Finger pointing, throwing mud, and figh ting over balloons…international politics s inks to new lows

Thursday, 23 February 2023 — Albert Park

[7 min read]

Dear Reader,

No doubt you’ve kept a close eye on the volatile equity markets this week.

The bears are sinking in the claws as the market gives back its 2023’s gains.

But there’s another important story unfolding…

Over the weekend, US and Chinese delegates descended on Munich, Germany looking to patch up tensions over the suspected ‘Chinese spy balloon’.

Apparently, the meeting was prompted by US officials looking to repair their relationship with China.

This was the highest-level contact between the two nations since the ‘balloon crisis’ took place.

But the event quickly turned into an international mud-throwing contest…

Cordial round-table discussions were derailed with finger pointing and accusations (from both sides).

It all kicked off when US Secretary of State Antony Blinken fired his first shot claiming China was on the brink of supplying arms to Russia.

He went further and voiced a stern warning to leaders in Beijing, suggesting they face severe consequences if they were to ever supply Russia with lethal aid.

While a military alliance between Beijing and Putin would be a legitimate cause for concern, Blinken offered zero evidence that China is planning on sending weapons to Russia.

Whether it’s paranoia, an attempt by Democrats to appear assertive among US voters, or genuine concern, we won’t know…

But China’s representative State Councillor Wang Yi didn’t buy in.

He called out Blinken’s comments as wild accusations.

He also made a point of the balloon fiasco which seems to be backfiring on the US…

The Guardian recently wrote an interesting piece on what might be the real reason behind the balloon mystery:

‘A hobby group of balloonists reported their balloon “missing in action” over Alaska on 11 February, the same day a US F-22 jet downed an unidentified airborne entity not far away above Canada’s Yukon territory.’

If that’s the case, the US military deployed a missile costing AU$640,000 to destroy a $12 hobby balloon. That’s more than the median house price in Perth!

You can read the full story here.

Finger pointing, throwing mud, and fighting over balloons is something you’d expect from a three-year-old play group, not on the global political stage!

Such is the sad sorry state that international diplomacy has reached.

While it’s easy to laugh this stuff off, unfortunately for us, these buffoons yield enormous power…

Each verbal stoush is staged with careful planning that’s orchestrated to fulfill certain self-interests…be it boosting public appeal, sustaining political donations, or keeping citizens in check and distracted.

In fact, my colleague, Ryan Dinse, touched on this issue just this week in his Money Morning column, you can access that here.

Remaining impartial to political bluster is not just important for your state of mind, it’s helpful for your investments too.

But expect the rhetoric and superpower chest-beating to get far worse in the months ahead.

The last few days are setting the scene for what happens next…

On the back of the failed US-China meeting that was supposed to repair ties, President Vladimir Putin announced on Tuesday that he would suspend Russia’s participation in the nuclear arms treaty between Moscow and Washington.

Known as ‘New START’, the agreement was ratified by US and Russian leaders in 2011.

It seeks to limit the number of intercontinental ballistic missiles (ICBMs) and nuclear warheads each nation can hold.

Like the nuclear peace treaties before it, it’s forged relative peace between the two nations over several decades.

But Putin’s withdraw adds another layer of tension.

International diplomacy is in a sad fragmented state…

Strains are worse than at any time since the Cold War.

The key question to ask, where does it all end?

Last week, I wrote that both the US and China are about to embark on multitrillion-dollar nation building infrastructure programs.

For the US it’s all about repairing its crumbling utilities, roads, and bridges.

In terms of China, it means securing trade routes through Asia and Africa via highways, shipping lanes, and railways.

The reason…failing diplomacy means a collapse in supply chains.

To maintain economic dominance means controlling the supply of raw materials…the building blocks for modern civilisation.

But the China and Russia alliance already holds the upper hand.

If you’ve read my Daily Reckoning Australia articles from 2022, you will understand China dominates extraction and processing of numerous critical metals.

But you might not be as familiar with Russia’s important role.

In fact, geologically speaking, the vast Russian land mass is the most richly endowed region on the planet.

As one of the largest oil and gas exporters outside OPEC, it’s also the number one exporter of wheat and nitrogen-based fertiliser.

It plays a key role in global food and energy security.

But according to the World Economic Forum, when it comes to the supply of metals, Russia is a commodity superpower (emphasis added):

‘In terms of raw materials, Russia is the second-largest exporter of cobalt, one of the key elements used in making rechargeable batteries. It is also the world’s second-largest supplier of vanadium, which is used in large-scale energy storage and in steelmaking.

‘The country is the sixth-largest exporter of gold, accounting for 4.4% of the world’s supply, and the 10th biggest supplier of lead.

‘Russia accounts for 10% of the world’s supply of nickel, which is used to make stainless steel and vehicle batteries. The price of nickel soared by 250% in a day on fears that sanctions would hit supplies, and the London Metal Exchange even suspended trading of the metal because of the unprecedented price rises.

‘Russian exports of platinum account for 12.3% of global supply, and the country is the world’s fourth-largest exporter of tungsten.’

Russia is also one of the largest exporters of titanium, a critical metal used in steel alloy, critical for modern industry, particularly the aerospace sector.

It goes without saying, growing fragmentation between China, Russia, and the West places supply chains under enormous pressure.

As commodity importers, the US, Japan, Korea, and Europe are especially vulnerable to fragmentation.

With the recent fiasco in Munich, the urgency for developed nations to secure supply chains intensifies.

So far, Russian critical metals have escaped Western sanctions.

But rather than wait for bans or punitive tariffs, Russia may dictate its own fate by halting exports to the West…

It’s Putin’s greatest weapon.

But you can prepare your portfolio well before these shockwaves are felt by developed economies.

Certain Australian and Canadian miners are uniquely positioned to benefit from the fallout.

In fact, I’ve just recommended one to my Diggers and Drillers subscribers.

It’s an Australian-based producer focused on producing one very important critical metal…a commodity where Russia dominates supply.

Importantly, our pick will be ramping up production throughout 2023 and 2024, just as the West clambers for alternative supplies.

You can find out more here.

While we’re not there yet, each political stoush, like we just witnessed in Munich, brings us one step closer to a supply chain meltdown…

Prepare your portfolio for what comes next.

Until next time!

Take care,

James Cooper,
Editor, The Daily Reckoning Australia

Dear Reader,

Observations from south of the Rio de la Plata…leading to observations about things north of the Rio Grande…

One of the first lessons from a wrecked economy with a 99% inflation rate is that…it’s not so bad. People still eat…smile…wear fashionable clothes…enjoy music and read books.

Yes, of course, government policies are idiotic. Corruption is widespread. And everyone, trundling along on the road to ruin, gets poorer. But they don’t necessarily have a bad time.

Red hot pesos

There are cars and trucks on the road here, belching smoke, mufflers and bumpers falling off, that would never be permitted in a healthy economy. People live in ‘favelas’ — slums, where the houses are improvised, temporary, and unfinished. There are trash pickers, cartoneros, who survive by reselling cardboard and eating the food that has been thrown away. And many things are remarkably cheap.

It is this last feature that helps to make life agreeable. Nice apartments rent for only a half to a third as much as in the US. A cook or housekeeper, full time, costs only US$100 a month. A trip across Buenos Aires costs about 1,000 pesos — or US$2.50. And fuel, too, is only a fraction of the price in the US or Europe. A gallon of gas is about US$1.50.

Last night, we went out to dinner in our old neighbourhood, Palermo Soho. We hadn’t seen it in a couple years. But things change fast in Buenos Aires. The streets were full of people — people going to bars and restaurants…shoppers or just people out for a walk.

‘You have to understand’, says a friend. ‘People want to spend their money. Nobody saves it.’

We barely recognised the old neighbourhood. The shops had changed, with new bars, restaurants, shoe stores, and fashion shops on every street corner. It was bigger, with more people…and more things to do…than we recalled:

Biting the hand that feeds

It also seemed more woke…more ‘leftist’…and more activist. Socialism has become a fashion statement. One restaurant had a neon sign, for example, that proclaimed that ‘Capitalism is a failure’. Pictures of Che Guevara were almost everywhere.

We walked down the cobblestoned streets to the corner of Gurruchaga and Cabrera. There, we found our favourite restaurant, the Lo de Jesus. But that too had changed. It used to be a small, corner eatery, with local customers and a simple Argentine menu. But now it has spread out into the street, serving hundreds of meals — to tourists. It has become one of the city’s popular go-to restaurants. A large group of Americans sat at the table behind us. All in the 20s or 30s, most were rather nerdy looking; we guessed that they worked for Google or Facebook.

A street musician came by. A short man, dressed in black, with a white fedora, he pulled out his guitar. We feared the worst — that he would be screeching out popular tunes as we tried to talk. But we were happily surprised. He was a concert-level guitarist playing our favourite tango music — Por una Cabeza, El Dia Que Me Quieras…and a marvellous tune by Piazzolla, which requires a remarkable level of skill to perform.

Other diners recognised his talent too. When he was finished, he was showered with 1,000-peso bills.

Disappointed by the changes in the restaurant, we were nevertheless impressed by the food — it was almost as good as ever. We ordered an elaborate selection of starters — dried ham, blood sausage, salads. These were followed by steaks, with vegetables…and two bottles of Piattelli wine (there were five of us).

We should tell you something about Piattelli. It’s a winery in the Calchaqui Valley that is owned by a family from Montana. They invested a fortune creating one of the best ‘bodegas’ (wineries) in the valley. The restaurant was superb when we went there a couple of years ago. The wine is excellent too.

The meal concluded; the cheque arrived. Oh no…it was for 100,000 pesos. Our first reaction was shock. We are still adapting to the monetary system. Then, we did the maths. Dividing by the black-market rate, the whole thing came to about US$53 per person. In a non-tourist restaurant, the same meal might be half as much.

The other half

But numbers never tell the whole story. They leave out the most important parts. There’s the price of food, but there’s also the taste of it. Who puts a price on a kiss? Who calculates the value of a kind word? Who charges for the sunrise?

There are averages, but nobody lives the average life. People live in their own particular world, with a quality all its own. And the quality of a place, too, is often missed by the numbers.

Stalin noted that ‘one death is a tragedy; a thousand deaths is a statistic’. And that is the problem with Stalin’s world. It was a world of tragedies — millions of them. The misery was recorded in memories and memoirs, but not in the statistics.

That’s what makes fraudsters out of world improvers, activists, and central planners everywhere. They have numbers. They have statistics. But they don’t know what they’re talking about.

Here, as long-term sufferers know, we don’t trust numbers — at least not those used to justify public policies. That’s why we rarely provide a forecast, estimate, or calculation without a qualifier: ‘about’ or ‘around’. Because the numbers seldom tell the truth. And the more precise the number, the bigger the lie behind it. Unpack the maths — even our own — and you find assumptions, adjustments, and enough statistical wiggle for an earthworm farm.

We don’t trust any number or any fact — even those we make up ourselves.

So, tune in tomorrow. We’ll look at the biggest scam in statistics — GDP — and the latest fraudulent numbers from the Congressional Budget Office.

Hasta manana.

Regards,

Bill Bonner,
For The Daily Reckoning Australia