Wednesday, September 17, 2008

Daily Sources 9/17

1. Andrew E. Kramer at the New York Times reports that trading was halted on the Russian stock market for the second time this week. The market has dropped by more than 25% this week and is off 57% since its peak in May. The Russian Central Bank and regulators also announced a 4% reduction in bank reserve requirements today, which the central bank’s chairman, Sergei Ignatyev, said would free up $11.76 billion. The Russian finance minister, Aleksei L. Kudrin, also announced he would free up about $44 billion by increasing the repayment time of state loans to state banks from one week to three months. Kudrin also said that the discussed measure of having Russia's Sovereign Wealth Fund invest in the market has, for now, been deemed unnecessary.

2. The Moscow Times reports that UBS analysts have said that the price of crude has dropped so much that a barrel is now worth less than the cost of transport and Russian taxes. If you are a pure crude exporter--and don't have a refinery from which you then sell products--you are losing money. (Evidently the mandated prices of transportation fuels in Russia now would not be counted as subsidies.)

3. Margarita Antidze and Matt Robinson at Reuters report that Russia has signed treaties with Abkhazia and South Ossetia which formally commits Moscow to coming to their defense should they be attacked. In 19th century gunboat diplomatic terms, you would call it a "guarantee of independence."

4. AP reports the US Embassy in Yemen was assaulted with a car suicide bomb, rocket-propelled grenades, and automatic weapons today. At least 16 are dead, although apparently no Americans were hurt. President Bush used the incident to say that the attack is a "reminder" that we are "at war with extremists." Officials believe it is likely an al-Qaeda attack. Non-essential personnel were just allowed back into the facility last month.

5. MEND's oil war continues to heat up in Nigeria, as per Ibanga Isine and Victor Sam at the Punch. The "oil war" is also referred to by MEND as "Operation Hurricane Barbarossa"--which is probably meant to evoke the Turkish privateer "Redbeard" who put an end to the damage the Knights of Saint John were doing to Ottoman shipping and eventually became the Fleet Admiral of the Ottoman Navy(a) and not Hitler's "Operation Barbarossa" (or the code name for the invasion plan of the Soviet Union.) The Hurricane part I understand ... and so far many of the attacks seem to have come via speed boats.

It is in this environment that the Nigerian Senate is considering an anti-terrorism bill reports John Alechenu at the Punch. Yet another foreign political utilization of the Bush Administration's "War on Terror" (by the way, just yesterday Putin referred to the Georgian terrorist situation)--and it is worth remembering that America remains very popular in Nigeria.(b) "If passed, the attorney-general will be empowered to detain persons for up to 60 days where he has reasonable grounds to 'believe or suspect' that 'the entity knowingly committed; attempted to commit, participate in committing; or facilitated the commission of terrorist acts.'" I think that such broad language tends to erode the rule of law, and this would be in a country where the rule of law is not particularly strong to begin with.

6. Juan Forero at the Washington Post has an important report on a witness in ongoing trials in Colombia linking Gen. Mario Montoya to death squads in Medellin. Montoya is apparently well-known in Washington and was one of the generals involved in orchestrating the spectacular rescue of hostage Ingrid Betancourt from FARC. The State Department stood behind Montoya today in interviews. Should these allegations prove true, they will likely be very damaging to the Uribe Administration as well as further undermine the American image in South America.

7. Thom Shanker at the New York Times reports that Defense Secretary Gates has apologized for the deaths of non-combatants in recent strikes in Afghanistan. I think that--though it might stick in the craw a little--this was a very wise move.

8. Xinhua reports that China will allow local governments to raise the cost of heating in response to the increased costs of coal.

9. Tom Doggett at Reuters reports that Sam Bodman, Secretary of Energy, told reporters that the Administration is considering asking the IEA for some of its gasoline reserves.

10. Edmund L. Andrews, Michael J. de la Merced and Mary Williams Walsh at the New York Times report that The Federal Reserve Bank has agreed to lend AIG $85 billion for a majority equity stake in the company.

11. David Cho at the Washington Post reports that the Federal Reserve has asked the Treasury for a $40 billion deposit.

12. Brain Setser at Follow the Money yesterday had a blog entry which partially answered my question regarding where foreign banks were going to put their money, following the Treasury's release of the Treasury International Capital data for July (TIC.) Answer: fleeing the US, and insofar as they are investing in the US, investing in the safest possible instrument, Treasuries. To paraphrase:
Before the crisis, foreigners bought roughly:

- $205b of long-term Treasury bonds
- reduced their holdings of bills by $10b
- $285b of long-term Agencies
- $540b of long-term corporate bonds
- $210b of US equity.
or about $1,230 billion per month.

After the crisis:
- $350b of long-term US treasury bonds
- $125b of short-term bills
- $150b in Agency bonds
- $210b of corporate bonds
- $55b of US equity
or about $890 billion per month.

Today the yield on the 3 month Treasury bill went to zero. That suggests to me that the market believes that the dollar will be worth more tomorrow, versus a basket of goods, than it is today. By basket of goods, I mean basket of currencies and securities because commodities appear to have rebounded recently. (Gold for December went up, if I understand correctly, $70 today! h/t Jesse's Cafe Americain) So, does this mean that foreign central banks will now be forced to sell dollars in order to defend their currencies or that they will be forced to buy dollars in order to defend their exports? I dunno.

(a) Wikipedia: Hayreddin Barbarossa
(b) Pew's 47-Nation Global Attitudes Study of 2007 has 70% of Nigerians having favorable views of the United States. Table: "Favorable Views of the U.S.", page 17. You also might want to check out my blog entry from March: The Geopolitical Consequences of the Candidates.

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