Daily Sources 12/24

1. Dexter Filkins at the New York Times reports that US military commanders and Afghan leaders are preparing to arm local militias to assist them in the fight against the Taliban. US officials would rather fund the Afghan army and gendarmes, but they are unprepared to undertake the necessary tasks. On the other hand, there are worries that Pashtun-dominated militias will use their new found power to terrorize local populations, and potentially turn against the government itself.

"'There will be fighting between Pashtuns and non-Pashtuns,' said Salih Mohammad Registani, a member of the Afghan Parliament and an ethnic Tajik. Mr. Registani raised the specter of the Arbaki, a Pashtun-dominated militia turned loose on other Afghans early in the 20th century.

'A civil war will start very soon,' he said."

Note that the above map was published in 1972 and that it is important to realize that the ethnicities represented by the map key only indicate that that is where a certain group is thought to predominate. In fact, many different ethnic groups cohabit throughout the country. (Sadly the more up-to-date maps proved difficult to link to, but they all suffer from inaccuracies. This is just to give an idea.) The article is well-worth reading in full.

2. Mark Bowden has an opinion piece in the Wall Street Journal which argues that Bush could do much for America's image at large--and his own--by a simple act of magnanimity: urge the Iraqi government to pardon Muntazer al-Zaidi, the journalist who attempted to hit the President with his shoes. Excellent idea.

3. Yves Smith endorses the idea by Akio Mikuni, president of the Japanese rating agency Mikuni & Co., reported on in Bloomberg that Japan should write off its holdings of US Treasuries as the US will struggle to finance the debt required to dig out of the recession, in a kind of reverse Marshall Plan. She points out that the Germans seem reluctant to pursue stimulus programs of their own, and provides their reasoning, which is reasonable. But that perhaps a reverse Marshall Plan would be more politically palatable in Berlin. It might also be regarded as in their interests, which is useful. Well-worth reading.

5. Megumi Yamanaka at Bloomberg reports that Idemitsu Kosan Co., Japan’s second-largest oil refiner, will reduce throughput by 7% in the first quarter of 2009. This probably means that they do not expect there to be much of a market for exporting petroleum products at that time, given perennial reduction in demand from the Japanese market since 1996, give or take.

6. Rama Lakshmi at the Washington Post reports that Indian Prime Minister tried to tamp down tensions Tuesday by saying, "Nobody wants war."

"'The issue is not war. The issue is terror and territory in Pakistan being used to provoke, to aid and abet terrorism. Nobody wants war,' Singh told reporters outside Parliament."

Singh made the comments amidst growing political pressure for military action inside India.

7. David Ignatius of the Washington Post interviewed the President of Syria, Bashar al-Assad, who indicated that he was interested in cooperating with the United States in stabilizing Iraq. Well-worth reading in full.

8. Colum Lynch at the Washington Post reports that Russia, and members of the Group of 77 representing developing nations in the UN, are seeking to stop the retention at the UN of members of the anti-corruption UN Procurement Task Force after its mandate expires December 31. In short, the developing world appears to feel that the anti-corruption effort was pursued without regard to due process and that it is against their interests.

9. Denis Maternovsky reports that Bank Rossi has allowed the ruble to depreciate by 1% against a basket of dollars and euros (55% dollars, 45% euros) for the third time in a week. This is the tenth time the bank has allowed depreciation since November 11.

10. John Kemp has an interesting analysis in Reuters looking at how oil futures markets are being attacked as a malfunctioning price discovery mechanism. It is well-worth reading, though the notion of the oil producing nations attacking the oil futures markets as opaque is a bit hard to swallow. Furthermore, Kemp suggests that the US consumes the bulk of light sweet crudes, when light sweet crudes represent about 60% of global consumption. In fact, the US takes much of the worlds heavier and sour crudes, as it has the sophisticated refineries to do so. The other large taker? Europe. Japan and South Korea take a considerable portion of light sour crudes as well. There are good reasons to establish other crude benchmarks, especially given that Tapis is no longer available as a benchmark--having been replaced in contracts for Asian volumes, therefore, by Dated Brent. (Another light sweet crude.)

But you cannot force the private sector to use them in private, bilateral, contracts--which is how Saudi Arabia, and the bulk of all physical contracts are arranged. Various attempts to establish other benchmarks have failed, due to lack of volumes on the market. In part this is because non-commercial players have not been attracted to those exchanges, in part because the underlying commodity is being produced by especially opaque organizations--governments in the Middle East and, well, Caracas. Beyond that, Kemp presents futures markets as primarily forward markets, when they are primarily financial instruments for hedging--or speculating--against financial risks.

Moreover, most trading of oil futures is now being conducted bilaterally off the exchanges, which has made them inscrutable, for the most part, to the regulatory agencies. Still, the piece is worth reading.

11. May Tham reports that new crude production from Vietnam will come close to replacing the lost volumes to the market as the Bach Ho stream is directed to the new Dung Quat 130 kb/d refinery--Vietnam's first.

12. Jeff Wilson at Bloomberg reports that corn prices continue to fall, after a short rally, as demand for ethanol is shrinking in tandem with demand for oil.

"Corn futures for December delivery fell 0.75 cent, or 0.2 percent, to $3.94 a bushel at 10:29 a.m. on the Chicago Board of Trade. The price climbed 3.7 percent in the previous two sessions. Before today, the most-active contract dropped 51 percent from a record $7.9925 on June 27.
...
Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007. U.S. export sales since Sept. 1 are down 46 percent from a year earlier, Department of Agriculture data show. "

13. The EIA's This Week in Petroleum reports that there was a draw on crude oil stocks of 3.1 million barrels in the week ended December 19, leaving 318.2 million barrels in storage, still at the top of the historical range. This contrasts with the analyst predictions as per a survey by Bloomberg, which forecast a build of 500 kb. There was a build in gasoline stocks of 3.3 million barrels to 207.3 million, versus expectations of a 750 kb build. Gasoline stocks are now more or less what we have seen on average at this time of year. Distillate stocks also built by 1.8 million barrels and are at about the middle of historical levels. Analysts had expected a 700 kb build. Taken in isolation, the news is somewhat mixed, but the overall healthy stockpiles would place downward pressure on price.

14. Bob Willis at Bloomberg reports that consumer spending fell by 0.6% in November, but increased by 0.6% when accounting for inflation. Thus consumer spending in November was healthier than forecast. Lower gasoline prices are thought responsible for the small bump in consumption. The chief US economist at IHS Global Insight, Nariman Behravesh, has the rule of thumb that a $0.10 drop in gas prices equates to about a $12 billion tax cut. (see Daily Sources 11/18 #2)

15. Annys Shin at the Washington Post reports that seasonally-adjusted first-time claims for unemployment rose 5.4% to 586,000 for the week ended December 20. Unadjusted first-time claims were 715,496, up 13.6% from the week ended December 13.

16. Heidi Przybyla has the depressing news that those state project wish lists for potential stimulus spending which have been made public are mostly geared for highways spending, and not on mass transit. Missouri, for example, wants to spend $750 million on highways and nothing on mass transit. Well worth reading in full.

17. Martin Feldstein argues in the Wall Street Journal that defense spending would be a good way to allocate stimulus funding. He allows that spending on weapons programs and new hardware like ships would likely take too long to put in motion in order to provide the economy an immediate boost, but

"Now is also a good time for the military to increase recruiting and training. Because of the current very high and rising unemployment rates among young men and women, it would make sense to depart from the military's traditional enlistment rules and bring in recruits for a short, two-year period of training followed by a return to the civilian economy. As a minimum this would provide education in a variety of technical skills -- electronics, equipment maintenance, computer programming, nuclear facility operations, etc. -- that would lead to better civilian careers for this group. It would also provide a larger reserve force that could be called upon if needed by the military in the future."

I think the idea has some merits and shouldn't be dismissed offhand. However, as I have indicated before, I, for one, do not think that the move away from a citizen army in the armed forces is healthy for the union. (see Daily Sources 12/19 #7) Worth reading.