Ecomonic And Political Reports

[Paul MBMG]

I've just re-visited the new format of the site and noticed how busy the Jobs, economy, banking, business, investment in Thailand has become. Many of the topics debated (such as currencies) are ones where we send pithy updates of the best global analysis to our clients in Thailand every day. If anyone wants I can arrange for our daily update to be posted on here each day. If folks find it helpful, interesting or thought-provoking, I'm happy to do that. If, somehow you find it intrusive, I'll respect the views of the community and desist.

Here's the one that we sent out last Friday afternoon. I guess it's not typical of our output (it's longer and more political and less economic than usual) but I'm not sure what is typical.

Anyhow let me know and I'll comply with the majority's wishes

Best regards,

Paul

Dear all,

Please find below the latest daily update from MBMG International, based on analysis from Alphen (formerly PSG-Appleton) Fund Managers.

Global warning.....JONATHAN R. LAING recently published a thought-provoking article in Barrons claiming "Problems abound around the globe, but Stratfor thinks we fret over the wrong ones... INVESTORS HAVE A WORLD OF WORRY to fret about these days, from the Middle East to Korea. But they're mostly worrying about the wrong things, contends George Friedman, who heads the private intelligence-service Stratfor."

What is Stratfor ? Stratfor collects real-time information from the Internet and from informants around the world and produces forecasts, commentaries and geopolitical analyses commentary which are much sought after by news shows and Fortune 500 clients, including some of the largest financial institutions. Stratfor's/Friedman's views are frequently provocative and idiosyncratic. As an avowed supporter of Iraq II, Friedman unsurprisingly feels that the U.S.' aggressive action and military presence in Iraq has inestimably helped the war on terror by, among other things, motivating reluctant allies like Saudi Arabia, Egypt and Pakistan and erstwhile enemies like Syria and Iran to help the U.S. by cutting off their support of al Qaeda and serving up better intelligence to Western governments, adding

"I call it the coalition of the coerced, but the tempo of timely arrests of al Qaeda operatives around the world, and the fact that the U.S. suffered no terrorist attacks running up to last year's election, can in good part be attributed to better intelligence from the Islamic world. Our victory in Afghanistan was insufficient. We had to show the Islamic world that we meant business by putting large numbers of troops into the Middle East, into harm's way, rather than cutting and running such as the U.S. had done previously in its rapid pull-out from Beirut in the 1980s and Somalia in the '1990s."

In this context, Friedman sees Syria's and Iran's recent announcement of their united front and the assassination of former Lebanese leader Rafik Hariri as an attempt by the two nations to strengthen their bargaining position with the U.S. He claims that the bombing that killed Hariri was likely contracted out to Syria's and Iran's favourite terrorist organization, Hezbollah. He adds, "Syrian intelligence doesn't do suicide bombings like we think the Hariri assassination was, but Hezbollah most certainly does. The two countries, by killing someone the U.S. really likes, seem to be sending a message that if pushed too hard by the U.S., they will react."

Friedman's the expert, but we have for some time been concerned that there is a danger that the schism in the Islamic world between those who support the west against fundamentalist extremism and those extremists themselves could evaporate more quickly than the West realizes if the fundamentalists play their political cards more smartly than the West does (and we've never held very high regard for Rumsfeld's skills in this arena).

Friedman cautions against excessive euphoria over the recent elections in Iraq, but he contends that the situation there is beginning to stabilize. Moreover, he expects that the war will begin to recede from the headlines. The virulence of the Iraq insurgency took Stratfor somewhat by surprise. But, he adds, the violence has been largely confined to the Sunni Triangle. Moreover, the training of the Iraqi security force is starting to bear fruit, particularly since the number of Sunni recruits has been cut back, due to their inherent loyalties [saddam is Sunni]. Friedman also expects to see more involvement by Iranian-trained Shiite militia units in patrolling some of the hot combat zones now that the Ayatollah Ali al-Sistani slate appears to have won a victory. He expects U.S. casualties and troop levels to start trending lower in the months ahead; among other things, U.S. forces will likely be shifted to larger, well-protected bases more remote from Sunni cities. We're not so sure that such a neat denouement can ensue and we're more sympathetic to those who see a Vietnam II, with disengagement proving extremely difficult.

As for Iran, Friedman is not as concerned as many other observers about its nuclear-weapons program. Iran has actually been quietly helpful to the U.S. both in the war on terror and in Iraq, and has a major stake in creating a dependable ally on its western border in the form of a Shiite-dominated united Iraq. Iran is largely using its nuclear ambitions as a bargaining ploy with both the U.S. and the European Union. Negotiators from Germany, France and Great Britain are attempting to play the good cop with Iran, while the U.S. remains the bad cop. In the latter role, according to Friedman, the Bush Administration may well have covertly planted the exposé in the New Yorker last fall by Seymour Hersh (this article claimed that U.S. and Israeli special-operations teams operating inside Iran had already catalogued numerous special nuclear facilities for eventual attack. "Iran's nuclear program isn't really all that viable, and the country has to know that if she continues to enrich uranium in defiance of Western desires, then the U.S., or perhaps Israel, will hit them with the big stick," he insists. "Iran isn't that stupid." Again, we're not the experts but to us that seems to ignore the many complex possibilities for escalation in other forms. We remain concerned about Iran.

Likewise, Friedman contends that the North Korean nuclear standoff has been much overhyped by the world media. "It's merely a beautiful bargaining strategy on the part of a country with the economic importance of Chad to make itself into a centrepiece of world diplomacy," he observes. "None of the weapons are usable, since North Korea would be turned into glass within minutes should the country lob a missile at somebody." The bizarre economic policies of Kim Jong Il have, in fact, bolstered rather than threatened the survival of his regime, despite the existence of widespread malnutrition and grinding totalitarian mind-control in North Korea. Neither China nor South Korea is particularly anxious to assume the economic burden of this failed state, Friedman believes. Kim is hoping to use the nuclear wild card to win a peace treaty (only an armistice was signed between the U.S. and North Korea after the Korean War) and full diplomatic relations with the U.S. Then, he continues, North Korea might be able to attract more foreign investment and economic aid, all while keeping the zany Kim dynasty in power. From our amateur observer standpoint, we take a rather different view of Korea's capacity and intentions. I would never be so quick to write off Pyong-Yang. I don't want to get fixated on Vietnam, but much of what Stratfor says seems to be reminiscent of attitudes in the West in the early to mid-60s. Wasn't western weaponry meant to be so superior then too ?

Friedman sees more peril in 2005 from developments in quarters of the globe that have received less media attention. We accept that China, for example, this year could see significant deceleration in its torrid economic growth rate and may well be on the cusp of a slowdown, (although Friedman says "meltdown"). Moreover, Friedman contends that China is likely to become more bellicose and nationalistic as its economic malaise swells, because foreign aggression has been a tried and true method for deflecting people's attention from problems on the home front. Hmm, we've studied some Chinese history and China's relations with the outside world don't seem that simple to us. While Friedman's pessimism about China's prospects places him at odds with the conventional wisdom pushed by virtually every U.S. corporate chieftain and by scores of news commentators, and he sees China boom in terms of the dot-com frenzy of the late '90s with growing imbalances, seething social discontent and a rotting financial structure (in fact, to Friedman, the current China exhibits unsettling similarities to Japan in the late '80s, just before the sun set on the latter economy) we, at MBMG, believe that there is some truth in Friedman's concerns and we've been convinced that a major slowdown is likely to afflict China in late 2005. However we see the potential for a quick and early recovery (unlike the US, which we fear will be in the doldrums for rather longer because of the appalling debt mismanagement that has taken place for the last few years). Friedman does however have greater justification with his claims that many China enthusiasts are ignoring the demographic time bomb of an aging population as a result of China's one-child-per-family crackdown. However his comparisons to the advanced greying of Japan are probably wide of the mark and while those who can only see constant boom for China are wide of the mark on the upside, we think that Friedman's inability to see beyond China's problems is probably just as wide on the downside. Stratfor has however noted a dramatic jump in riots, strikes, bombings and the like throughout China that have largely gone unnoticed or unreported by the bedazzled world news media. Social tensions only figure to grow as a result of increasing layoffs at the state-owned enterprises and yawning disparities in wealth between China's populous agrarian hinterlands and the thriving coastal cities. Friedman claims that paranoia on the part of party authorities seems to be growing apace, as evidenced by their increasing resort to security sweeps against dissidents. The government's fear of riots following the recent death of Zhao Ziyang, the disgraced former general secretary of the Communist party and a hero of the democratic movement, was just one example of this new attitude, says Friedman. Friedman also expects Chinese authorities to increasingly fan nationalistic fervour in an attempt to defuse growing tensions at home. The recent spate of sabre-rattling with Taiwan is just one example. China's dispute with Japan over exclusive economic control of a large swath of ocean waters south of Japan is seen in the same light by Friedman. "The Japanese are widely disliked in China, so the Chinese authorities can always use Japan as a potent symbol of why the Chinese people must remain unified," Friedman claims. Again, we think that Chinese history is less black and white than that, and that Friedman's comparison of the Chinese economy to that of the South East Asian region in 1997 is wide of the mark too. It certainly seems to be stretching things too far when Friedman wonders if the surge in overseas direct investment from China might be an incipient sign of capital flight by Chinese businessmen looking for a safer and more profitable home for their money. "Just like the controversial Japanese acquisitions of Pebble Beach and Rockefeller Centre in the late '80s, might the recent deal Chinese computer maker Lenovo reached to buy IBM's personal-computer business be a sign of trouble at home rather than self-assertion of a growing economic powerhouse?" he asks. I wouldn't put that take on it myself, because the last feeling that we get from China is any recognition of domestic troubles; indeed our concerns about Chinese economic prospects would be lesser if there were greater recognition there of the possibility if a major downturn at home.

Likewise, Friedman thinks Vladimir Putin's Russia may be a growing problem for the West. After more than a decade of attempts to "Westernize" its economy and political systems, he believes that Russian authorities today see market capitalism as something of sham that brought riches mostly to the oligarchs and Western financial interests. Even worse for Putin, Western political influence is growing in states that made up much of the former Soviet Union. The Baltic States of Latvia, Estonia and Lithuania recently joined both NATO and the EU. Pro-Western governments are in place in the former Soviet republics of Georgia and, most ominously from Russia's standpoint, Ukraine. Elections this year could push other former Soviet states Moldova, Armenia and Kyrgyzstan into the Western camp. Meanwhile, Americans now are stationed in former Russian bases in Central Asia as a result of the U.S. war in Afghanistan. Stratfor states that Putin has fought back by increasing centralized control of the Russian economy such as the recent state expropriation of key assets of Yukos and re-establishing Kremlin control of regional governments, but has concerns whether Putin is able to keep the centrifugal forces at work inside Russia at bay. Stratfor has picked up indications from Russian intelligence sources that Chechen separatists may be planning to take over a strategic missile base or nuclear power plant to force a Russian withdrawal from Chechnya. Other Muslim areas in the Russian federation are becoming more defiant, says Friedman. acing a desperate, disintegrating situation, the Kremlin will, at a minimum, try to overthrow the Georgian government and block the Ukraine from joining NATO, Friedman says. He also expects Putin to try to re-establish state control over such corporations as Unified Energy Systems (Russia's power monopoly); Transneft (the oil transport monopoly); and private oil companies Sibneft and Surgutneftegaz. In addition, Putin has defied the U.S. by threatening to sell various strategic weapons systems to Syria and China, Friedman claims. Again, we don't doubt that Friedman has much more information and intelligence than we do, but we can't help wondering if he's looking at it with one eye closed ?

Enjoy your day!