>>> Deutsche Bank rules out merger - Frankfurter Allgemeine Sonntagszeitung

Deutsche Bank rules out merger (translated)
02 JAN 2017
Deutsche Bank (DB) has ruled out a merger, Frankfurter Allgemeine Sonntagszeitung reported. In an interview the German weekly asked DB Chairman Paul Achleitner why he does not merge DB with Unicredito or another financial group. Achleitner said that the management board in principle looks at everything that could help the business, but added that he has little desire for a pan-European merger at the moment as he has other priorities. Achleitner said he is working towards becoming a less-complex, more efficient and most of all, a more customer friendly bank.
Regarding state aid for banks, Achleitner said no-one in Germany needs to worry about saving banks.

FT : Markets outlook: the big issues facing investors in 2017

Markets outlook: the big issues facing investors in 2017
The full repercussions of the Trump win and Opec deal will be felt in the new year

Geopolitical surprises upended expectations last year and few predicted that 2016 would end with a global bull market in equities, while bond yields remain relatively low. Will strategists be any better at forecasting this time around? Here are the big questions that will preoccupy investors as the first trading days of the year unfold.
Are markets at risk of a Trump disappointment trade?
Investors have taken a leap of faith that the combination of fiscal stimulus and less onerous regulations for many businesses under president-elect Donald Trump will ignite the US economy and call time on the era of lacklustre growth and slumbering bond yields. In turn, the long-mooted great rotation has begun, with money leaving bonds and flowing into equities.
The S&P 500, Dow Jones Industrial Average, Nasdaq Composite and Russell 2000 of small capitalisation stocks have all hit highs since November 8.
The yield on the 10-year US Treasury, meanwhile, has jumped from a low of 1.32 per cent in July to 2.5 per cent, as bond investors contemplate faster economic growth and higher rates ahead.
Yet is it too much, too soon, especially for a stock market many had judged to be expensive? A stronger dollar also looms over multinational US companies, offsetting cuts in taxes and regulation.
“Wall Street tends to get ahead of itself at times, and this appears to be one of those,” says Jenny Jones, head of US small and mid-cap equities at Schroders. “We do believe [Trump] will achieve many of his goals, but they seem to be close to fully priced now and they could take nine-18 months to accomplish. That leaves a lot of room for disappointment.”
How will Europe and the UK handle Brexit?
It may be only the eighth most traded currency pair, but euro-sterling price action offers a gauge for political risk as well as strong trading opportunities in 2017.
Talk of “hard Brexit” in which the UK forgoes single-market access to have full control over its borders has resulted in investors marking down the value of UK assets — selling the pound — and has cast doubt over London’s position as one of the world’s biggest financial centres.
Weakness in the euro against the pound on the back of Brexit developments would suggest a reduction in investors’ Brexit risk premium. Steven Saywell at BNP Paribas believes euro-sterling will fall. “Sterling is at an extreme pricing, it is vulnerable to positive surprises and a weakening in hard Brexit,” he says.
An outlandish prediction from Saxo Bank even has the euro falling to 73p on the basis that the EU will be forced by migration pressures in Europe to cede ground to the UK.
There is also the matter of what Brexit means for the future of the euro with France, Holland, Italy and Germany holding elections in 2017. If anti-euro movements gain the upper hand elsewhere, even Germany may reassess saving it, say Deutsche Bank group’s chief economist David Folkerts-Landau and chief German economist Stefan Schneider. “The pros of a single currency probably outweigh the cons for Germany — not least because its own currency would massively appreciate.”
Will the oil market balance?
Oil supply from the world’s biggest producers will be in focus from the first trading day of January as market participants assess the extent to which countries such as Saudi Arabia and Russia reduce production following a global deal to cut supplies for the first time since the global financial crisis.
There will also be keen interest in the return of US shale oil and the sustainability of supply recoveries by Libya and Nigeria, conflict-ridden nations that were left out of the output cut agreement.
The outcome of these unknowns will determine when oil supply and demand come into balance in 2017 and whether prices will remain above $50 a barrel. “Until we start to get answers, the debates will continue,” says Michael Wittner at Société Générale. “Until then, we believe that markets will enter a ‘wait and see’ mode; crude prices are likely to start trading within a relatively wide range”.
If Opec members and co-operating countries such as Russia succeed, they could finally draw down tanks brimming with excess crude — helping to end the commodity supply glut. The Bloomberg Commodity Index (BCOM), a basket of 22 futures contracts, rose nearly 12 per cent in 2016, its first annual rise since 2010. Alongside oil, industrial metals such as zinc and copper have also been climbing on hopes that stronger global growth will underpin demand.
Are global banks investable once more?
Banking equity indices in Japan, Europe and the US posted double-digit gains in the second half of 2016, marking a change of fortunes from earlier in the year when the sector was beset by worries about profitability erosion amid low and negative interest rates, strict regulation and fines for bad behaviour.
According to investors, one of the most important causes for optimism is the prospect of higher interest rates on stronger economic growth as policy gears switch from monetary to fiscal measures in the coming year. Rising long-term bond yields help banks by boosting their net interest margin — the difference between the rates on their borrowing and lending. “We remain broadly bullish on banks as a sector,” says Mark Dowding, partner at BlueBay Asset Management.
But the rebound will face a stern test, particularly in Europe where the health of the sector is in question. European banks are on course to be worth 0.68 times analyst estimates for the book value of their assets at the end of 2016. For all the share price movement, the valuation is less generous than it was a year ago.
Are financial conditions going to be tighter?
The last time there was a substantial and rapid rise in US government bond yields was more than two decades ago — in 1994. At the time, much of the financial world failed to anticipate the speed and pace of rate increases announced by the Federal Reserve — which led the yield on 10-year Treasuries to jump 2 percentage points in the space of five months.
Complacency this time around may be of a different kind. Investors appear to see a pro-growth Federal Reserve under Janet Yellen and expect three more rate raises in 2017.
Philippe Ithurbide, global head of research for Amundi Asset Management, says: “It is difficult to understand the message: how to have at the same time stronger growth, a weaker dollar and a more restrictive monetary policy?”
Real economic growth in the US is running at about 2 per cent, as is the rate of inflation, while the unemployment rate is low, figures that would have normally suggested a much higher level for interest rates. Should the Fed move too fast the repercussions could be severe. Six of the 12 tightening cycles since 1945 have resulted in a US recession within two years.
Has the EM tantrum got further to run?
Donald Trump’s election win intensified a rout in developing economy assets that spurred net redemptions from emerging market equity and bond funds at a pace not seen since the US bond taper tantrum of 2013.
The Mexican peso and Turkish lira plumbed record lows, as the post-election “Trump trade” spurred a stronger dollar and higher bond yields.
Only Russia appeared to escape the trend, thanks in part to discernible warmth between Donald Trump and Vladimir Putin.
With capital flowing out of China in spite of efforts to stem it, and markets expecting further US rate rises in 2017, the largest investors in emerging markets are focusing on differentiation and “managing risk”.
“Questions remain with respect to how a Trump administration will deal with issues of trade and protectionism and whether campaign promises in relation to tariffs and trade deals materialise into something significant,” says Pierre-Yves Bareau, head of emerging market debt at JPMorgan Asset Management.
Will there be more public market listings?
The recent dearth of listings made last year the slowest for US IPOs since 2003 — but there are hopes of a rebound.
“There will be a significant pick-up [in listings] in 2017, and this will probably become most evident in the second quarter,” predicts JD Moriarty, head of Americas equity capital markets at Bank of America Merrill Lynch.
Bankers say the post-election equity rally and positive performance of 2016 deals bode well for a pick-up in activity next year. In contrast to 2015 deals, which ended that year down 6.5 per cent, 2016 listings are up on average by about 20 per cent, according to Dealogic.
There is also hope for a revival of tech initial public offerings. The hottest tech companies have avoided public markets in recent years, instead raising billions of dollars at attractive values privately.
Snap, the messaging app, is preparing for what is expected to be one of the largest tech listings in years as early as March. It is hoping for a valuation of $20bn to $25bn. If successful it could lure other tech “unicorns” — private tech companies that have achieved valuations of $1bn or more — to test the public markets.

FT : London regulatory crackdown to cost Airbnb $400m in 2017

London regulatory crackdown to cost Airbnb $400m in 2017
Research highlights cost of enforcing annual limit of 90 nights on hosts

Airbnb will miss out on more than $400m worth of bookings in London this year as it starts enforcing its new 90-night limit for hosts there, according to new analysis.

The research, which draws on data from AllTheRooms, an accommodation search engine, and analysis by the FT, underscores the growing cost of regulatory compliance for one of Silicon Valley’s most high-profile start-ups.

Airbnb has recently made regulatory concessions in markets around the world — including enforcing the annual limit on short-term rentals in London, its second-largest market, and in Amsterdam, its tenth-largest market by number of listings.

Authorities in many cities have complained that Airbnb turns a blind eye to rule violators, and have raised concerns that the popularity of Airbnb has reduced the supply of long-term rentals and disturbed the peace of residential buildings.

This tougher regulatory stance comes as a separate FT investigation reveals that around one-third of the saving that Airbnb can offer travellers over hotel accommodation comes from tax advantages related to its business model.

Airbnb’s beneficial tax position is particularly pronounced in London because the UK imposes relatively high rates of property tax on businesses and value added tax on hotel stays, but allows generous tax exemptions for homeowners renting out rooms and for small businesses.

Other cities are also seeking to address competition concerns.

Over the past year, regulators in Berlin banned short-term rentals of entire homes; Barcelona, one of Airbnb’s top markets, has slapped the company with several fines and New York state has introduced strict penalties to prevent Airbnb-style short stays in apartments.

In some cities where the company is locked in dispute with regulators, Airbnb has started to police its hosts more closely, a move it had previously fiercely resisted. In New York and San Francisco, Airbnb recently blocked new hosts from listing more than one unit each, which may help prevent the types of commercial hotel operations that have been the target of public criticism.

In every case, these moves have a chilling effect on Airbnb’s business as they potentially reduce its supply of accommodation.

In London, nearly half of the nights booked on Airbnb in 2016 would be jeopardised by the 90-day limit, according to data collected by AllTheRooms. That shift could reduce Airbnb’s bookings by a third. Some travellers will just shift to other Airbnb rooms instead, but most will shift off the platform altogether, it is estimated.

Starting next year, Airbnb will block London hosts from renting out whole homes for more than 90 days, which had already been technically illegal but was not enforced, unless they have a permit from their local council.

This stands in contrast to the approach taken by rivals such as HomeAway and Booking.com, which do not enforce the 90-day limit on the grounds that it is solely the hosts’ responsibility.

AllTheRooms estimates that Airbnb’s London bookings were previously on track to rise from about $600m in 2016 to $1.24bn in 2017. However, as the new rule goes into effect, next year’s bookings will instead be around $812m, the group estimates.

Airbnb charges a service fee of around 13 per cent of each booking, implying that the company’s London revenues for next year would be just over $100m.

Airbnb disputed the findings of the research, saying that more travellers would shift to other Airbnb rooms. “Availability in London is not an issue,” said an Airbnb spokesman. “We are confident that there is a large range of unique homes for guests to choose.”

However, this is less true in the most popular tourist areas of London, where the Airbnb offerings tend to be dominated by professional listings with year-round availability.

Airbnb declined to say how many listings would be affected by the change, but did say that the majority of hosts would be unaffected.

Airbnb’s recent compliance moves have cost it in other cities as well. In New York City, Airbnb has taken down 7 per cent of its listings as it seeks to curb commercial activity on the platform, according to a press release last month.

FT : Airbnb’s edge on room prices depends on tax advantages

Airbnb’s edge on room prices depends on tax advantages
Up to third of price gap with hotels due to tax treatment, FT finds

When you book an Airbnb room in London, around a third of the $100 saving you make over the price of an average hotel room is due to tax advantages which favour Airbnb’s business model, according to research by the Financial Times.

The price advantage comes at a time when Airbnb is increasingly competing with hotel groups. Research from Morgan Stanley in November reported a higher than expected “cannibalisation of traditional hotels” over the past year, citing survey findings that 49 per cent of Airbnb users in the US, UK, France, and Germany had replaced a hotel stay with a stay booked through the online group.
Airbnb says one of the key benefits of what it calls “home sharing” is to reduce costs for travellers and to help hosts earn extra income. But hoteliers complain they face unfair competition, as a result of tax differences and gaps in regulatory enforcement of everything from hygiene to disabled access and fire safety.
The extent to which Airbnb’s business model benefits from tax advantages is particularly evident in London because the UK has very high rates of business property taxes and value added tax on hotel stays, combined with generous tax exemptions for owners renting rooms in their homes and for small businesses.
VAT and property taxes account for up to 17 per cent of the price of a typical London hotel room, after the recovery of VAT paid on costs. The VAT on most Airbnb stays can be as little as 0.6 per cent because the UK only levies the tax when businesses sell more than £83,000 per year — a threshold reached by very few Airbnb hosts. It is otherwise only payable on Airbnb’s booking and service fees.
Property tax is less than £3 a day for the average London residential home but is often far more expensive for a hotel paying business rates. Tim Beattie at JLL property advisers says business rates could account for between £5 to £8 of a £100 room charge in London. By contrast, John Webber at Colliers International says: “It is very rare that anyone operating through Airbnb will pay business rates.”
These VAT and property tax differences can add up to roughly third of the extra cost of using a London hotel. On average, guests paid $220 a night for a hotel room in 2015 before VAT, while Airbnb hosts received $142, according to the Hotelschool report, which was calculated in dollars. After taking account of hotel room VAT and Airbnb fees (assuming a 10 per cent guest fee and a 3 per cent host fee, plus VAT) the prices were $264 for the hotel room and $164 for Airbnb. The tax differences are worth tens of millions of pounds, based on FT calculations that assume Airbnb’s London bookings were about $600m in 2016.
Airbnb did not comment directly on the FT’s calculations, saying that tax was proportionate to the level of activity provided, not the platform on which accommodation is listed. It suggested it was misleading to compare someone occasionally sharing a spare room with a 200-room hotel with high occupancy rates.
But the threat posed by the Silicon Valley newcomer to the hotel industry’s business model has been underlined by a $30bn valuation in Airbnb’s latest funding round, not far behind the $34bn market capitalisation of hotel group Marriott International.
Airbnb is now directly targeting the business travel market, with hosts able to advertise themselves as “business travel ready” if their property meets certain requirements, such as offering WiFi and a 24-hour check-in. According to Airdna, which provides data on rentals, 51 per cent of all Airbnb properties listed in London are “entire place”, not spare rooms.
In London, Airbnb’s second-largest market by number of listings, its share of overnight stays increased from 2.8 per cent in January 2015 to 7.6 per cent by the end of the year, according to a report by Hotelschool The Hague, Colliers International and AirDNA. Revenues of London hotels fell 9 per cent to $445.6m while bookings through Airbnb rose 182 per cent to $28.6m in January 2016, compared with the same month a year earlier.
Confronted with a backlash from industry incumbents and regulators, the internet start-up has offered to help collect tourist taxes. Since 2014, Airbnb has collected more than $110m in hotel, tourist and occupancy taxes in 200 jurisdictions globally.
Airbnb has also bowed to pressure over planning concerns in residential areas, by agreeing to help enforce annual rental limits. But consumer protection is another emerging issue. David Weston, chairman of the Bed and Breakfast Association, criticises Airbnb for not ensuring compliance with fire regulations. “I think the public assumes some sort of checking if you are booking with a big global brand,” he adds.
By contrast, members of his association with as few as three letting bedrooms have been required to install fully wired fire alarms and fire doors. “We have had instances of people having to spend thousands of pounds,” he says. “It is extremely galling to find that fast-growing competitors are not complying with anything.”
Dr Jim Glockling, technical director of the Fire Protection Association, a UK-wide body that promotes fire safety, says: “It is clear that there will be a need for legislation to catch up with these innovative hostelling methods; competitive services like this should be cost effective by merit of the expansiveness of the supply chain, rather than lowering of customer safety standards.”

Airbnb rejects criticism of its fire safety measures, saying the Chief Fire Officers Association has confirmed that the advice it offers hosts is proportionate to the requirements of a family home. It encourages hosts to install safety features and, for a limited period, has offered a single free smoke/carbon monoxide detector — although it does not oblige hosts to fit smoke alarms. Its website says hosts have the option to fill out a safety card detailing emergency exit routes and locations of fire extinguishers, but this is not compulsory.

The company also says the tax treatment applied to Airbnb stays is appropriate. “The overwhelming amount of money generated by the Airbnb platform stays with hosts and their communities,” it said in a statement.

“The Airbnb model is unique and empowers regular people, boosts local communities and is subject to local tax. It also makes Airbnb fundamentally different to hotel groups and companies that take large sums of money out of the places they do business.”

The UK government has generally welcomed Airbnb, allowing homeowners to rent out a room for up to 90 days a year without planning permission — a rule now being enforced with Airbnb’s help. It has also given the green light to government employees using “sharing economy solutions” to book accommodation when travelling on official business.

Hosts can earn £7,500 a year tax-free from renting a room, more than covering the £3,500 that Airbnb says the typical host in London makes for 50 nights a year. Those renting out their entire homes are more likely to pay significant amounts of income tax, but will get a £1,000 a year tax break from next April.

politico.com : Putin’s Real Long Game

Putin’s Real Long Game - http://politi.co/2iZeiTI
The world order we know is already over, and Russia is moving fast to grab the advantage. Can Trump figure out the new war in time to win it?

A little over a year ago, on a pleasant late fall evening, I was sitting on my front porch with a friend best described as a Ukrainian freedom fighter. He was smoking a cigarette while we watched Southeast DC hipsters bustle by and talked about ‘the war’ — the big war, being waged by Russia against all of us, which from this porch felt very far away. I can’t remember what prompted it — some discussion of whether the government in Kyiv was doing something that would piss off the EU — but he took a long drag off his cigarette and said, offhand: “Russia. The EU. It's all just more Molotov-Ribbentrop shit.”

His casual reference to the Hitler-Stalin pact dividing Eastern Europe before WWII was meant as a reminder that Ukraine must decide its future for itself, rather than let it be negotiated between great powers. But it haunted me, this idea that modern revolutionaries no longer felt some special affinity with the West. Was it the belief in collective defense that was weakening, or the underlying certitude that Western values would prevail?

Months later, on a different porch thousands of miles away, an Estonian filmmaker casually explained to me that he was buying a boat to get his family out when the Russians came, so he could focus on the resistance. In between were a hundred other exchanges — with Balts and Ukrainians, Georgians and Moldovans — that answered my question and exposed the new reality on the Russian frontier: the belief that, ultimately, everyone would be left to fend for themselves. Increasingly, people in Russia’s sphere of influence were deciding that the values that were supposed to bind the West together could no longer hold. That the world order Americans depend on had already come apart.

From Moscow, Vladimir Putin has seized the momentum of this unraveling, exacting critical damage to the underpinnings of the liberal world order in a shockingly short time. As he builds a new system to replace the one we know, attempts by America and its allies to repair the damage have been limited and slow. Even this week, as Barack Obama tries to confront Russia’s open and unprecedented interference in our political process, the outgoing White House is so far responding to 21st century hybrid information warfare with last century’s diplomatic toolkit: the expulsion of spies, targeted sanctions, potential asset seizure. The incoming administration, while promising a new approach, has betrayed a similar lack of vision. Their promised attempt at another “reset” with Russia is a rehash of a policy that has utterly failed the past two American administrations.

What both administrations fail to realize is that the West is already at war, whether it wants to be or not. It may not be a war we recognize, but it is a war. This war seeks, at home and abroad, to erode our values, our democracy, and our institutional strength; to dilute our ability to sort fact from fiction, or moral right from wrong; and to convince us to make decisions against our own best interests.

Those on the Russian frontier, like my friends from Ukraine and Estonia, have already seen the Kremlin’s new toolkit at work. The most visible example may be “green men,” the unlabeled Russian-backed forces that suddenly popped up to seize the Crimean peninsula and occupy eastern Ukraine. But the wider battle is more subtle, a war of subversion rather than domination. The recent interference in the American elections means that these shadow tactics have now been deployed – with surprising effectiveness – not just against American allies, but against America itself. And the only way forward for America and the West is to embrace the spirit of the age that Putin has created, plow through the chaos, and focus on building what comes next.

President-elect Trump has characteristics that can aid him in defining what comes next. He is, first and foremost, a rule-breaker, not quantifiable by metrics we know. In a time of inconceivable change, that can be an incredible asset. He comes across as a straight talker, and he can be blunt with the American people about the threats we face. He is a man of many narratives, and can find a way to sell these decisions to the American people. He believes in strength, and knows hard power is necessary.

So far, Trump seems far more likely than any of his predecessors to accelerate, rather than resist, the unwinding of the postwar order. And that could be a very bad — or an unexpectedly good — thing. So far, he has chosen to act as if the West no longer matters, seemingly blind to the danger that Putin’s Russia presents to American security and American society. The question ahead of us is whether Trump will aid the Kremlin’s goals with his anti-globalist, anti-NATO rhetoric– or whether he’ll clearly see the end of the old order, grasp the nature of the war we are in, and have the vision and the confrontational spirit to win it.

***

To understand the shift underway in the world, and to stop being outmaneuvered, we first need to see the Russian state for what it really is. Twenty-five years ago, the Soviet Union collapsed. This freed the Russian security state from its last constraints. In 1991, there were around 800,000 official KGB agents in Russia. They spent a decade reorganizing themselves into the newly-minted FSB, expanding and absorbing other instruments of power, including criminal networks, other security services, economic interests, and parts of the political elite. They rejected the liberal, democratic Russia that President Boris Yeltsin was trying to build.

Following the 1999 Moscow apartment bombings that the FSB almost certainly planned, former FSB director Vladimir Putin was installed as President. We should not ignore the significance of these events. An internal operation planned by the security services killed hundreds of Russian citizens. It was used as the pretext to re-launch a bloody, devastating internal war led by emergent strongman Putin. Tens of thousands of Chechen civilians and fighters and Russian conscripts died. The narrative was controlled to make the enemy clear and Putin victorious. This information environment forced a specific political objective: Yeltsin resigned and handed power to Putin on New Year’s Eve 1999.

From beginning to end, the operation took three months. This is how the Russian security state shook off the controls of political councils or representative democracy. This is how it thinks and how it acts — then, and now. Blood or war might be required, but controlling information and the national response to that information is what matters. Many Russians, scarred by the unrelenting economic, social, and security hardship of the 1990s, welcomed the rise of the security state, and still widely support it, even as it has hollowed out the Russian economy and civic institutions. Today, as a result, Russia is little more than a ghastly hybrid of an overblown police state and a criminal network with an economy the size of Italy — and the world’s largest nuclear arsenal.

Even Russian policy hands, raised on the Western understanding of traditional power dynamics, find the implications of this hard to understand. This Russia does not aspire to be like us, or to make itself stronger than we are. Rather, its leaders want the West—and specifically NATO and America — to become weaker and more fractured until we are as broken as they perceive themselves to be. No reset can be successful, regardless the personality driving it, because Putin’s Russia requires the United States of America as its enemy.

We can only confront this by fully understanding how the Kremlin sees the world. Its worldview and objectives are made abundantly clear in speeches, op-eds, official policy and national strategy documents, journal articles, interviews, and, in some cases, fiction writing of Russian officials and ideologues. We should understand several things from this material.

First, it is a war. A thing to be won, decisively — not a thing to be negotiated or bargained. It’s all one war: Ukraine, Turkey, Syria, the Baltics, Georgia. It’s what Vladislav Surkov, Putin’s ‘grey cardinal’ and lead propagandist, dubbed ”non-linear war” in his science fiction story “Without Sky,” in 2014.

Second, it’s all one war machine. Military, technological, information, diplomatic, economic, cultural, criminal, and other tools are all controlled by the state and deployed toward one set of strategic objectives. This is the Gerasimov doctrine, penned by Valery Gerasimov, the Russian Chief of the General Staff, in 2013. Political warfare is meant to achieve specific political outcomes favorable to the Kremlin: it is preferred to physical conflict because it is cheap and easy. The Kremlin has many notches in its belt in this category, some of which have been attributed, many likely not. It’s a mistake to see this campaign in the traditional terms of political alliances: rarely has the goal been to install overtly pro-Russian governments. Far more often, the goal is simply to replace Western-style democratic regimes with illiberal, populist, or nationalist ones.

Third, information warfare is not about creating an alternate truth, but eroding our basic ability to distinguish truth at all. It is not “propaganda” as we’ve come to think of it, but the less obvious techniques known in Russia as “active measures” and “reflexive control”. Both are designed to make us, the targets, act against our own best interests.

Fourth, the diplomatic side of this non-linear war isn’t a foreign policy aimed at building a new pro-Russian bloc, Instead, it’s what the Kremlin calls a “multi-vector” foreign policy, undermining the strength of Western institutions by coalescing alternate — ideally temporary and limited — centers of power. Rather than a stable world order undergirded by the U.S. and its allies, the goal is an unstable new world order of “all against all.” The Kremlin has tried to accelerate this process by both inflaming crises that overwhelm the Western response (for example, the migration crisis in Europe, and the war in eastern Ukraine) and by showing superiority in ‘solving’ crises the West could not (for example, bombing Syria into submission, regardless of the cost, to show Russia can impose stability in the Middle East when the West cannot).

This leads to the final point: hard power matters. Russia maintains the second most powerful military in the world, and spends more than 5 percent of its weakened GDP on defense. Russia used military force to invade and occupy Georgian territory in 2008 to disrupt the expansion of NATO, and in 2013 in Ukraine to disrupt the expansion of the EU. They have invested heavily in military reform, new generations of hardware and weapons, and expansive special operations training, much of which debuted in the wars in Ukraine and Syria. There is no denying that Russia is willing to back up its rhetoric and policy with deployed force, and that the rest of the world notices.

The West must accept that Putin has transformed what we see as tremendous weakness into considerable strength. If Russia were a strong economy closely linked to the global system, it would have vulnerabilities to more traditional diplomacy. But in the emerging world order, it is a significant actor – and in the current Russian political landscape, no new sanctions can overcome the defensive, insular war-economy mentality that the Kremlin has built.

***

How did we reach this point? After the collapse of the Soviet Union, Western security and political alliances expanded to fill the zone of instability left behind. The emerging Russian security state could only define this as the strategic advance of an enemy. The 9/11 attacks shattered Western concepts of security and conflict and expanded NATO’s new mission of projecting security. When Putin offered his assistance, we effectively responded “no thanks,” thinking in particular of his bloody, ongoing, scorched-earth war against the Chechens. We did it for the right reasons. Nonetheless, it infuriated Putin. This was the last moment when any real rapprochement with Putin’s Russia was possible.

Since that time, physical warfare has changed in ways that create a new kind of space for Putin to intervene globally. The Obama administration has a deep distaste for official overseas deployments of US troops and the associated political costs. ‘No new wars’ was the oft-repeated mantra — which altered America’s toolbox for, if not the frequency of, foreign interventions. Drone warfare was greatly expanded, as was the reliance on special forces— a politically easy choice due to their diverse capabilities and voluntary career commitment to service. But the actual number of special forces operators is exceedingly small and increasingly exhausted; soldiers deployed in shadow wars and shadow missions have far less protection than troops in traditional ground combat.

As the definitions of war and peace have blurred, creating impossibly vast front lines and impossibly vague boundaries of conflict, Putin has launched a kind of global imperialist insurgency. The Kremlin aggressively promotes an alternate ideological base to expand an illiberal world order in which the rights and freedoms that most Americans feel are essential to democracy don’t necessarily exist. It backs this up with military, economic, cultural and diplomatic resources. Through a combination of leveraging hard power and embracing the role of permanent disruptor — hacker, mercenary, rule-breaker, liar, thief — Putin works to ensure that Russia cannot be excluded from global power.

Putin tries to define recent history as an anomaly — where the world built with American sweat and ingenuity and blood and sacrifice, by the society founded on American exceptionalism, is a thing to be erased and corrected. The Russian version of exceptionalism is not a reflection of aspirational character, but a requirement that Russia remain distinct and apart from the world. Until we understand this, and that America is defined as the glavny protivnik (the ‘main enemy’) of Russia, we will never speak to Putin’s Russia in a language it can understand.

There is less and less to stand against Putin’s campaign of destabilization. It’s been 99 years since America began investing in European security with blood, and sweat, and gold. Two world wars and a long, cold conflict later, we felt secure with the institutional framework of NATO and the EU — secure in the idea that these institutions projected our security and our interests far beyond our shores. The post-WWII liberal world order and its accompanying security architecture ushered in an unparalleled period of growth and peace and prosperity for the US and other transatlantic countries.

I spend most of my time near the Russian frontier, and today that architecture seems like a Kodachrome snapshot from yesteryear. We joke that we yearn for a fight we can win with a gun, because the idea of a physical invasion is actually preferable to the constant uncertainty of economic, information, and political shadow warfare from the Kremlin.

Combatants in these shadow wars bear no designations, and protections against these methods are few. From the front lines, in the absence of the fabric of reassurance woven from our values and principles and shared sacrifice — and in the absence of the moral clarity of purpose derived from “us and them” — civil society is left naked, unarmored. Putin has dictated the mood of the unfolding era — an era of upheaval. This past year marks the arrival of this mood in American politics, whether Americans deny it or not. The example of Eastern Europe suggests that without renewed vision and purpose, and without strong alliances to amplify our defense and preserve our legacy, America too will find itself unanchored, adrift in currents stirred and guided by the Kremlin.

President-elect Trump harnessed this energy of upheaval to win the American presidency — a victory that itself was a symptom of the breakdown of the post-WWII order, in which institutional trust has eroded and unexpected outcomes have become the order of the day. Now it is his responsibility to define what comes next — or else explain to Americans, who want to be great again, why everything they’ve invested in and sacrificed for over the past century was ultimately for nothing.

As Obama did, Trump has already made the first mistake in negotiating with the Russians: telling them that there is anything to negotiate. Trump likes to discuss Putin’s strengths. He should also understand that much of it is smoke and mirrors. A renewed approach to dealing with Putin’s Russia should begin by addressing the tactics of Russia’s new warfare from the perspective of strength.

We have to accept we’re in a war and that we have a lot to lose. We need to look at this war differently, both geographically and strategically. For example, it’s hard to understand Ukraine and Syria as two fronts in the same conflict when we never evaluate them together with Moscow in the center of the map, as Russia does. We also need a new national security concept that adds a new strategic framework, connects all our resources, and allows us to better evaluate and respond to Gerasimov-style warfare: we have to learn to fight their one war machine with a unified machine of our own. This will also strengthen and quicken decisionmaking on critical issues in the US — something we will also need to replicate within NATO.

Exposing how the Kremlin’s political and information warfare works is a critical component of this strategy, as is acting to constrain it. We must (re)accept the notion that hard power is the guarantor of any international system: security is a precondition for anything (everything) else. That the projection of our values has tracked with and been amplified by force projection is no accident. Human freedom requires security. NATO has been the force projection of our values. It hasn’t just moved the theoretical line of conflict further forward: the force multiplication and value transference has enhanced our security. This is far cheaper, and far stronger, than trying to do this ourselves.

It’s also important to acknowledge that a more isolated, more nationalist America helps Putin in his objectives even while it compromises our own. We need to accept that America was part of, and needs to be part of, a global system — and that this system is better, cheaper, and more powerful than any imagined alternatives. For many years, the United States has been the steel in the framework that holds everything together; this is what we mean by ‘world order’ and ‘security architecture,’ two concepts that few politicians try to discuss seriously with the electorate.

Taken together, these steps would be a critical realignment to our strategic thinking and internal operations, and would allow us to plow through this era of upheaval with greater certainty and for greater benefit to the American people.

***

In an era increasingly cynical about American ideals, and skeptical about intervention abroad, how can the US build support for a new, more muscular global resistance to what Russia is trying to do?

We already have one model: the Cold War. Putin and his minions have spent the past 15 years ranting about how the West (specifically NATO) wants a new Cold War. By doing so, they have been conditioning us to deny it, and made us do it so continually that we have convinced ourselves it is true. This is classic reflexive control.

The truth is that fighting a new Cold War would be in America’s interest. Russia teaches us a very important lesson: losing an ideological war without a fight will ruin you as a nation. The fight is the American way. When we stop fighting for our ideals abroad, we stop fighting for them at home. We won the last Cold War. We will win the next one too. When it’s us against them, they were, and are, never going to be the winner. But when it's “all against all” — a “multipolar” world with “multi-vector” policy, a state of shifting alliances and permanent instability — Russia, with a centrally controlled, tiny command structure unaccountable for its actions in any way, still has a chance for a seat at the table. They pursue the multipolar world not because it is right or just, but because it is the only world in which they can continue to matter without pushing a nuclear launch sequence.

We must understand this, and focus now, as Putin does, on shaping the world that comes next and defining what our place is in it. Trump has shown willingness to reevaluate his positions and change course — except on issues relating to Russia, and strengthening alliances with the Kremlin’s global illiberal allies. By doing so, he is making himself a footnote to Putin’s chapter of history — little more than another of Putin’s hollow men.

Trump should understand, regardless of what the Russians did in our elections, he already won the prize. It won’t be taken away just because he admits the Russians intervened. Taking away the secrecy of Russian actions — exposing whatever it was they did, to everyone — is the only way to take away their power over the US political system and to free himself from their strings, as well. Whatever Putin’s gambit was, Trump is the one who can make sure that Putin doesn’t win.

Trump should set the unpredictable course and become the champion against the most toxic, ambitious regime of the modern world. Rebuilding American power — based on the values of liberal democracy — is the only escape from Putin’s corrosive vision of a world at permanent war. We need a new united front. But we must be the center of it. It matters deeply that the current generation of global revolutionaries and reformers, like my Ukrainian friend, no longer see themselves as fighting for us or our ideals.

In a strange way, Trump could be just crazy enough — enough of a outlier and a rogue — to expose what Putin’s Russia is and end the current cycle of upheaval and decline. This requires non-standard thinking and leadership — but also purpose, and commitment, and values. It requires faith — for and from the American people and American institutions. And it requires the existence of truth.

The alternative is accepting that our history and our nation were, in fact, not the beginning of a better — greater — world, but the long anomaly in a tyrannous and dark one.

(ZH) How Hedge Funds Closed Out 2016, And Why Hopes For A 2017 Rebound May Disap

How Hedge Funds Closed Out 2016, And Why Hopes For A 2017 Rebound May Disappoint

2016 was a year most hedge funds would be happy to forget. And while the same goes for 2015, 2014, 2013, 2012, 2011, and 2010, in fact virtually every year since the financial crisis in which the vast majority of the two and twenty crowd have failed to generate alpha, in 2016 - a year many said would mark a renaissance for active managers - the "flash hedge fund return" according to a report by BofA's Paul Ciana from Friday was a paltry 3.34%, which as BofA conveniently calculated meant they "underperforming the S&P500 index by 6.2%" at which point your average underperforming hedge fund manager complains that they shouldn't be benchmarked against the S&P, even as the redemption notices flood in and the AUM gets ever smaller.
Not everyone did poorly: credit related strategies lead HF performance, including Distressed Credit, Convertible Arbitrage and Event Driven strategies. On the other end, predictably, dedicated Short Bias was down 5.10%
Looking at specific names, the following HSBC table breaks out the best and worst hedge funds as of the last week of December 2016:
In recent weeks there has been a fresh burst of hope that 2017 will be better for the HF community as a result of the recent collapse in cross-asset correlation; it is hoped that the resulting returns dispersion will make it easier for hedge funds to stand out in a world in which due to central bank intervention, correlations had been abnormally high following the financial crisis.
But is that an accurate description of events? To a great extent, the answer is no.
While correlation between diversified HF performance and S&P 500 price return declined from the May 2016 high (Chart 1), the 1-year correlation (83.7%) was slightly above the 3-year correlation (83.0%) as of the end of November. Overall, correlation remained far higher than it has been historically. Which as BofA redundantly explains, means that "when S&P 500 declines, performance of HFs with higher positive correlation is expected to suffer."
Not all "hedge" funds have such a high correlation, however. The correlation relationship with S&P 500 varies substantially among different HF strategies. Short Bias and Merger Arbitrage offer negative correlation or most diversification effects. Equity focused HF strategies, including Equity Market Neutral and Long/Short, has decreased correlation to the S&P 500 compared to longer term relationship (3-year and 5-year). On the other hand, Distressed Credit, Convertible Arbitrage and Event Driven have increased positive correlation (Chart 2).
Yet, while there are some notable exceptions, the rule generally is that as the market goes, so goes the average hedge fund. Which is why some of the world's wealthiest billionaires are pleading that Trump does not disappoint and manages to keep pushing the S&P to ever higher records on nothing but hope of a "fiscal stimulus" which may well never come.
* * *
That said, how did hedge fund close out 2016? Here is the answer based on the latest weekly CFTC data:
  • Buy-side net long in WTI Crude was near record high (99.4%-tile). However, trend remains bullish absent a move below 44.1/42.2 (50-week SMA and chart support).
  • Institutions added to their long in 30-year Treasury future to the highest since July 2015; HFs added to their short in 30-year to the most since Feb. 2015. Technical bias favors a bullish rebound of the 30-year Treasury.
  • Buy-side was most short JPYUSD since December 22, 2015. However, net position was 42% less than the short seen in Jan. 2007. Although JPY strengthened during the past 2-weeks, the longer term trend favors further depreciation against USD absent a move below 114.97/114.74.
Notable flows last week (12/20/2016 to 12/27/2016):
  • Institutions sold $5.5bn S&P 500, $0.7bn Russell 2000 and $0.6bn MSCI EM futures last week. HFs sold $0.4bn MSCI EM and $0.3bn Russell 2000, but bought $4.7bn S&P 500 and $1.1bn NASDAQ 100.
  • Institutions bought $9.8bn 10-year and $2.3bn 30-year Treasuries, while selling $1.9bn 2-year. HFs sold $10.1bn 10-year and $2.7bn 30-year, but bought $3.9bn 2-year.
  • HFs increased their shorts in EURUSD and JPYUSD, by $0.1bn and $3.2bn, respectively. Institutions added -$0.2bn to JPYUSD shorts, and sold $0.7bn of their longs in EURUSD.
  • CTAs/CPOs sold $1.2bn Gold and $0.3bn Silver, but bought $0.6bn WTI Crude.
The key fufutres categories, visualized:
Equities: S&P500
Equities: Nasdaq
Equities: Russell
Equities: Emerging Markets
Treasurys: 30Y
Treasurys: 10Y
Currency: Euro
Currency: Yen
Commodities: Gold
Commodities: WTI
Source: BofA

Reuters - How ties to an 'equestrian princess' landed Samsung at center of a sca


Samsung Electronics Co's (005930.KS) sponsorship of the equestrian-athlete daughter of a long-time friend of President Park Geun-hye has helped to land South Korea's top company in the center of the country's influence-peddling scandal.

Samsung agreed last year to pay $18 million to Core Sports International GmbH, a consulting firm controlled by Park's friend Choi Soon-sil, who is in jail and faces charges of abuse of power and fraud in a criminal trial that began this month.

A South Korean court has also issued an arrest warrant for Choi's Germany-based horse-riding daughter, 20-year-old Chung Yoo-ra – who has been the main beneficiary of the sponsorship – for alleged criminal interference related to her academic record, and other unspecified charges.

The sponsorship deal is being examined by prosecutors as they try to ascertain whether Samsung, which was also funding and chairing the Korea Equestrian Federation (KEF), sought favors from Choi and President Park in return for funding initiatives backed by them. In particular, they are looking at whether favors included the National Pension Service' support for Samsung’s founding family in a shareholder vote last year.

"A crucial part of our investigation is to look into why Samsung and the KEF supported Choi Soon-sil and her daughter Chung Yoo-ra and transferred funds to companies set up by Choi or involved with Choi," an official at the special prosecutor's team told Reuters by phone. He declined to be identified because he is not authorized to speak with the media.

Park has been impeached by parliament over her role in a wide-ranging influence-peddling scandal linked to Choi, and now awaits a Constitutional Court review of that decision, which if upheld would make her the first democratically-elected South Korean leader to leave office in disgrace.

A HORSE NAMED VITANA V

Reuters has reviewed a copy of Samsung Electronics’ August 2015 contract with Core Sports to sponsor the team at a German facility in Biblis, a small town south of Frankfurt. Neither party announced the sponsorship.

"Samsung wishes to develop an Equestrian Team, including overseas training of athletes to prepare for 2018 Asian Games and World Equestrian Games," the consulting agreement says.

Samsung Electronics ended up spending about 8 billion won ($6.6 million) on the team, which went to support Chung, according to testimony by Samsung Group's de facto head, Jay Y. Lee, during parliamentary testimony earlier this month.

A more precise accounting, including whether some of that funding supported her coach and fellow rider, Park Jae-hong, was not available.

The team was meant to include six riders with 12 horses, Samsung's contract says, but never grew beyond Chung and her coach, according to lawmakers on a parliamentary committee investigating the presidential scandal.

Reuters was unable to determine why the team did not expand beyond the two riders.

Samsung's outlay included the 1 million euros ($962,000) purchase of a horse to be used by Chung named Vitana V, according to Lee.

He told the hearing there was a reason the group felt compelled to fund the equestrian team, but did not say what that was.

"I was told there were inevitable circumstances ... But I admit that the deal was done in an inappropriate way and regret that I didn't look into it more thoroughly," Lee testified. He didn't elaborate further.

Chung was not available for comment and her lawyer, who also represents her mother, did not return multiple requests for comment. Choi, who has denied legal wrongdoing, told lawmakers on Dec. 26 that she had not sought the sponsorship from Samsung. Reuters could not reach Park Jae-hong for comment.

Samsung Electronics declined to comment for this story.

Sung-Kwan Park, a Frankfurt-based lawyer who was Core's managing director, declined to discuss details of the deal when approached by Reuters, citing attorney-client privilege.

SPORT FOR THE ELITE

Samsung Electronics' support for Choi-backed initiatives also included 1.6 billion won to a foundation run by Choi's niece Jang Si-ho, and another 20.4 billion won, funding shared with the company's affiliates, to two foundations set up by a major business lobby to support Park policies. Prosecutors say in their indictment of Choi that they suspect that she controlled the foundations, including choosing staff.

Jang has said the foundation she ran was established to support young athletes and that Choi had asked her to set it up. Her lawyer told a court hearing on Thursday that Jang put pressure on Samsung to sponsor the foundation, but said it was not clear that was the reason for Samsung's backing.

Lee told lawmakers Samsung's contributions to the two foundations backing Park's initiatives were not made with any quid pro quo expected.

Samsung's offices have been raided twice by prosecutors but none of its officials have been charged with any wrongdoing.

The Samsung Group, which has been a major sponsor of the Olympic Games, has also funded a range of sports in South Korea in the past 20 years, including soccer, baseball, basketball, and volleyball. While those sports have mass appeal, equestrian, as in many countries, is seen as a sport for the wealthy elite – there were just 251 registered equestrian riders in the country in 2014, according to the KEF.

The conglomerate and its founding family have a long-term relationship with the sport. The 48-year-old Lee, grandson of the group's founder, is an accomplished horseman and represented South Korea at international events, winning medals in various competitions in the late 1980s and early 1990s.

FAKE DOCUMENTS

In 2010, Samsung pulled out of sponsoring the KEF only to return to the sport in March 2015 when Samsung Electronics President Park Sang-jin took over the chairmanship of the KEF.

That was at a time when the KEF was being accused by lawmakers and local equestrian federations of granting Chung undue favors, including selection to the national team, because of her mother's perceived influence with Park.

In 2014, Chung was labeled the "Equestrian Princess" by South Korean media, though she partially answered her critics by winning a group dressage gold medal at the 2014 Asian Games.

The KEF declined to comment, citing the ongoing investigation by prosecutors.

Park Jong-so, a veteran rider and former national team head coach, said many in the country's equestrian community were puzzled when Samsung resumed its leadership of the federation.

Samsung gave 2.6 billion won to the KEF between resuming the sponsorship and August this year, according to a document it filed to parliament and shown to Reuters by a lawmaker.

The country's culture ministry, which oversees sports, said in a December audit report that the KEF signed fake documents provided by Chung to excuse her absences from high school and gain credit for volunteer activities she never did.

The saga has left equestrian sports in South Korea in a state of flux. Some local media have reported that Samsung has canceled the contract with Core, which has been renamed Widec Sports GmbH. Samsung declined to comment.

Hwang Young-shik, who won two 2014 Asian Games gold medals, including one with Chung in the group dressage, and now trains young riders at his own farm, said the whole saga has been embarrassing for the sport in South Korea.

"Young riders are frustrated over this," he told Reuters, adding that everyone in the equestrian world now "knows who Chung Yoora is."

>>> How a United Iran, Russia and China are Changing The World - For the Better

How a United Iran, Russia and China are Changing The World - For the Better


The two previous articles have focused on the various geopolitical theories, their translations into modern concepts, and practical actions that the United States has taken in recent decades to aspire to global dominance. This segment will describe how Iran, China and Russia have over the years adopted a variety of economic and military actions to repel the continual assault on their sovereignty by the West; in particular, how the American drive for global hegemony has actually accelerated the end of the 'unipolar moment' thanks to the emergence of a multipolar world.

From the moment the Berlin Wall fell, the United States saw a unique opportunity to pursue the goal of being the sole global hegemon. With the end of the Soviet Union, Washington could undoubtedly aspire to planetary domination paying little heed to the threat of competition and especially of any consequences. America found herself the one and only global superpower, faced with the prospect of extending cultural and economic model around the planet, where necessary by military means.

Over the past 25 years there have been numerous examples demonstrating how Washington has had little hesitation in bombing nations reluctant to kowtow to Western wishes. In other examples, an economic battering ram, based on predatory capitalism and financial speculation, has literally destroyed sovereign nations, further enriching the US and European financial elite in the process.

Alliances to Resist

In the course of the last two decades, the relationship between the three major powers of the Heartland, the heart of the Earth, changed radically.

Iran, Russia and China have fully understood that union and cooperation are the only means for mutual reinforcement. The need to fight a common problem, represented by a growing American influence in domestic affairs, has forced Tehran, Beijing and Moscow to resolve their differences and embrace a unified strategy in the common interest of defending their sovereignty.

Events such as the war in Syria, the bombing of Libya, the overthrowing of the democratic order in Ukraine, sanctions against Iran, and the direct pressure applied to Beijing in the South China Sea, have accelerated integration among nations that in the early 1990s had very little in common.

Economic Integration

Analyzing US economic power it is clear that supranational organizations like the World Trade Organization, International Monetary Fund and the World Bank guarantee Washington’s role as the economic leader. The pillars that support the centrality of the United States in the world economy can be attributed to the monetary policy of the Fed and the function of the dollar as a global reserve currency.

The Fed has unlimited ability to print money to finance further economic power of the private and public sector as well as to pay the bill due for very costly wars. The US dollar plays a central role as the global reserve currency as well as being used as currency for trade. This virtually obliges each central bank to own reserves in US currency, continuing to perpetuate the importance of Washington in the global economic system.

The introduction of the yuan into the international basket of the IMF, global agreements for the Asian Infrastructure Investment Bank (AIIB), and Beijing’s protests against its treatment by the World Trade Organization (WTO) are all alarm bells for American strategists who see the role of the American currency eroding. In Russia, the central bank decided not to accumulate dollar reserves, favoring instead foreign currency like the Indian rupee and the Chinese yuan. The rating agencies - western financial-oligarchy tools -have diminishing credibility, having become means to manipulate markets to favor specific US interests. Chinese and Russian independent rating agencies are further confirmation of Beijing and Moscow’s strategy to undermine America’s role in western economics.

De-dollarization is occurring and proceeding rapidly, especially in areas of mutual business interest. In what is becoming increasingly routine, nations are dealing in commodities by negotiating in currencies other than the dollar. The benefit is twofold: a reduction in the role of the dollar in their sovereign affairs, and an increase in synergies between allied nations. Iran and India exchanged oil in rupees, and China and Russia trade in yuan.

Another advantage enjoyed by the United States, intrinsically linked to the banking private sector, is the political pressure that Americans can apply through financial and banking institutions. The most striking example is seen in the exclusion of Iran from the SWIFT international system of payments, as well as the extension of sanctions, including the freezing of Tehran's assets (about 150 billion US dollars) in foreign bank deposits. While the US is trying to crack down on independent economic initiatives, nations like Iran, Russia and China are increasing their synergies. During the period of sanctions against Iran, the Russian Federation has traded with the Islamic Republic in primary commodities. China has supported Iran with the export of oil purchased in yuan. More generally, Moscow has proposed the creation of an alternative banking system to the SWIFT system.

Private Banks, central banks, ratings agencies and supranational organizations depend in large part on the role played by the dollar and the Fed. The first goal of Iran, Russia and China is of course to make these international bodies less influential. Economic multipolarity is the first as well as the most incisive way to expand the free choice before each nation to pursue its own interests, thereby retaining its national sovereignty.

This fictitious and corrupt financial system led to the financial crisis of 2008. Tools to accumulate wealth by the elite, artificially maintaining a zombie system (turbo capitalism) have served to cause havoc in the private and public sectors, such as with the collapse of Lehman Brothers or the crisis in the Asian markets in the late 1990s.

The need for Russia, China and Iran to find an alternative economic system is also necessary to secure vital aspects of the domestic economy. The stock-market crash in China, the depreciation of the ruble in Russia, and the illegal sanctions imposed on Iran have played a profound role in concentrating the minds of Moscow, Tehran and Beijing. Ignoring the problem borne of the centrality of the dollar would have only increased the influence and role of Washington. Finding points of convergence instead of being divided was an absolute must and not an option.

A perfect example, explaining the failed American economic approach, can be seen in recent years with the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), two commercial agreements that were supposed to seal the economic trade supremacy of the US. The growing economic alternatives proposed by the union of intent between Russia, China and Iran has enabled smaller nations to reject the US proposals to seek better trade deals elsewhere. In this sense, the Free Trade Area of ​​the Asia Pacific (FTAAP) proposed by Beijing is increasingly appreciated in Asia as an alternative to the TPP.

In the same way, the Eurasian Union (EAEU) and the Commonwealth of Independent States (CIS) have always been key components for Moscow. The function these institutions play was noticeably accelerated following the coup in Ukraine and the resulting need for Russia to turn east in search of new business partners. Finally, Iran, chosen by Beijing as the crossroad of land and sea transit, is a prime example of integration between powers geographically distant but with great intentions to integrate vital structures of commerce.

The Chinese model of development, called Silk Road 2.0, poses a serious threat to American global hegemonic processes. The goal for Beijing is to reach full integration between the countries of the Heartland and Rimland, utilizing the concept of sea power and land power. With an investment of 1,000 billion US dollars over ten years, China itself becomes a link between the west, represented by Europe; the east, represented by China itself; the north, with the Eurasian economic space; the south, with India; Southeast Asia; the Persian Gulf and Middle East. The hope is that economic cooperation will lead to the resolution of discrepancies and strategic differences between countries thanks to trade agreements that are beneficiary to all sides.

The role of Washington continues to be that of destruction rather than construction. Instead of playing the role of a global superpower that is interested in business and trade with other nations, the United States continues to consider any foreign decision in matters of integration, finance, economy and development to lie within its exclusive domain. The primary purpose of the United States is simply to exploit every economic and cultural instrument available to prevent cohesion and coexistence between nations. The military component is usually the trump card, historically used to impose this vision on the rest of the world. In recent years, thanks to de-dollarization and military integration, nations like Iran, Russia and China are less subject to Washington's unilateral decisions.

Military deterrence

Accompanying the important economic integration is strong military-strategic cooperation, which is much less publicized. Events such as the Middle East wars, the coup in Ukraine, and the pressure exerted in the South China Sea have forced Tehran, Moscow and Beijing to conclude that the United States represents an existential threat.

In each of the above scenarios, China, Russia and Iran have had to make decisions by weighing the pros and cons of an opposition to the American model. The Ukraine coup d’état brought NATO to the borders of the Russian Federation, representing an existential threat to the Russia, threatening as it does its nuclear deterrent. In the Middle East, the destruction of Iraq, Libya and Syria has obliged Tehran to react against the alliance formed between Saudi Arabia, Turkey and the United States. In China, the constant pressure on South China Sea poses a serious problem in case of a trade blockade during a conflict. In all these scenarios, American imperialism has created existential threats. It is for this reason natural that cooperation and technological development, even in the military area, have received a major boost in recent years.

In the event of an American attack on Russia, China and Iran, it is important to focus on what weapon systems would be used and how the attacked nations could respond.

Maritime Strategy and Deterrence

Certainly, US naval force place a serious question mark over the defense capabilities of nations like Russia, China and Iran, which strongly depend on transit via sea routes. Let us take, for example, Russia and the Arctic transit route, of great interest not only for defense purposes but also being a quick passage for transit goods. The Black Sea for these reasons has received special attention from the United States due to its strategic location. In any case, the responses have been proportional to the threat.

Iran has significantly developed maritime capabilities in the Persian Gulf, often closely marking ships of the US Navy located in the area for the purposes of ​​deterrence. China's strategy has been even more refined, with the use of dozens, if not hundreds, of fishing boats and ships of the Coast Guard to ensure safety and strengthen the naval presence in the South and East China Sea. This is all without forgetting the maritime strategy outlined by the PLA Navy to become a regional naval power over the next few years. Similar strategic decisions have been taken by the navy of the Russian Federation. In addition to having taken over ship production as in Soviet times, it has opted for the development of ships that cost less but nevertheless boast equivalent weapons systems to the Americans carrier groups.

Iran, China and Russia make efficiency and cost containment a tactic to balance the growing aggressiveness of the Americans and the attendant cost of such a military strategy.

The fundamental difference between the naval approach of these countries in contrast to that of the US is paramount. Washington needs to use its naval power for offensive purposes, whereas Tehran, Moscow and Beijing need naval power exclusively for defensive purposes.

In this sense, among the greatest weapons these three recalcitrant countries possess are anti-ship, anti-aircraft and anti-ballistic systems. To put things simply, it is enough to note that Russian weapons systems such as the S-300 and S-400 air-defense systems (the S-500 will be operational in 2017) are now being adopted by China and Iran with variations developed locally. Increasingly we are witnessing an open transfer of technology to continue the work of denying (A2/AD) physical and cyberspace freedom to the United States. Stealth aircraft, carrier strike groups, ICBMs and cruise missiles are experiencing a difficult time in such an environment, finding themselves opposed by the formidable defense systems the Russians, Iranians and Chinese are presenting. The cost of an anti-ship missile fired from the Chinese coast is considerably lower than the tens of billions of dollars needed to build an aircraft carrier. This paradigm of cost and efficiency is what has shaped the military spending of China, Russia and Iran. Going toe to toe with the United States without being forced to close a huge military gap is the only viable way to achieve immediate tangible benefits of deterrence and thereby block American expansionist ambitions.

A clear example of where the Americans have encountered military opposition at an advanced level has been in Syria. The systems deployed by Iran and Russia to protect the Syrian government presented the Americans with the prospect of facing heavy losses in the event of an attack on Damascus. The same also holds for the anti-Iranian rhetoric of certain American politicians and Israeli leaders. The only reason why Syria and Iran remain sovereign nations is because of the military cost that an invasion or bombing would have brought to their invaders. This is the essence of deterrence. Of course, this argument only takes into partial account the nuclear aspect that this author has extensively discussed in a previous article.

The Union of the nations of the Heartland and Rimland will make the United States irrelevant

The future for the most important area of ​​the planet is already sealed. The overall integration of Beijing, Moscow and Tehran provides the necessary antibodies to foreign aggression in military and economic form. De-dollarization, coupled with an infrastructure roadmap such as the Chinese Silk Road 2.0 and the maritime trade route, offer important opportunities for developing nations that occupy the geographical space between Portugal and China. Dozens of nations have all it takes to integrate for mutually beneficial gains without having to worry too much about American threats. The economic alternative offered from Beijing provides a fairly wide safety net for resisting American assaults in the same way that the military umbrella offered by these three military powers, such as with the the SCO for example, serves to guarantee the necessary independence and strategic autonomy. More and more nations are clearly rejecting American interference, favoring instead a dialogue with Beijing, Moscow and Tehran. Duterte in the Philippines is just the latest example of this trend.

The multipolar future has gradually reduced the role of the United States in the world, primarily in reaction to her aggression seeking to achieve global domination. The constant quest for planetary hegemony has pushed nations who were initially western partners to reassess their role in the international order, passing slowly but progressively into the opposite camp to that of Washington.

The consequences of this process have sealed the destiny of the United States, not only as a response to her quest for supremacy but also because of her efforts to maintain her role as the sole global superpower. As noted in previous articles, during the Cold War the aim for Washington was to prevent the formation of a union between the nations of the Heartland, who could then exclude the US from the most important area of ​​the globe. With the fall of the Iron Curtain, sights were set on an improbable quest to conquer the Heartland nations with the intent of dominating the whole world. The consequences of this miscalculation have led the United States to being relegated to the role of mere observer, watching the unions and integrations occurring that will revolutionize the Eurasian zone and the planet over the next 50 years. The desperate search to extend Washington's unipolar moment has paradoxically accelerated the rise of a multipolar world.

In the next and final article, I will throw a light on what is likely to be a change in the American approach to foreign policy. Keeping in mind the first two articles that examined the approach by land theorized by MacKinder as opposed to the Maritime Mahan, we will try and outline how Trump intends to adopt a containment approach to the Rimland, limiting the damage to the US caused by a complete integration between nations such as Russia, China, Iran and India.

(BofA-ML) Follow The Flow - Fund flows in 2016 - QE in the driving seat

2016 Flows = all about QE
QE drove fund flows in 2016, but the past two months has been all about reversing this trend. Even though high-grade and EM debt funds have been the main beneficiaries of QE-mania, recent developments have shifted momentum to the negative side. Equities have been the biggest loser in 2016, with outflows mounting to $100bn, as investors flocked to QE-eligible assets. HY funds closed the year on negative territory in terms of flows, despite the recent rebound. Commodities were the biggest winner for most of 2016, but rising rates reversed the strong inflow seen over the first part of the year.