And Then There Is Everything Else: Summary Of All The Ignored Conflicts And Crises Around The World

Tyler Durden's picture

Since the centrally-planned market is so broken it no longer has the capacity to evaluate and respond to any geopolitical threats and shocks, here - lest anyone think that with the S&P a hair away from all time highs there is nothing to worry about - is a summary of all the simmering, and in some cases, searing and/or scorching geopolitical conflicts and other tensions around the world.

From Guy Haselmann of Scotiabank

A Litany Of Tensions

Geo-political tensions have ratcheted up a notch recently and are likely to stay elevated throughout the year. Although geo-political risks always exist, those tensions seem particularly elevated compared to the last several decades. They also now come at a time when financial risk assets are priced for economic perfection and when the world has never been more globalized with extensive interconnected supply chains. This note will provide a non-comprehensive list of some of those tensions without going into extensive detail on any of them.

President Obama said yesterday in Tokyo that the islands in the East China Sea disputed by Japan and China are covered by the US-Japan defense treaty. He is the first sitting US president to acknowledge them as part of the defense alliance.

  • The comments generated strong criticism in China.
  • Three days ago, PM Abe sent a traditional offering of a small potted tree to the Yasukuni Shrine to celebrate the annual spring festival. 168 members of parliament also made a group visit to the shrine yesterday. These gestures infuriated China and Korea who believe that Japan is making attempts to paint Japans’ brutal wartime behavior in a more positive light.

Hamas and the Palestine Liberation Organization (PLO) signed a pact to form a unity government within five weeks to prepare for elections within six months. Both Hamas and the more radical Islamic Jihad will join the umbrella PLO. Israeli halted all talks.

  • This move undermines extensive efforts by John Kerry to broker a peace deal. Israel denounced the deal and PM Netanyahu said Abbas (PLO President) turned his back on peace. A PLO spokesman blamed “Israeli intransigence” and “American bias” for the breakdown of peace talks.

Ukraine ordered several more “anti-terror” operations to retake a few eastern cities occupied by pro-Russian forces. The move is partially motivated after forces found the dead and apparently tortured body of a city council official. Several road-blocks were destroyed and seven pro-Russian militants were killed. Ukraine’s interim PM said that the red line has been crossed and called on the US and Europe to support his actions and to do more.

  • Russian officials have responded by launching military exercises on the border. Desiring a Federalist state, Russia has been accused of trying to dispute elections set for May 25,

The war in Syria which began as a revolt against an oppressive regime has morphed into a sectarian war and global ideological conflict. The world is so divided that UN negotiators haven’t even been able to even agree on getting emergency supplies to desperate civilians.

  • The UN estimates that 9.3 million Syrians are in need of humanitarian assistance due to limited access to basic services including health care, water and sanitation. The  UN is also investing new claims of chemical weapons use.
  • The South Sudan is also in a downward spiral. Some are suggesting that last week’s massacre has similarities to what unfolded into Rwanda in 1994. The UN peacekeeping base in the Sudan has swelled to 22,000, creating a public health crisis.

Catalonian President Mas has vowed to bring a referendum on independence from Spain in November – two months after Scotland’s independence reference (Sept 18). Catalonia accounts for over 20% of Spain’s total output.

  • In addition, the EU parliamentary elections on May 22 are expected to show gains by extreme parties.

Some other areas of tension: Thailand, Nigeria, Turkey, Venezuela, Ivory Coast, Bolivia, South Africa, Argentina, Brazil, Tunisia, Yemen, Libya, Iraq, Lebanon, Bahrain, Algeria, Pakistan, Moldova, Cyprus, Bosnia and Herzegovina, Greece.

Recent policy changes matter: Fed ending QE; China confronting credit bubble; Japan increasing its VAT; various foreign central banks hiking rates.

Other areas of concern: extreme weather; pollution; cyber-threats and cyber-crime.

Investor complacency is extraordinarily high. This is due to several factors: equities are near all-time highs; credit spreads are significantly compressed (yield-seekers); the VIX lumbers along at historic lows; EU sovereign rates and spreads are near historic low levels; and central banks continue to make out-sized promises of  over-accommodation.

Investors have been asking for over a year “when is the ideal timing for paring risk?” The answer in my opinion is now (the time has been now since January). Crowed trades (due to QE), risk-asset over-weights, lofty valuations, central bank policy pivots, important upcoming elections, compromised market liquidity, and elevated geo-political tensions, collectively suggest that market volatility is set to rise and investor complacency is ill-advised.

“How many times can a man turn his head pretending he just doesn’t see?” – Bob Dylan