Ukraine

Earlier we reported that the US has now officially landed a Marine force in Israel as well as an assault ship, in a visit that the US Navy promptly assured "is not associated with, nor a reaction to, any world events." It seems we were not the only ones who read this justification somewhat skeptically: so did Russia. And in a historic event, the Russian Pacific fleet, for the first time in decades, crossed the Suez Canal and entered the Mediterranean, direction Cyprus' port of Limasol (hi Cyprus - Russia will be arriving shortly) in what is now the loudest implied warning to the US and Israel amassing military units across Syria's border that Russia will not stand idly by as Syria is used by the Israeli "Defense" Forces for target practice. “The task force has successfully passed through the Suez Channel and entered the Mediterranean. It is the first time in decades that Pacific Fleet warships enter this region,” Capt. First Rank Roman Martov said. This is what is also known as dropping hints, loud and clear.

For 727 editions, and nearly 30 years, Bill Buckler, the "captain" of the free market-praising Privateer newsletter provided a welcome escape from a world overrun with "free-lunch" economists, "for-hire" politicians, "crony-capitalist" oligarchs, "heroin-addict" bankers, "the-solution-to-record-debt-is-more-record-debt" Keynesians, and all those other subclasses of that species which Einstein, or whoever, described so aptly in saying that they all expect a different, and happy, outcome when applying the same flawed methods over and over. And for 30 years, Buckler's steadfast determination and adherence to his arguments, beliefs, reasoning and ironclad logic brought him countless followers, all of whom are now able to see past the bread and circus facade of a world every day on the edge of political and social collapse. Sadly, all good things come to an end, and so does The Privateer. We are delighted to celebrate its illustrious memory by presenting to our readers the final, must read, issue of the newsletter which encapsulates the philosophy and ideology of its author - a man much respected and admired in the free market circles - and thirty years of objective, unbiased market and economic commentary, best of all.

The debate about the usefulness of sovereign credit default swaps (SCDS) intensified with the outbreak of sovereign debt stress in the euro area. SCDS can be used to protect investors against losses on sovereign debt arising from so-called credit events such as default or debt restructuring. With the growing influence of SCDS, questions arose about whether speculative use of SCDS contracts could be destabilizing - and this caused regulators to ban non-hedge-related protection buying. The prohibition is based on the view that, in extreme market conditions, such short selling could push sovereign bond prices into a downward spiral, which would lead to disorderly markets and systemic risks, and hence sharply raise the issuance costs of the underlying sovereigns. The IMF's empirical results do not support many of the negative perceptions about SCDS. In particular, spreads of both SCDS and sovereign bonds reflect economic fundamentals, and other relevant market factors, in a similar fashion. Relative to bond spreads, SCDS spreads tend to reveal new information more rapidly during periods of stress, admittedly with overshoots one way or the other. Given the current apparent 'stability' in many nations' bond market spreads, the chart below suggests an alternative way of judging what the credit market thinks - the volume of protection bid - and in this case some interesting names emerge.

Update:  Arkansas Hit with Nuclear Accident AND Major Oil Spill

Many were wondering what Russia's response to Germany's deposit confiscation drill in Cyprus would be. The confusion was moderated somewhat after it was uncovered that the very Russians who were supposed to be punished, have been able to withdraw some or most of their Cyprus-based cash either before the Cyprus D(eposit Confiscation)-Day or during the capital controlled blackout using various disclosed loopholes. Yet that doesn't mean that Putin would avoid this opportunity to give the "developed world" and his closest neighbors a quick lesson in realpolitik. After all, who better than a former KGB agent understands that one should never let a crisis go to waste. Sure enough, today at 4 am, in a very surprising move, Puitin ordered the launch of large-scale Russian military exercises in the Black Sea region in a move which according to Reuters "may create tensions with Russia's post-Soviet neighbors Ukraine and Georgia." Of course, it may create tensions with our island nations reachable by the Russian naval fleet, such as Cyprus, which would naturally mean tensions with the same European (read German) forces who structured the entire Cypriot bail in.

As has been made abundantly clear on these pages since the breakout of the latest Cyprus crisis, the Russian policy vis-a-vis its now former Mediterranean offshore deposit haven-cum-soon to be naval base, has been a simple one: let the country implode on the heels of the Eurozone's latest humiliating policy faux pas, so that Putin can swoop in, pick up assets (including those of a gaseous nature, much to Turkey's chagrin) for free, while being welcome like the victorious Russian red army saving Cyprus from its slavedriving European overlords (a strategy whose culmination Merkel has very generously assisted with). Curiously there had been some confusion about Russia's "noble" motives in Cyprus (seemingly forgetting that in Realpolitik, as in love and war, all is fair). We hope all such confusion can now be put to rest following the clarification by Jorgo Hatzimarkakis, the German Euro deputy of Greek origin, who told Skai television on Sunday morning that Russia did not want Cyprus to stay in the eurozone.

As the Cypriots scramble for every penny, hoping for a Hail-Mary from Russia at the last minute, we suspect they are missing one potential provider of all that money. That nation appears to be Russian neighbor, The  Ukraine judging from the 'wealth' exhibited by some members of the Ukrainian parliament. As EnglishRussia.com notes, a $650,000 watch is no problem if you create laws in Ukraine as we humbly suggest some that wealth (the rare watch is special order (here) with only 30 being made) trickle down to the Cypriots (of course at EUR400 per day per person) - they only need 7,000 watches to plug their bailout funding hole!

Following Part 1's discussion of America's Dangerous Drift, and Part 2's succincy summation of why America needs a Grand Strategy, today's Part 3 concludes with a discussion of the 'choice' American leaders have: "A decline in America’s leadership role and the emergence of a highly unstable world is a serious possibility. In reality, decline is not a foregone conclusion but a deliberate political choice that builds from a failure to define what matters most to the nation." When we step back from the language and imperatives of grand strategy, the case for the United States to rethink its grand strategy is fundamentally simple. It is designed to meet serious threats while creating and taking advantage of strategic opportunities. To continue on the present course of "drifting" from crisis to crisis effectively invites powers to believe that America is in decline. Worse, Americans, too, might believe wrongly that the nation’s decline is inevitable. If we are to assure America’s future security and prosperity, we need a new national grand strategy that harnesses America’s spirit, sense of optimism, and perseverance to help the nation meet the challenges and grasp the opportunities of this era. When we think about the alternatives, the United States simply has no choice.

Russia is back. President Vladimir Putin wants the world to acknowledge that Russia remains a global power.  He is making his stand in Syria. The Russians are troubled by what they see as a growing trend among the Western Powers to remove disapproved administrations in other sovereign countries and a program to isolate Russia. Again, Russia is seeing Washington’s hand in Syria in the conflict with Iran. The Russians are backing their determination to block another regime change by positioning and manning an advanced air defense system in what is becoming the Middle East casino.  Putin is betting that NATO will not risk in Syria the cost that an air operation similar to what was employed over Libya will impose.  Just in case Russia’s determination is disregarded and Putin’s bluff is called, Surface to surface Iskander missiles have been positioned along the Jordanian and Turkish frontiers. Putin is certain that he is holding the winning hand in this very high stakes poker game. When the Turks and U.S see that there is little chance of removing Al-Assad, they will have no option other than to negotiate a settlement with him; and that would involve Russia as the protector and the mediator.

Chevron and Royal Dutch Shell are getting an early start on shale exploration campaigns in eastern European countries. With the United States fast emerging as a shale natural gas leader, European economies eager to bolster their own energy independence are working to follow suit. Shell plans to spend more than $400 million to tap into Ukrainian shale, while Chevron has similar ambitions in eastern Romania. While regional shale gas production isn't going to match that seen in the United States, it's expected to eventually weaken the Russian grip on the region's energy sector. The U.S. Energy Department's Energy Information Administration estimates that, together, Bulgaria, Hungary and Romania may hold many trillion cubic feet of shale natural gas. That was enough to give U.S. supermajor Chevron the confidence to move ahead with an exploration campaign there. The company began taking on shale concessions in 2010 and has since announced plans to start exploration. If EIA estimates are close to accurate, there may be enough shale gas in Romania to cover its energy needs for the next 40 years.

• Geithner allegations beg Fed reform (Reuters)
• BOJ Adopts Abe’s 2% Target in Commitment to End Deflation (BBG)
• Bundesbank Head Cautions Japan (WSJ)
• In speech, Obama pushes activist government and takes on far right (Reuters)
• Atari’s U.S. Operations File for Chapter 11 Bankruptcy (BBG)
• Israel goes to polls, set to re-elect Netanyahu (Reuters)
• Apple May Face First Profit Drop in Decade as IPhone Slows (BBG)
• EU states get blessing for financial trading tax (Reuters)
• Indian Jeweler Becomes Billionaire as Gold Price Surges (BBG)
• Europe Stocks Fall; Deutsche Bank Drops on Bafin Request (BBG)
• Algeria vows to fight Qaeda after 38 workers killed (Reuters)
• GS Yuasa Searched After Boeing 787s Are Grounded (BBG)
• Slumping pigment demand eats into DuPont's profit (Reuters)

Just as Byron Wien publishes his ten surprises for the upcoming year, Morgan Stanley has created a heady list of seventeen macro surprises across all countries they cover that depict plausible possible outcomes that would represent a meaningful surprise to the prevailing consensus. From the "return of inflation" to 'Brixit' and from the "BoJ buying Euro-are bonds" to a "US housing recovery stall out" - these seventeen succinctly written paragraphs provide much food for thought as we enter 2013.

A snapshot of (quite amusing) "New Normal" dealmaking in the insolvent continent.

Dominoes are lined up. Next in line: one of the world’s largest (but dying) shipyards.

With REO-to-Rent now yesterday's trade, the Baltic Dry Index stumbling along near its lows (along with a glut of containers), and a 'recovery' in US housing, what better than to leverage all of these themes; to wit, as ABC News reports, the first U.S. multi-family condo built of used shipping containers is slated to break ground in Detroit early next year. So forget Trailer Parks, now the increasingly mothballed ports of America will be wonderful waterfront property courtesy of your very own (slightly used) cargo container. One proponent of this 'cargotecture' warns that although containers can be bought for as little as $2,500, they should not be thought of as a low-cost housing solution. Tempted? We are sure; below are several current developments.