The Iran-Pakistan border contains all the ingredients for a geopolitical explosion – regional rivalries, Sunni-Shia conflicts, ethnic insurgents, espionage, drug smuggling and human trafficking.
China considers the stability of the region so important that it brokered a series of border security meetings between Iran and Pakistan over the past year.
Much of China’s multi-billion-dollar investment in the China-Pakistan Economic Corridor (CPEC) hinges on the commercial viability of the Pakistani port of Gwadar, near the Iranian border, for which it has a 40-year operational lease. Moreover, CPEC is the regional linchpin of the Belt and Road Initiative, an ambitious plan to connect Eurasia, the Middle East and Africa to China through a series of land-based and maritime economic zones.
Additionally, the planned Chinese naval base on Pakistan’s Jiwani peninsula, even closer to the Iranian border and located at the mouth of the Persian Gulf, is a critical military node in China’s “String of Pearls” facilities designed to dominate the strategic sea lanes in the Arabian Sea and Indian Ocean.
Such ambitions present a direct economic and military threat to India. Commercially, Gwadar competes with joint Iranian-Indian development of the port of Chabahar, just 150 miles to its west.
According to numerous reports, Saudi Arabia contributes to the instability of the border region by sponsoring virulently anti-Shia Sunni militant groups, such as Jaish al-Adl, who launch attacks on Iran from safe havens in Pakistan.
Iran retaliates by supporting the Baloch Liberation Front (BLF), an ethnic separatist group, whose sanctuaries and leader, Dr. Allah Nazar Baloch, are claimed to be inside Iranian territory and routinely conduct cross-border operations against Pakistani government targets. Members of the BLF are suspected to be in contact with Iranian intelligence, often through drug lords acting as intermediaries. BLF members are occasionally confused with their anti-Shia counterparts. Some months ago, a BLF team was mistakenly attacked by Iranian border guards. One member, shot in the encounter, was taken to Imam Ali Hospital in Chabahar for treatment, but later died of his wounds. The other team members were subsequently released by Iranian forces.
There are also narco-terrorists groups on the Pakistani side of the border with indirect links to the government in Islamabad. Lashkar-e-Khorasan, a alleged Islamic State affiliate, has been reportedly involved in “cleansing” western Balochistan of Sufi Zikris, Shia Hazaras, Hindus, Christians, Ahahmadis, Sikhs or anyone else who refuses to convert to the extreme form of Sunni Islam. The purported leader of Lashkar-e-Khorasan is Mullah Shahmir Bizenjo, a resident of Turbat, whose cousin is Senator Hasil Bizenjo, a member of the National Party and currently Pakistan’s Minister of Maritime Affairs. According to the Daily Beast, one of the drug world’s most notorious opium traffickers, also from Turbat, is Imam Bizenjo aka Imam Bheel, a National Party financier, whose son, Yaqoob Bizenjo, served as a member of the Pakistan National Assembly until 2013.
A more ominous portent of Iran-Pakistan border instability, is the return of the “Zainebiyoun” brigade. As a result of its involvement in the Syrian conflict, Iran created a unit composed of Pakistani Shia volunteers trained by the Iranian Revolutionary Guard Corp (IRGC), who have gained extensive combat experience fighting for the Assad regime against Sunni militants. It is rumored that “Zainebiyoun” members are now infiltrating back into Pakistan to provide the cadre for a Hazara self-defense force, a community long under attack by virulently anti-Shia extremist groups in Pakistan.
Chinese efforts towards Iran-Pakistan reconciliation has borne some fruit. In recent months, there has been a flurry of agreements in trade, defense, weapons development, counter-terrorism, banking, train service, parliamentary cooperation and, most recently, art and literature.
Iran seeks to separate Pakistan from Saudi Arabia, while Pakistan tries to balance relations with both states. China benefits by reducing tensions among all the regional players in order to advance its wider economic and military aims.
The lesson for the United States is that Afghanistan is swimming in a sea of instability and not, as we seem to presume, the focal point of that instability. American policy should be focused on burden shifting, managing and, when appropriate, exploiting instability to thwart Chinese hegemony.
Golf agent Jay Danzi, who has represented Jordan Spieth since he turned pro during his sophomore season at the University of Texas in 2012, will leave agency Lagardère Sports USA following next month’s Masters Tournament and take his prized client with him
Back in June 2009, in one of our earliest posts in the aftermath of the financial crisis, we took a “random walk down Madison Avenue” and found empty storefront after empty storefront after empty storefront.
In retrospect, the ghost town that was New York’s “Golden Mile” was not surprising: after all the US economy had just been hit with the worst recession since the Great Depression, and only an emergency liquidity injection of trillions of dollars prevented a global financial collapse.
What is more surprising is why nearly 9 years later, at a time of what is supposed to be a coordinated global recovery, a walk along Madison Avenue reveals the exact same picture.
But don’t take our word for it: here is Starbucks Executive Chairman Howard Schultz speaking during the company’s annual general meeting on Wednesday, and making some stunning observations.
From the transcript:
… let me shift just quickly into the business a bit and what’s going on in terms of the seismic change that we’re all witnessing in terms of consumer behavior in Retail.
No, I wasn’t clairvoyant three years or four years ago, but I did notice something and you didn’t have to be a genius to figure it out that the e-commerce effect of things was going to have a dramatic effect on people physically shopping for goods and services. And that has resulted in a tremendous level of compression in terms of the amount of retailers that are serving customers today because less customers are coming into their stores and that has resulted in unfortunately many, many stores national, regional, and local going out of business.
Now this is a photo as you can see of a mall that is very, very busy with people shopping for goods and services. Unfortunately, that was then, this is now. And it’s a dramatic change. And what it means and you saw this today and what we’ve tried to present to you is that we’ve got a push for reinvention and innovation and we have to do – everything we can to become a primary destination.
Now, as a result of what we’re witnessing, we’re also seeing something else and that is, there is a proliferation around the country right now of empty storefronts. We took a walk in New York two weeks ago from 59th street to 79th on Madison Avenue, and we lost count of how many empty storefronts there were in Manhattan. It reminded me of the cataclysmic financial crisis in 2008. But what’s happening is very simple, the rent structures for the last 5 to 10 years, have been rising at historic rates and retailers do not have the amount of customers they had during these last 5 to 10 years and could no longer economically survive.
So they’re closing stores and as a result of this, I can promise you just like I predicted in 2014 that rents are coming down and landlords are going to have to get religion, or else their stores are going to stay empty. And we’re already beginning to see a different level of reception in terms of what we believe the cost of occupancy should be. And this is going to bode extremely well, specifically for us. We’re adding almost 700 new Starbucks stores a year. And so we are going to take full advantage of the economic reality of this situation. And as we go forward two, three, four, five years out even though labor is going up in terms of cost of labor, we believe rents are going down and the economic model of Starbucks is going to be enhanced as a result of this macro situation. And we’re just at the beginning of this trend.
In other words, if 2017 was the year the “retail bubble burst” as Urban Outfitters CEO Richard Hayne said one year ago, 2018 will be the year when not only the retail sector slides into purgatory, but the deflationary shockwave that is being unleashed as rents finally hit a brick wall, will lead to the next, and far more violent crash in commercial real estate, and the hundreds of billions in debt that prop it.
Don’t believe us? Just take a walk on Madison between 59 and 79th…
Do you know the signs that it’s time to look for a bigger pond to swim in?
FTCR China Freight Index falls to seven-month low as volumes and rates are hit
The seminal 80s movie, which became a pop culture phenomenon, gets a big screen rerelease with a little something extra.
If you leave your sliding glass door open, you might let in a stray cat, raccoon, or bugs without knowing it.
Some intruders are worse than others. All can be annoying. But let in a thief, who robs your home… and it only takes that one time to change your life forever.
The U.S. has essentially left their “sliding glass door” open, and on March 26 China is set to become the intruder that may very well deal a death blow to the dollar.
China Prepares Death Blow to the Dollar
On March 26 China will finally launch a yuan-dominated oil futures contract. Over the last decade there have been a number of “false-starts,” but this time the contract has gotten approval from China’s State Council.
With that approval, the “petroyuan” will become real and China will set out to challenge the “petrodollar” for dominance. Adam Levinson, managing partner and chief investment officer at hedge fund manager Graticule Asset Management Asia (GAMA), already warned last year that China launching a yuan-denominated oil futures contract will shock those investors who have not been paying attention.
But this isn’t just some slow, news day “fad” that will fizzle in a few days.
A Warning for Investors Since 2015
Back in 2015, the first of a number of strikes against the petrodollar was dealt by China. Gazprom Neft, the third-largest oil producer in Russia, decided to move away from the dollar and towards the yuan and other Asian currencies.
Iran followed suit the same year, using the yuan with a host of other foreign currencies in trade, including Iranian oil.
During the same year China also developed its Silk Road, while the yuan was beginning to establish more dominance in the European markets.
Despite accounting for much of the world’s growth in demand in the 21st Century, China’s oil imports have been all over the map in recent months. In April, China imported 7.4 million barrels per day, a record high and enough to make it the world’s largest oil importer. But a month later, imports plummeted to just 5.5 million barrels per day.
That problem has since gone away, signaling China’s rise to oil dominance…
The Slippery Slope to the Petroyuan Begins Here
The petrodollar is backed by Treasuries, so it can help fuel U.S. deficit spending. Take that away, and the U.S. is in trouble.
It looks like that time has come…
A death blow that began in 2015 hit again in 2017 when China became the world’s largest consumer of imported crude…
Now that China is the world’s leading consumer of oil, Beijing can exert some real leverage over Saudi Arabia to pay for crude in yuan. It’s suspected that this is what’s motivating Chinese officials to make a full-fledged effort to renegotiate their trade deal.
So fast-forward to now, and the final blow to the petrodollar could happen starting on March 26. We hinted at this possibility back in September 2017…
With major oil exporters finally having a viable way to circumvent the petrodollar system, the U.S. economy could soon encounter severely troubled waters.
First of all, the dollar’s value depends massively on its use as an oil trade vehicle. When that goes away, we will likely see a strong and steady decline in the dollar’s value.
The Petrodollar’s Downfall Could be a Lift for Gold
Amongst all the trouble ahead for the dollar, there are some good news too. The U.S. might have ditched the gold standard in the 1970’s, but with gold making a return to world headlines… we could see a resurgence.
For the first time since our nation abandoned the gold standard decades ago, physical gold is being reintroduced to the global monetary system in a major way. That alone is incredibly good news for gold owners.
A reintroduction of gold to the global economy could result in a notable rise in gold prices. It’s safe to assume exporters are more likely to choose a gold-backed financial instrument over one created out of thin air any day of the week.
Soon after, we could see more and more nations jump on the bandwagon, resulting in a substantial rise in gold prices.
Update 2145ET: China markets have opened and its a bloodbath…
Stocks are down 3-5% across the board at the open with CHINEXT (China tech) plunging most…
Tencent is down over 11% in the last two days – the biggest drop in 10 years…
And China commodities are in freefall with Rubber futures limit down, Iron Ore and Steel Rebar down hard
The big question is – will China’s National Team step in?
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Update 2115ET: AsiaPac stocks are a sea of red but there is one relief as China fixes the Yuan very modestly weaker – so no devaluation tonight…
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Update 1: Japanese stocks just broke key technical support at the 200-day moving average, dropping near 6-month lows…
Japan eseTrade Minister Hiroshige Seko told reporters:
It’s “very unfortunate” that the U.S. decided to apply tariffs to Japanese metals exports, but retaliation by Japan could lead to the collapse of the free-trade system.
He noted that he had repeatedly asked the U.S. for Japan to be exempted from tariffs, and will continue to do so.
* * *
As we detailed earlier, following the earlier threat from the Chinese embassy, the first retaliatory trade actions from China are emerging and US and Japanese equity markets are in freefall…
Following the US imposition of 25% duties on China produce worth at least $50 billion including items in aerospace, information and communication technology and machinery, China has announced plans of reciprocal tariffs on $3 billion of U.S. imports.
China plans to add 15% tariffs on U.S. steel pipes, fruit, wine and other products, the Ministry of Commerce says in a statement, and also plans to add 25% tariffs on pork and recycled aluminum.
Bloomberg provides some more details on the list of goods China will be targetting…
1) fresh fruit, dried fruit and nuts
3) denatured ethyl alcohol
4) American ginseng
5) seamless steel pipes
6) pork and pork products
7) aluminum scrap
Who knew America exports ginseng to China?
In the statement, China urged the U.S. to resolve the trade dispute via dialogue.
The reactions are ugly.
USDJPY is in freefall, plunging below 105.00 to its lowest since before Trump’s election…
Nikkei is set to open down over 3.5% and Dow futures are down another 200 points from the close…
Based on the rally in Treasury futures, 5- to 10-year Treasury yields will open 2.5-3bps lower.
As Bloomberg’s Enda Curran notes, China’s response was to be expected but it’s clearly only an opening play. Note the list of tariffs doesn’t include politically sensitive imports like soybeans. It’s a warning shot from Beijing.
All eyes will now be on the PBOC’s Yuan fixing, as offshore yuan has been tumbling…
It would be a big shock if China decides to devalue suddenly as a trade weapon.