Archive for January, 2008

As Bernanke immolates his credibility by insisting that inflation remains contained, the dollar union is cracking up. The Gulf sheikdoms, which have all been pegged to the dollar for decades, are tired of double-digit and rising inflation so that they can maintain an antiquated currency peg with an obviously politicized central bank.

“Kuwait really did very little,” al-Ibrahim said.

His comments helped the euro strengthen against the dollar. The US currency fell to a two-week low against a basket of major currencies yesterday ahead of a US interest rate decision later in the day.

“The comments are very sensible. Any currency reform needs to be substantial,” said Marios Marathefis, Standard Chartered’s regional head of research. Gulf states should allow their currencies to appreciate by 20% against the dollar, he said late last year.

Simon Williams, senior economist at HSBC, said: “The comments are a very strong sign that the Qatari authorities are seriously examining all of their policy options to deal with inflation, including monetary reform.”

Qatari officials will make foreign-exchange policy recommendations to the government of HH the Emir Sheikh Hamad bin Khalifa al-Thani this year, including possibly a call to revalue the currency, al-Ibrahim said, without saying exactly when.

“We are studying all kinds of possible ways to price our exchange rate or to price our currency,” said al-Ibrahim, who heads Qatar’s General Secretariat for Planning. “The government is willing to look into these alternatives,” al-Ibrahim said.

Qatar currently holds the chair of the GCC which ispreparing for monetary union as early as 2010. “Really, we would like to do everything we can through the GCC,” he said.

“As a small country we cannot float our currency … it has to be tied.”

Still, when asked if Qatar could act unilaterally, he said: “I think we can.”

Gulf states are constrained in their fight against inflation because dollar pegs force them to track US monetary policy at a time when the Federal Reserve is cutting rates.

Gulf currencies rallied last year after the UAE called for the region’s central banks to sever their dollar pegs.

Saudi Arabia dismissed the idea and the Gulf states agreed last month to retain their dollar pegs and keep any talks on currency reform secret.

Qatar, which is contending with the region’s highest inflation rate, reopened the debate last week when its finance minister said that Gulf states could consider revaluing their currencies together at some stage to fight inflation.

The central bank, the General Secretariat for Planning and a state inflation committee are debating several policy options, al-Ibrahim said, after inflation hit 13.73% in September.

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MBIA credit default swaps have traded at junk levels for the past two weeks. However, the authorities agree that it’s still AAA material. Reality has been suspended — for now.

MBIA Defends AAA Insurer Rating, Dismisses Bankruptcy Rumors
By Christine Richard

Jan. 31 (Bloomberg) — MBIA Inc. Chief Executive Officer Gary Dunton said the world’s largest bond insurer has more than enough capital to keep its AAA credit rating and dismissed speculation the company may go bankrupt.

Dunton, speaking on a conference call after Armonk, New York-based MBIA reported a $2.3 billion fourth-quarter loss, blamed “fear mongering” and “distortion” for driving the company’s stock down more than 80 percent in the past year.

“It’s very difficult to see the reputation of a company you love coming under fire,” Dunton said.

MBIA is in the best position among its peers to survive the losses and downgrades on securities the industry guaranteed, Dunton said. MBIA’s capital raising efforts will exceed the requirements necessary to keep its top credit ranking at Moody’s Investors Service, he said, adding that speculation about MBIA’s holding company liquidity risk is “nothing further from truth.”

Dunton’s comments helped alleviate concerns that the company would lose its top ranking, driving MBIA up as much as 14 percent in New York Stock Exchange trading and fueling a rally in the Standard & Poor’s 500 Index. Without the AAA stamp, MBIA’s business would be crippled and ratings on $652 billion of securities would be thrown into doubt.

Not a good day for monoline-short selling Bill Ackman, that’s for sure.

Once again, political strong-arming screws over the short seller who did the quality research, in favor of the institutional behemoth that screwed up; dollar holders will pay the difference.

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MOSCOW, January 31 (RIA Novosti) – Russia’s Finance Ministry said on Thursday it had divided the Stabilization Fund, set up to accrue surplus revenue from high world oil prices, into the Reserve Fund and the National Prosperity Fund.

The Stabilization Fund held 3.852 trillion rubles ($157 billion) as of January 30.

Pyotr Kazakevich, deputy director of the ministry’s department for international financial relations, government debt and government finances, said the Stabilization Fund was transformed on January 30, when its assets were credited to the accounts of the new funds.

The Reserve Fund, designed to cushion the federal budget in the event of an oil price plunge, totaled 3.069 trillion rubles ($125 billion) just after its formation, while the National Prosperity Fund, expected to help Russia carry through pension reforms, held 783 billion rubles ($32 billion), Kazakevich said.

The ministry official said that 80% of resources in the newly created funds will be invested in government bonds of countries approved by the Russian government, 15% in the bonds of foreign government agencies and central banks, and 5% in international financial institutions.

From not too long ago:

… Some analysts have speculated that the Kremlin-friendly oligarch Oleg Deripaska was roped in by the state to buy the country’s seventh-largest oil producer, Russneft, which is struggling under the weight of hundreds of millions of dollars in tax claims. Its former president, Mikhail Gutseriyev, was recently placed on an Interpol wanted list after fleeing the country to escape what he has called politically motivated charges against him.

The campaign against Gutseriyev and Russneft has prompted comparisons with Yukos, which was felled by more than $30 billion in back tax claims and the jailing of its founder, Mikhail Khodorkovsky. Khodorkovsky accused Igor Sechin, Putin’s deputy chief of staff and chairman of Rosneft’s board, of orchestrating the campaign against him.

Rosneft has now gobbled up most of Yukos’s assets, growing from a middling oil concern into the country’s largest oil company mainly through its purchase of Yukos’s largest production units, Yuganskneftegaz, Tomskneft and Samaraneftegaz. Absorbing those acquisitions will take up much of Rosneft’s attention as it prepares to go global and challenge the likes of Shell and BP.

Sechin must be pretty fat and happy right now. He has been agitating for exactly this for a while.

Rosneft has been like a python trying to digest a cow — its gobbling up of Yukos was funded by $23 billion in debt. Sechin has been mad about it ever since, and he saw the $157 billion in reserves as the solution to his problem. I guess he got what he wanted.

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Karl Rove, quack doctor

Karl Rove has some “lessons” from the latest campaign. Typically for the Beltway, they run the gamut from “obvious” to “myopic” to “wrong.” A few highlights:

The new rules include:

– The big bounce is gone.

Obama? Iowa? McCain? New Hampshire? Michigan was the aberration because it has been the ancestral stomping ground of the Romneys. As for South Carolina, McCain was lucky enough to have Fred Thompson, a man billed to the base as a credible conservative, who was in all likelihood nothing more than a stalking-horse leech on southern whites for John McCain the entire time.

– Television ads don’t matter as much as they used to.

Free media has always been much more valuable than paid media. The notion that one ad can shift a campaign is so much bunk. One ad guy can conceivably swing a state, which can conceivably swing an election, but the rate of occurrence is vanishingly rare. The fact that advertising consultants have built such a cult of political power around themselves is a testament to the lack of sentient thought in DC. The good political consultants are the ones who can build national grassroots turnout machines, not the ones who make awesome ads. “Great ad men” don’t add to any bottom line besides their own: classic examples include the George Allen campaign of 2006 and the Romney campaign of the 2008 GOP primary.

Young voters have blocked out television advertising completely, I think. For the rest, it’s the same as always: the free media narrative is what matters, because that’s the impression of the horse race that the preponderance of voters will see.

– Technology allows a candidate to raise money quickly and inexpensively.

Welcome to the 21st century. Eight years late. Didn’t learn much from the Dean campaign, did you?

– Debates are a great way to come on late and make up for a lack of resources and endorsements. Mike Huckabee was an asterisk for most of the campaign. But he is an excellent debater with a terrific sense of humor who hit his stride, especially in the debates, just as activists and party opinion leaders were starting to pay close attention before the Iowa caucuses.

Mike Huckabee was an asterisk until he convinced a bunch of people unpersuaded by all of Romney’s ad money to vote for Huckabee instead. The media liked him because he sucked up to them and was socially pleasant. Ames was what the media needed to boost Huckabee. These debates are a total waste of time, and 90%++ of people who watch primary debates are people who have already made up their minds. The amount of debate psychoanalysis has been nothing short of stupefying.

As Barack Obama’s “Pakistan gaffe” (“I will not use tactical nuclear weapons in Pakistan”) showed, what matters is how a debate is covered, not what actually happens. The favor of the MSM columnists, who are a liberal, myopic, decrepit and gossipy lot, is the determining factor. If you don’t kowtow to them, as was the case with Obama, they will make you look bad, even if you say something that’s commonsensical and that the crowd applauds. And then your horse race numbers get screwed, in spite of your best effort.

Politics is infuriating. It’s like watching two disabled eleven-year-olds playing tennis: the number of unforced errors is staggering, and whoever makes the more mind-numbing amount of them is the one who loses. Interest in politics is a curse.

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Stratfor tells us that Yuri Luzhkov, Moscow’s hybrid of Bill Daley and Al Capone, is in Vladimir Putin’s sights.

Luzhkov wields unprecedented mayoral power over the Russian capital, with close ties to major bankers, media moguls and the city’s biggest businesses. When he became mayor in 1992, his wife Yelena’s small construction company, Inteco, burst onto the Moscow scene, performing 20 percent of all construction work in the capital. Now, Inteco accounts for most of the construction in Moscow and many other cities, making Yelena Russia’s only female billionaire. …

Putin has long wanted to go after Luzhkov and end his reign over Moscow and the construction business, but the president has held back because of Luzhkov’s many political backers in the Duma and supposed Mafia ties. Moreover, Luzhkov is on the board of Putin’s political party, United Russia.

The straw that broke Putin’s back was the December 2007 legislative elections; not only was voter turnout in Moscow low, but votes for United Russia also were abysmal. …

Stratfor sources say Putin has given Luzhkov until the fall to tie up loose ends in his mayoral post, and he must then resign. Moreover, Putin is already clearing out Luzhkov’s supporters in the Duma, stripping Alexander Chiligarov of the Duma vice presidency and Iosif Kobozon of his place on the Duma Commission.

It remains to be seen if Putin will just strip Luzhkov of his mayoral title or if he intends to go after the mayor and his wife’s construction and real estate empire. Many Kremlin insiders and other oligarchs have been salivating at the thought of getting their hands on Luzhkov’s assets.

But Luzhkov is not the sort to go quietly. He still has some tools — mainly his alleged ties to the largest Mafia in Russia — that he might be tempted to use against Putin and the Kremlin, though making such a move would amount to suicide.

But on the other hand, Putin could use this time to prove to the Moscow Mafia that his control over the country will not be shaken by any move that the Mafia — or anyone else — would want to make against the Kremlin. Some of Putin’s loyalists allegedly have their own ties to the Moscow Mafia, and the president could use the Mafia members who supposedly are connected to Kremlin insiders against those said to be loyal to Luzhkov, fracturing one of the most powerful mafias in the world.

I don’t know that much about Russian politics, and most of what I do know, I learn from Stratfor first. But it bears repeating, over and over again, that one sniper bullet between the eyes of Putin, Vladislav Surkov, Igor Sechin, Dmitri Medvedev, Alexei Miller, or Oleg Deripaska would probably spark another violent spiral into 1990’s-style gangland warfare.

Putin has not been making very many friends on the Russian political scene. The KGB/FSB, the institution that made him, is bridling at the material damage Putin has inflicted upon the clan of Igor Sechin, which basically comprises the Ministry of Justice, the old-line security bureaucracies, and Rosneft (the devourer of Mikhail Khodorkovsky’s Yukos).

Yuri Luzhkov is a billionaire many times over, and Moscow is his fief. If he goes, his construction and real estate empire (nominally his wife’s) will exist solely at the pleasure of Putin’s clique — which has shown itself to be ruthlessly acquisitive against “big boys” who aren’t part of the Kremlin club.

Even if Luzhkov is willing to run that risk (which is doubtful), what about Moscow mafiosi, who probably murdered central banker Andrei Kozlov, among thousands of other important people over the past eight years?

One day, somebody will refuse to yield his fief. Everyone who has seen his fief cut back or wholly confiscated during the Putin years will be thirsty for revenge.

The Kremlin has become a clearinghouse for political power, and Putin is its chief market maker. But Sechin’s entire clan (the Rosneft bloc) is restless at the growth of Surkov’s Gazprom clan. As Putin demonstrated in his liquidation of Vladimir Barsukov’s Tambov mafia, Putin is not loyal to the institutions which made him the power he is.

Putin holds substantial power and wealth himself, and through Surkov and Deripaska he has the allegiance of much more. But the Yeltsin oligarchs in exile have been fighting a war on the run with Putin for years — Boris Berezovsky, for example, has four identical limousines which take different routes to wherever he goes — and they have been out in the cold for a very long time. George Soros and Marc Rich have been fighting a different kind of battle with the Kremlin since well before Yeltsin’s day. The Sechin clique has been unhappy for its own reasons. The Tartarstan clique, a group of “Russian” Tartar and Bashkir oligarchs whose fiefdom has been functionally independent from Moscow for years, knows it is not far down Putin’s most-wanted-assets list, as well.

Putin has many committed enemies. From Putin’s track record, one doubts Putin has many reliable friends.

Luzhkov’s clique faces the choice between capitulation with uncertain results, “amiable exile” a la Roman Abramovitch, or standing for its fief, and hoping that other clans rally to it.

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Bush has been awful for the dollar. Could the Democrats be worse? …

On Tuesday, House Financial Services Committee Chairman Barney Frank told Reuters a Democratic president might want to appoint a Federal Reserve chairman in 2010 “more in tune with Democratic views,” implying the current chairman, Ben Bernanke, ought to be replaced. Mr. Frank issued a lengthy statement today clarifying his remarks, saying “I am on the whole favorably impressed with Chairman Bernanke’s role at the Fed.”

Mr. Frank said: “This is a very difficult time for our economy and unbalanced and unfair criticism of Mr. Bernanke is therefore not simply a matter of his feelings, but of potentially, even if inadvertently, undermining the confidence people must have in the public policy response to our current problems.” –Greg Ip

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Why not just cut the funds rate to -5 percent?

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