Apr 252011
 

Ref: 2011-07 of 24 April, 2011

There is an adage “ The people peep into others home when troubles are in their own”

United States, United Kingdom and entire Europe, most of whom are NATO members follow the above adage literally. When United States intervened in World War II, the entire Europe that was decimated resurrected to become a super power. When US threw two atomic bombs on Hiroshima and Nagasaki in Japan, the Japanese re-livened from disaster to become a magical super economic power. US engineered Asian crisis to destroy rising economic powers. And Asian emerged as the super economic power larger than Japan and Europe combined.

However, these super power merged themselves in every action later on world stage with experience in military warfare. They tried Vietnam, failed; then Korean peninsula, failed; Cambodia and Laos, failed; Iraq, failed; Palestine, failed; Lebanon, failed; Bosnia, failed; Iraq, failed; Afghanistan, failed; and now Libya, failing; Iran, nearly failed or failing.

The above alliances or mergers are similar on financial battleground to Time Inc. merging with Warner Communication to become Time Warner in days of trouble and when it did not work, they merged with another uprising power AOL to become Time Warners AOL to hide enormous troubles within. It did not work either. Now they are separating. The western culture of “marry and divorce, marry and divorce” is not working as efficient model.

Since the days of Iraq war, the western powers have found new battleground in Middle East. However, their tactics are not working because of vast cultural difference between other nations where they intervened and current one. Middle East nations are mostly “Muslim” countries where the prime loyalty is to their “religion” or “Koran”. A person is a “Muslim” first and then only Kuwaiti, Iraqi, Irani, Pakistani etc. Such unilateralism unites them and any attack on any nation is viewed as an attack on Islam, their religion. These are the countries where mullahs, kajis, ayatollahs and other religious leaders have dominating influence over the political leaders or sheiks or sultans. Western political leaders therefore can not force the “democratic” values upon the national leaders of those countries only because their role is secondary.

As result, the Muslim community as whole has become extremely volatile. The real education has not percolated down enough through the masses. Even well educated Muslim scholars do not imbibe or publicly profess the democratic values for fear being “cast out” of their community. Their children have to pay the price. Their daughters or sons do not get suitable match only because other families may not want to associate with literate or reformist Muslim.

Unless and until the attacks are directed to eliminate the root causes, that is, Islamic religious leadership, nothing is going to work, and the common people are going to continue to lose lives of their dearest kin, parents, husbands, wives, children etc. for no fault of theirs. Removing a political leader like Saddam Hussein, Shah of Iranl, Gadaffi, Saleh or Assad will not bring in democracy. If intention was to remove only the offending leaders, why not Western powers concentrate bombing on the leaders and their place of dwellings to eliminate them, and instead bomb all around through war planes or drones which kill only innocent civilians who turn against the very western powers trying to help them?

 

Economic Sanctions and their effects

In the name of democracy, the western powers go on interfering into the internal affairs of those nations. They use “United Nations” to validate their military actions by allowing free passage of resolutions authorizing them to indulge into such actions. They also get to pass resolution authorizing “economic sanctions” on those countries. Why should the entire nation be penalized with economic sanctions for the single unacceptable act of a political leader of that nation?

Such economic sanctions under the authority of United Nations is no different similar sanctions imposed by Clerics, Mullahs or Ayatollahs on their Muslim community. They impose their brand of social sanctions which is also a form of economic sanctions. One does in the name of United Nations, other does in the name of clerics or mullahs or ayatollah. How many times the Western attack was aimed at removing the belligerent clerics or mullahs who were instrumentals in authorizing, conceiving, planning and executing terrorist attacks on western worlds? Almost none.

The western nations also take pride in launching attack from 20 miles above the ground with almost 2000 pounds of bombs on Islamic civilian targets alleged to be used by real terrorists as their hide out. When the affected people find themselves paralyzed to launch similar counter attacks, they resort to guerrilla warfare and become terrorists (in the language of western powers). In their own nations such people are recognized and applauded as “nationalist” or “real Muslim”. When your home is attacked with guns and arsenals, would not you traditional weapons like Iron bars or wooden sticks or even kitchen pots to stop the invader into your home?

The Western forces are also cowards. They can not not take part on the ground and fight the opponents on one to one basis because of fear of loss of their lives. Only yesterday, an American drone (unmanned plane) attacked one place in Pakistan killing 26 civilians including few women and children. The attackers did not say “sorry” but tried to justify their attacks based on information of terrorists hide out there. Killing of 26 innocent civilians push them more into the fold of their religious leaders, against their political leaders for allowing or consenting Western powers to use their home land to attack their own people and creating 260 future terrorists to avenge the death of their parents, children or next to kin.

In other words, the western powers are attacking leaves, secondary branches and other branches of a tree rather than attacking the roots where the Clerics or Mullahs live. Even if they help the rebels, who are also Muslim, they will grab the power from one political leader and appoint their own, but follow the same principles, guides, directions and intentions of their religious leaders because they too are Muslim first and rebel later.

Freezing Islamic Nations Forex Reserve and Impact on Oil prices, Euro

In the name of economic sanctions, the countries like United States and United Kingdom are freezing the national Forex reserve of affected Islamic or Arabic countries. If US Dollar is to be used as “world’s reserve currency”, it should be respected as such by its own issuer – United States. Forex reserve of any country lying in United States is “sacred” and should not be touched even with remote hand or pole by the US administration. It is not their money. Such Forex reserve is held in United States in Trust, and US has to carry out the duties as “Trustee“. You can not freeze the Forex reserve held in trust with the United States. If you are keeping your valuable ornaments in any bank locker, would you accept if they refuse to allow you to access to your own private property held in trust at the bank? Certainly not.

Undesirable Effect of Freezing  “$ Reserve” on Oil prices and Inflation

If there are troubles in Greece, Portugal, Iceland or Spain, why the hell their currency “Euro” is rising? It may be noted that Euro has been rising with every increase in oil price in US$ terms? What is the correlationship?

Almost all Arab nations, who are involved in political turmoil, for fear of being their Forex reserve being frozen in United States and United Kingdom (America’s bedside partner), have started quoting oil prices in Euro rather than US dollars. As result, the buyer of the oil has to buy Euro first by selling dollar and then place buy order for oil with reasonable assurance from European nations that they would not freeze their reserve held in “Euro”. As result, the dollar has been plunging, oil prices are rising in dollar terms and Euro is surging.

Such “Forex Reserve Freezing exercise” has turned out to be “nightmare” for US financial officials like Fed, Treasury and even President Obama who launched massive investigations for extra ordinary rise in oil prices in United States by penalizing the “speculators”. Oh Mr. Obama, no one is manipulating oil prices at the pumps – it is only your economic sanctions freezing “Forex reserve” of Arab nations, is the main cause. Remove that cause, your dollar will start rising again. When you can see such truth with naked eye, why do you use “binoculars” and “microscope” to ferret out the truth. The culprit and speculator is nowhere else but only in White House – that is You, Bernanke, Geithner and rebellious senators in the House of Senate and House of Representative. Look in the mirror, Mr. President, you will find the criminal there itself.

In my book “Sub Prime Resolved” I have devoted entire chapter on oil price manipulation, its mechanism and also informed the readers that “US Should pass a legislation removing the authority of anyone, including President , to freeze any country’s Forex or Dollar reserve lying at FED/Treasury as untouchable sacred money belonging to other nations lying in trust with them.

Saddam Hussein was attacked by United States because his $1.6 billions were frozen in United States which forced him to quote the oil prices in Euro. US being extremely fearful of economic adverse effect attacked his country in the name his possessing WMD or Weapons of Mass Destructions which were never found.

Even India found difficult to buy oil from Iran. India buys 400,000 barrels of oil every day from Iran. Manmohan Singh in his policy of appeasement directed RBI to frame rules not to deal with Iran and carry out monetary transactions in dollar. Indian Oil Corporation was in such dire strait that it had to buy the oil from other sources paying 10% premium to market price. Iran recently agreed to supply crude oil without payment for time being and requested settlement in non dollar currency or gold, that is, Euro or Gold. This is one of the main reason why both Euro and Gold are rising neck to neck with oil prices in dollars.

Poor Obama! He has lost his mind. He knows the solution to higher oil prices is lying on his desk but he is not aware of it. He looks more at TV, tea parties, and daily change in gas prices at the pumps and increasingly ordering “drone” attacks on Libyans in the hope of reducing oil prices. Who will show him the “Kalidas Note” that solution lies in his pen by de-freezing Forex reserve of any nation even if they are under watch of economic sanctions, not in drone or manned attacked on rebels from several miles above in the sky. Hey Mr. President. The Arabs have money and you are preventing them from sending dollar remittances to your country!

GET DOWN TO EARTH, Mr. OBAMA. You are now welcome on this planet if you are carrying a pen to sign the defreezing order. Otherwise the oil prices will go so high that Americans will freeze to death in winter only due to your freezing actions of other nations dollar reserve lying in your country which are in fact financing your huge deficits otherwise. Do not drive them away – only you and American people will suffer.

If there are troubles in Middle East countries, Mind Your Own Business. If they do not want democracy, so be it. If they want to die, let them die, but while helping them to live, do not kill rest of the nations in the world. There are over 6 billion people on this planet. Existence or non existence of about 50 million people in Middle East is not going to make much difference!

 

Anil Selarka ( Kalidas )

2011-04-24 Ref: 2011-07

 

© Copyrights Reserved by Anil Selarka (also known as Kalidas) 2011

 

 

Mar 162011
 



Ref: 2011-02-PO of March 15, 2011 Click here for Free PDF Download ScribD

Quake in Japan, Tremors in America

Nature is Supreme:
Nature is the most powerful force dawned upon the universe by almighty God. If humans were to control everything, no one would have ever believed in God. When something wrong is perpetrated over the years, it ultimately gets corrected by the almighty force of nature with glaring violence with a warning and stern reminder “Do not fiddle with me, did you get that?”

In the wake of severe quake followed by Tsunami in Japan, the humanity was served with this violent reminder again. The illiterate people learn the message quickly, but the educated class – so called Investors, speculators, hedge fund managers, pension fund controllers, derivative players – does not learn easily and quickly. The nature has therefore reserved the massive shock – CRASH – in whatever the educated class practice day by day, year by year, decades by decades and centuries by centuries.

Have you heard the word “Crash” from the illiterate class – ever? No. But ask the educated illiterates or Elite Class – they will recall every crash of 1929, 1987, oil shocks  of 1980s, crash of commodities, oil prices crash to $ 9 per barrels, crash of 2003 and crash of 2008 – all in financial markets with the paper and electronic money created by humans to utter defiance of the disciplinary money of God – Gold.

When Japan was not listening to the nature that low interest rates and weaker yen was harmful to its economy for almost 16 years, the Supreme Power assumed the command. It engineered the massive crash in the form of major earthquake of  8.9 scale followed by huge Tsunami that wiped out almost entire north east coastal cities of Japan in less than few minutes. What was built over 66 years since World War II was destroyed in less than 6 minutes. That’s the nature – the Supreme Lord.

Japan – Making money in hard goods, loose in Paper trading
When the Japan was creating fabulous products, everyone admired, including God. HE must be carrying Giant LCD or HD TV to micro TV, gadgets, mobile phones! Just kidding.  But when HE saw that the Japanese were blindfolded by its love for dollar, not God, HE was perturbed. HE tried to teach the Japanese with subtle warnings by causing its NIKKEI crash from 37000 to currently 11,000 (before Tsunami), and not allowing its economy to prosper for 16 years. However, the Japanese did not understand nor did they heed the warnings.

Japan was exporting huge physical inventories to United States, UK, Europe and rest of the world in fierce competition, not in terms of price, but in terms of extra ordinary quality. However, what it earned was kept in Dollar reserve with the United States by deliberately keeping its currency artificially low. Japanese governments in almost every succession went on printing more and more Yen to buy dollar to keep its own currency weak. United States mused. It never objected to Japanese keeping its currency low but went on lecturing China to allow its currency strengthen when both countries were following almost identical policies.

 

Violent Correction
The nature could not prolong the obvious wrong. It finally struck, caused severest quake on record in Japanese history, and sank almost every asset that was used to build the massive reserve in dollars. When the humans do not heed the warnings, the nature acts, and IT DOES ACT with severest punishment. But even then, the humans do not learn.

When the disaster struck, the natural course for Japanese was to withdraw the dollar and convert into yen. After all, its reserve – a kind of savings – has to be used one day for eventual use in calamity. But the Japanese did not use. They pumped into money market 15 trillion yen created out of thin air (not by selling dollars) which is equal to US$ 183 billion. And what happened – the NIKKEI dropped further by 14% in single day! On following day, it pumped in another 8 trillion yen (almost $93 billions) again out of thin air into the financial markets, that is, the paper market.

Almost 23 trillion Yen went up in smoke in just two days.
When the need of the hour for the Japanese government was to rush massive physical aid to affected people and area under destruction, it went on engaging itself into unprecedented money market operation or in paper and intangible markets with massive force without any conviction.

According to CIA latest figures, Japan today has massive public debt of 197% to its GDP. In the aftermath of quake, its GDP is likely to go down by 30% and its public debt (with 25 trillion yen printed by budget deficits) will rise by 25% that will worsen its Public Debt to GDP ratio to over 353% – in less than 9 months. (Existing Public Debt + 25% of new PD divided by new GDP (Current GDP – 30% deceleration) %.

With massive 25 trillion injected into the system, the specter of inflation will rise very fast. The inflation in Japan will be almost uncontrollable. With huge short supply in daily essentials such as water, electricity and food accompanied by umpteen supplies of additional Yen created out of thin air, Japanese government has played a gamble of lifetime in casino type of operation. In all probability, this gamble is not going to work. With massive political instability, uncertain economy and now the humongous debt with destruction, we do not know how many years the Japan will be thrown back. It will recede into 5th or 6th largest economy after the effects of the dire game is played out in full.

True that Japanese are the most industrious people in the world. But what can they possibly do when their policy makers are running with the speed of Boeing 787 in wrong directions?

The Supreme Nature will reassert itself.  It is possible that –

  1. Japan will have to sell massive amount of US Dollar reserve in favor of its own currency – Yen. It needs more yen at home than dollar overseas. What is the use of savings if it cannot be used even during the days of extreme necessities?
    1. As result, it is possible that Yen will eventually rise with outflux of dollar and influx of yen into the monetary system in Japan

    2. Unless the Japanese Monetary Authority and Bank of Japan adopt another imprudent step to pump in trillions of yen into the money market without selling its dollar reserve.
    3. Whether BOJ pumps in more money or not, it is inevitable that the Japanese Yen will rise from current 82Y/$ to almost 60Y/$ in less than 18 months at the most. There is a strong urge for money to revisit home from overseas, and this will be done very fast whether to the liking of Japanese politicians and businesses or not. Home-coming of Yen will be the biggest development in FOREX market in more than 60 years.
    4. The journey from 82Y to 60Y will not be easy one to start with. Initially, with growth figures of Japan revised down followed by rating downgrade by S&P, Moody and Fitch credit rating agencies, some hedge funds will short the Yen knowing fully well that Japanese government will love their actions. The Yen might show some initial weakness right up to 86.8 levels at the most, after which it may résumé its upward journey stopping at 81, 78, 75 and 71. Once it surpasses the 69Y threshold, it may move to 65, 63.50 and eventually 61 level. There could be concerted actions from G7 nations at the instance of Japan’s request, but such actions cannot stop the rise for long time.
    5. Those who short the Yen presuming lower GDP growth or excessive printing of yen by BOJ will be simply butchered later on.
    6. Those overseas workers working in Japan and getting their salary or other income in Yen should preserve their savings before remitting the amount to their own country in panic. In this authors’ personal opinion, any weakness in Japanese Yen to 86Y or about will be entry point for taking position in Yen. Those who sell Yen in panic may feel hurt later for loss of profits.
    7. Japanese insurers will have no alternative but to sell its overseas assets like stocks, bonds, and treasuries and bring the money back home to meet the insurance claims. These insurers do not have luxury to print the Yen on their back yard. They are private corporations, not government entities who can print the Yen at random out of thin air.
  2. Japanese growth will be knocked off in big punch. It will be a sufficient cause for foreign investors to shun the NIKKEI and invest less in Japan for at least 2 years.
  3. Interest rates may rise in Japan which has been kept at artificially low level for a long time. There will be a dearth of capital, so new capital will come at a cost, not free as before.
  4. Japan will be absent at all future treasury auctions in United States. Or its scale of activity will be substantially cut down. When one major creditor Japan stays away from the participation, there will be rise in effective interest rates in United States. Watch out the LIBOR – it may give first indication of movement in interest rates in United States.
  5. If Japan and its businesses/insurers/banks are obliged to sell the dollars, and buy Yen for use in resurrecting manufacturing plants in Japan, US dollar index (paper trading) and physical dollar itself will come under severe and continuous selling pressure. Gold and silver may gain steadily with faster pace than ever before (barring short term downward prices caused in wrong conception).
  6. The countries exporting food items such as Australia, Canada, USA, China and other nations will gain from their exports if they are not facing foodstuff related inflation and did not ban exports.
  7. There is a wrong conception that the Japanese manufacturers will lose their production advantage. They will make it up by producing more in cheaper overseas plants. Therefore, the countries housing Japanese manufacturers will witness substantial increase in exports from their countries. China, Malaysia and Indonesia will be the biggest gainers in exports. Their respective currency may gain too as result.
  8. With Yen rising, the profitability of Japanese conglomerates will decline in Yen terms but in dollar terms they may not lose advantage due to rise in Yen value. It is possible that some Japanese companies will start preparing their final accounts in US dollar terms rather than their own currency to window dress it better.
  9. Those who contracted debt or contracted “Yen Carry trades” by borrowing in Yen or swapping into their ultimate currency to fund their own requirements will suffer huge losses because their debt in real terms will rise anywhere between 10% and 25% depending on the level of Japanese Yen appreciation versus currency of destination. For instance, a bank like ICICI in India, who contracted Japanese Yen debt equivalent to $ 1 billion of loans or Commercial Borrowings in recent past, will find its profitability shrinking to the extent of Yen appreciation versus Indian Rupees.
  10. The derivative markets which was mainly involved in “Carry Trades against Yen” and in non deliverable forwards, will find themselves losing humongous amount. There could be total collapse of derivative market when the Yen starts strengthening and interest rates in Japan ticking higher from near zero level. Those Yen borrowers for swap transactions will suffer from higher Yan and higher effective interest rates on Yen.

Tremors in America
There will be more consequences. Most worried persons will be Bernanke and Geithner (and Obama himself) because none of their high profile visit is going to work in their favor this time. They can’t bring even moral pressure on Japan not to sell the treasury or buy more of them in future auctions. Their day of inevitable will be nearer than before. When Japan starts selling treasury, Chinese are not going to sit behind and watch their value shrinking right before their eyes – they have even greater stake after all. Based on the cardinal investment rule  “ If you can’t fight them, better join them”  the Chinese  will be forced to join the Japanese in selling treasury dollar game. US dollar is going to be vulnerable in future. Give or take 4 to 6 months, and you will have heavily losing US dollar in the Forex game.

All in all, the currency market is going to witness the massive upheavals. The major beneficiaries will be Aussie dollar and Canadian dollars. Minor beneficiaries will be Brazil Real and South African Rand. Controlled currencies of China and India may not rise much in spite of higher exports for obvious reasons. They have surplus food stuff to export to Japan; secondly, they are least affected by inflation due to stronger currency and economy, and finally they are benefitted by higher hard and soft commodities. Aussie dollar might rise to 1.20 and Loony (Canadian Dollar) may rise to 0.88 to 0.92

It is amazing that the Japanese leadership is engaged into paper trading exercise when it should focus on real tangible asset exchange and development.

They have still not understood that it has been adopting deliberate “weak yen’ policy right from 142Y to current 82Y in last 16 years with disastrous result. If it has amassed US dollar reserve of about $900 billion, it has in real sense lost nearly $300 billion in Forex losses, if you take average rate of 120Y. That is, they shorted or sold Yen at average price of 120 and now can get back only 82 or 2/3rd of what they sold. That is, they lost 1/3rd of $900 billion or cool $ 300 billion in Forex losses.

Japanese Government will learn it hard way that “Selling Yen and Buying US Dollar is injurious to Japanese Wealth” and by the time it realizes the truth, it will be too late.

Anil Selarka (also known as Kalidas)
Hong Kong               Camp: USA
March 15, 2011 – Ref: 2011-02-PO

 

©2011 by Anil Selarka (Kalidas)          All Rights reserved by the Author