believes.
Around 20% of Swiss GDP. Equivalent to a $2 trillion US loss.
Perhaps the worst is yet to come. “There will be reports of big losses and gains from today’s events,” said Krasting.
“But that is a side show to the real story. We have just witnessed the collapse of a promise by a major central bank.”
The Fed, ECB, Bank of England and Bank of Japan made lots of promises. “The entire world” believed in central bank omnipotence.
We now know these emperors have no clothes. “Anyone who continues to believe in the All Powerful CB after (Thursday) is a fool,” said Krasting.
ECB’s Mario Draghi is next in focus. He promised to “do anything, in any amount” to support markets.
“(Y)ou would have to be a fool to” believe him, said Krasting. The same thing holds for other major central bankers.
“We’ve just taken a huge leap into chaos. The linchpin of the capital markets has been the trust in the CBs. The market’s anchors have now been tossed overboard.”
SNB’s move was one of two major Thursday surprises. Itar Tass
announced the other.
Saying Gazprom henceforth will only supply gas to Europe via Turkey’s gas pipeline. A proposed under the Black Sea link. Gas currently delivered via Ukraine.
Gazprom CEO Alexey Miller called the Turkish Stream “the sole route.” It can supply 63 billion cubic meters of natural gas.
Affected European countries must now create their own “transport infrastructure from” the Turkish an Greek borders, said Miller.
“They have a maximum of several years for this. This is a very tight schedule,” he added.
“To comply with it, work for the construction of new trunk gas pipelines should be started in EU countries right now. Otherwise, these gas volumes may be redirected to other markets.”
On December 1, Vladimir Putin announced South Stream gas pipeline plans rescinded. Because of “unconstructive” EU policies, said Tass.
Including Bulgaria halting construction on its territory. Tass cited Putin saying Russia will build a gas pipeline to Turkey. Establishing a “gas hub” on its border with Europe.
Zero Hedge cited Britain’s Daily Mail saying Putin ordered cutting supplies to and through Ukraine.
Accusing Kiev’s government of stealing Russian gas. Gazprom’s move “cut gas exports to Europe by 60% plunging the continent into an energy crisis ‘within hours,’ ” said Zero Hedge.
Ukraine confirmed Russia’s cutoff. So did other European countries. Including Bulgaria, Croatia, Greece, Macedonia, Romania and Turkey.
EU officials called Moscow’s move “completely unacceptable.” Russia’s Energy Minister Alexander Novak said “the decision has been made.”
According to Ukraine’s Naftogaz spokesman Valentin Zemlyansky:
Russia “reduced deliveries to 92 million cubic meters per 24 hours compared to the promised 221 million cubic meters without explanation.”
“We do not understand how we will deliver gas to Europe. This means that in a few hours problems with supplies to Europe will begin.”
Putin is a world-class geopolitical leader. A master chess player. US-led attempts to isolate Russia aren’t working. Nor will they.
His move followed earlier decisions. Notably trading more in rubles instead of dollars. Establishing stronger than ever Sino/Russian ties.
Ones with other BRICs countries. Other Asian, South American and African ones.
Establishing Russia’s own international interbank system by spring 2015. Independent of SWIFT (Society for Worldwide Interbank Financial Telecommunication).”
A financial transactions payment and clearing system. Tass reported Moscow and Beijing discussing a joint SWIFT alternative.
In September, Russian Deputy Prime Minister Igor Shuvalov announced it. Including establishing a joint Sino/Russian ratings agency. Independent from S & P, Moody’s and Fitch.
Breaking free from US-controlled IMF/World Bank/other international lending agencies’ hegemony is potentially huge if succeeds.
Russia and China both want their currencies replacing dollars in world trade. Increasing de-dollarization strikes at the heart of US unipolarity. Dollar hegemony its linchpin.
The impact of Thursday’s bombshells is potentially huge. A likely game-changer. Expect market volatility to replace stability.
Putin no longer supplying gas through Ukraine means affected European countries have to scramble for alternatives.
Call it his revenge. It’s high he acknowledges so-called Western partners are adversaries. Especially America. Hell bent to oust him.
European countries foolishly going along with US policies harm their own self-interest. Paul Craig Roberts discussed what’s ongoing on Thursday’s Progressive Radio News Hour.
On his web site he wrote:
“(I)t sounds like the Russians have had enough of the dumbshits in Washington and (its) dumbshit vassals in Europe.”
Perhaps Europeans will have to freeze to death this winter to awaken them to their damn fool policies. At issue is will they change? Don’t bet on it.
On Wednesday, Reuters said EU foreign chief Federica Mogherini “suggested EU states could re-engage with Russian on global diplomacy, trade and other issues in return for gradual steps to defuse the crisis over Ukraine.”
On the one hand, maintaining sanctions. On the other, continuing to wrongfully blame Russia for Ukrainian crisis conditions as a strategy to get it to accept US-led Western hegemony.
Fact: Washington bears full responsibility for Ukrainian crisis conditions.
Fact: Britain, France, Germany and other EU countries share it.
Fact: Beginning with having orchestrated the ouster of Ukraine’s democratically elected government.
Fact: Replacing it with neo-Nazi putschists. Criminals in lieu of legitimate political officials.
Fact: Russia is the only country going all-out to resolve crisis conditions diplomatically.
Fact: Including ending Kiev aggression against its own Donbas citizens.
Mogherini represents Western imperial interests. Anti-Russian ones. Her reengagement notion implies unconditional surrender.
Getting Putin to accept US unipolarity. Abandon Russian sovereignty. Bow to Washington’s will. Capitulate to its demands.
Russian sovereign independence is too precious to lose. Sino/Russian unity is hugely important. What Washington fears most.
The most significant force for world peace. Multi-world polarity. Weakening America’s imperium.
Maybe eventually ending it altogether. It can’t happen a moment too soon.
His new book as editor and contributor is titled “Flashpoint in Ukraine: US Drive for Hegemony Risks WW III.”
Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network.
It airs three times weekly: live on Sundays at 1PM Central time plus two prerecorded archived programs.