The question for the political uncertainty confronting global markets will be the rollback of the U.S. influence via the reduction of its presence in various regional treaty agreements. Trump’s “faux pas” over Taiwan should cause the entire NATO structure to be reviewed. The ONE CHINA issue was pledged by the Nixon/Kissinger framework forged during the détente with China. The People’s Republic of China maintained that Taiwan’s independence was a domestic affair and should be resolved by the Chinese people. But the bottom line for the U.S. was: Would Washington risk a thermonuclear war to maintain Taiwan’s independence? Well, a similar question is relevant today in regards to Turkey. Would the U.S. risk war with Russia if Vladimir the Magnificent attacked Turkey in an effort to further destabilize the Middle East, resulting in a greater Iranian presence and further strengthening the KURDS?
Article 5 of the NATO treaty specifies that an attack on one is an attack on all. If Putin was not the instigator, how about President Erdogan of Turkey, who seems to relish initiating small conflicts in order to justify his continued rescission of human rights in Turkey? Clamping down on terrorism justifies jailing terrorists and closing opposition media outlets. But if Erdogan were to play the typical autocrat card and seek foreign intrigue as a tool to tighten his grip, would the U.S. and NATO stand by Turkey? The other side of the ledger is if Putin, who disdains NATO’s encroaching upon Russia’s previous sphere of influence, wants to test the organization’s resolve, could foment a minor conflict with the Turks. What makes this issue so relevant were two pieces buried in the Financial Times last week.
The first ran December 8, titled, “Turkey Military Purge ‘Degraded’ Nato, Says General.” Scarrapotti, a very high level U.S. General, maintains that the purging of Erdogan’s enemies in the armed forces could prove a problem. “The country’s military is one of the largest within the alliance, with a key strategic role on Nato’s borders with Syria, Iran and Iraq.” The article further noted: “The removal of Turkish Nato officers comes as the relationship between Ankara and the EU has become increasingly tense, with Brussels hardening its stance on Mr. Erdogan while the Turkish president has warned he could allow 3 million refugees into Europe.” The TURKISH LIRA, ITS BOND AND EQUITY MARKETS are all signalling major concerns about the financial stability of Turkey–troubled domestic times have a high probability of resulting in foreign conflicts by authoritarian leaders looking to deflect domestic instability.
The second FT piece ran December 2, titled, “Syrian Rebels In Talks With Russia to End Aleppo Siege.” The article is more than a week old but two keys points are made in the piece: First, “The Russians and Turks are talking without the U.S. now. It [Washington] is completely shut out of these talks and doesn’t even know what’s going on in Ankara’, said one opposition figure, who asked not to be identified.” Second, “However, the negotiations are riven by the tensions between Ankara and Moscow. Russia confirmed on Wednesday that Mr. Putin spoke with Erdogan after the Turkish leader said he was seeking Mr. Assad’s overthrow.” While some may TWEET to distract, I will strive to keep Notes From Underground readers abreast of possible major political and financial situations.
***A note of homage to the Swiss National Bank. The SNB receives the ALCHEMIST of the modern era award for turning printed fiat currency into equities and the world allows it. The Swiss franc has held steady versus the EURO for the entire year as it closed on December 31, 2015 at 1.0882. Today it is around 1.08, actually a touch stronger on the year. Even against the U.S. dollar, the Swiss franc remains stable over the previous 12 months. This is in spite of its continued PRINTING of Swiss francs to sell in an effort to keep the currency from appreciating. The SNB sells newly printed FRANCS and purchases a basket of other currencies (mostly euros), takes the proceeds and purchases thousands of global equities. (For example, THE SNB IS A LARGE HOLDER OF APPLE.)
Even with negative interest rates on its 10-YEAR BOND, the Swiss currency holds its value. Thus, the SNB manufactures paper currency via printing press and buys real assets, which are appreciating to record highs. Warren Buffet has been diagnosed with printing press envy. No, the world financial system is just fine, say the prognosticators and tweeters of flotsam and jetsam that rides on the sea of central bank liquidity.