Michael Gove on Brexit, productivity and innovation

Interesting viewpoint on Brexit.  How the EU became anti-innovation, erecting barriers to entry which favor incumbents.

Alex White on BREXIT

Alex White, Head of Country Analysis at The Economist Intelligence Unit: “We see an EEA- deal as highly likely…..we are reasonably optimistic about the breakup.”

Pound falls as UK votes to LEAVE

BREXIT

The Pound fell this evening to its lowest level since the 1980s.

GBPUSD

The Long War [podcast]

Excellent insight into the long-term implications of conflict between Russia and the West. Hosted by Brian Whitmore (RFE/Power Vertical) and co-host Mark Galeotti, New York University professor and expert on Russia's security services, with guest James Sherr, an associate fellow with Chatham House's Russia and Eurasia program.

Podcast: The Long War

The Long War

It's going to be a protracted conflict and Ukraine is just the first major battle.

It's going to be fought in different ways and on multiple fronts: on NATO's eastern frontier; over the countries of former Soviet Union, in the energy market, over the airwaves, and in cyberspace.

We should have no illusions. The West's conflict with Russia is not going away anytime soon, regardless of how the current standoff in Ukraine is resolved.

And what is at stake is nothing short of the future of the international order.

This ain't no Cold War. Russia isn't strong enough for that.

But according to The Russia Challenge, a widely read and highly influential report issued by Chatham House last week, it is shaping up to be a Long War. A protracted looking-glass conflict with a weakening, but still very dangerous, Russia.

On the latest Power Vertical Podcast, we discuss the new Chatham House report and its recommendations.

Enjoy…

The panel make some important points:

  • The post-Soviet transition to a modern democracy was poorly handled by the West and left Russians with a deep distrust of their motives.
  • The most important response to asymmetric warfare is good governance. The last 15 years shows a series of unmitigated blunders that would leave an independent observer with serious questions as to the competence of Western democracies. The West, Ukraine and Baltic States all need to get their house in order.
  • Conventional weapons are important, but the primary response should focus on improved intelligence and policing.

Putin Will Never Back Down | Institutional Investor’s Alpha

Excellent analysis of the situation in Eastern Europe by Bill Browder, founder of London-based Hermitage Capital Management:

I’m afraid that, based on the reasons behind Putin’s motivations for invading Ukraine in the first place, there is no chance that he will back down. To understand this, all it takes is a simple analysis of how this crisis unfolded.

First, Putin didn’t start this war because of NATO enlargement or historical ties to Crimea, as many analysts have stated. Putin started this war out of fear of being overthrown like Ukrainian president Yanukovych in February 2014. Yanukovych had been stealing billions from the state over many years, and the Ukrainian people finally snapped and overthrew him. Compared with Putin, Yanukovych was a junior varsity player in the field of kleptocracy. For every dollar Yanukovych stole, Putin and his cronies probably stole 50. Putin understands that if he loses power in Russia, he and his underlings will lose all the money they stole; he will lose his freedom and possibly even his life.

I believe that Bill is right. Putin was not reacting to EU or NATO encroachment (they were never a threat), but to Maidan. Especially when we read Michael McFaul’s (former ambassador to Russia) summation of Putin: “He is obsessed with the CIA…..With respect Ukraine he believes the US led the coup in the Ukraine. The Ukrainians had nothing to do with it. It was all the CIA.”

Former Ambassador to Russia Michael McFaul

….. Putin has never dealt with economic chaos before. Though some may argue that this will bring him to the table to negotiate with the West, in my opinion any negotiation would be seen as a sign of weakness and is therefore the last thing Putin would want to do.

Putin’s only likely response is to escalate in Ukraine and possibly open up new fronts in other countries where there are “Russians to protect.” But doing so will only harden the sanctions, leading to further economic pain in Russia — and further military adventures to distract Russia’s people from that pain.

I cannot imagine a scenario in which there is any compromise, because for Putin compromise means being overthrown. Judging from all of his actions to date, he is ready to destroy his country for his own self-preservation.

We should start preparing ourselves for a war in Europe that may spread well beyond the borders of Ukraine. The only Western response to this has to be containment. This all may sound alarmist, but I’ve spent the past eight years in my own war with Putin, and I have a few insights about him that are worth knowing.

In Putin’s mind, he is fighting for survival. The US/EU/Nato and Ukraine are just a convenient scapegoat. His real enemy is the Russian people. This 1945 image of Benito Mussolini, his mistress Clara Petacci, and three others hanging outside a petrol station in Milan must haunt his dreams.
Bodies of Benito Mussolini, his mistress Clara Petacci, and three others hanging outside a petrol station in Milan

When they realize they have been duped, the anger of the Russian people will be palpable.

Read the full article at Unhedged Commentary: Putin Will Never Back Down | Institutional Investor's Alpha.

Russia: EU is the real enemy | Tim Snyder

Professor Timothy Snyder of Yale University says that, despite the spin, the European Union is Russia’s real enemy — not America — and a Western-leaning Ukraine is part of the problem.

Europe’s Energy Essentials by Ana Palacio | Project Syndicate

Ana Palacio on Europe’s energy challenge:

Energy’s emergence as a focal point for European leaders makes sense, given that it lies at the confluence of the three existential threats facing the European Union: a revisionist Russia, the declining competitiveness of European businesses, and climate change.

….The most tangible element of the EU’s emerging energy-policy framework is the internal energy market, which, once completed, will allow for the unimpeded flow of energy and related investments throughout the EU. Such an integrated energy market would lead to significant savings – estimates go as high as €40 billion ($51 billion) annually by 2030 – thereby providing a much-needed competitiveness boost.

The internal energy market would enhance Europe’s energy security as well…. individual countries are often excessively dependent on a single source and, more dangerously, a single supplier: Russia. Unrestricted energy flows within the EU would mitigate the risks of supply disruptions or shocks.

Read more at Europe’s Energy Essentials by Ana Palacio – Project Syndicate.

Europe leads markets lower

Summary:

  • Europe retreats as the Ukraine/Russia crisis escalates.
  • S&P 500 displays milder selling pressure and the primary trend remains intact.
  • VIX continues to indicate a bull market.
  • China’s Shanghai Composite is bullish in the medium-term.
  • ASX 200 may experience a secondary correction, but the primary trend displays buying support.

European leaders are waking up to the seriousness of the menace posed by Russia in the East, summed up in a recent Der Spiegel editorial:

Europe, and we Germans, will certainly have to pay a price for sanctions. But the price would be incomparably greater were Putin allowed to continue to violate international law. Peace and security in Europe would then be in serious danger.

Vladimir Putin will not alter course because of a light slap on the wrist. President Obama is going to have to find Teddy Roosevelt’s “big stick” — misplacement of which is largely responsible for Russia’s current flagrant disregard of national borders. And Europe is going to have to endure real pain in order to face down the Russian threat in the East. Delivery of French Mistral warships, for example, would show that Europe remains divided and will encourage the Russian bear to take even bolder steps.

Russian Deputy Prime Minister Dmitry Rogozin said, however, that he doubted France would cancel the deal, despite coming under pressure from other Western leaders: “This is billions of euros. The French are very pragmatic. I doubt it [that the deal will be canceled].”
The Moscow Times

The whole of Europe is likely to have to share the cost of cancelling deals like this, but it is important to do so and present a united front.

Markets reacted negatively to the latest escalation, with Dow Jones Europe Index falling almost 6% over the last month. 13-Week Twiggs Momentum dipped below zero after several months of bearish divergence, warning not necessarily of a primary down-trend, but of a serious test of primary support at 315. Respect of 325 and the rising trendline would reassure that the primary trend is intact.

Dow Jones Europe Index

The S&P 500 displays milder selling pressure on 13-week Twiggs Money Flow and the correction is likely to test the rising trendline and support at 1850/1900, but not primary support at 1750. Respect of the zero line by 13-week Twiggs Money Flow would signal a buying opportunity for long-term investors. Recovery above 2000 is unlikely at present, but breakout would offer a (long-term) target of 2250*.

S&P 500

* Target calculation: 1500 + ( 1500 – 750 ) = 2250

CBOE Volatility Index (VIX) spiked upwards, but remains low by historical standards and continues to suggest a bull market.

S&P 500 VIX

China’s Shanghai Composite Index broke resistance at 2150, suggesting a primary up-trend, but I will wait for confirmation from a follow-through above 2250. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 2050 is unlikely at present but would warn of another test of primary support at 1990/2000. The PBOC is simply kicking the can down the road by injecting more liquidity into the banking system. That may defer the eventual day of reckoning by a year or two, but it cannot be avoided. And each time the problem is deferred, it grows bigger. So the medium-term outlook may be improving, but I still have doubts about the long-term.

Shanghai Composite

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

The ASX 200 is likely to retrace to test the rising trendline around 5450, but 13-week Twiggs Money Flow holding above zero continues to indicate buying support. Recovery above 5600 is unlikely at present, but would present a target of 5800*. Reversal below 5050 would signal a trend change, but that is most unlikely despite current bearishness.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

Speak softly and carry a big stick.

~ President Theodore Roosevelt, describing his style of foreign policy which he later explained as “The exercise of intelligent forethought and of decisive action sufficiently far in advance of any likely crisis.”

Europe leads markets lower

Summary:

  • Europe retreats as the Ukraine/Russia crisis escalates.
  • S&P 500 displays milder selling pressure and the primary trend remains intact.
  • VIX continues to indicate a bull market.
  • China’s Shanghai Composite is bullish in the medium-term.
  • ASX 200 may experience a secondary correction, but the primary trend displays buying support.

European leaders are waking up to the seriousness of the menace posed by Russia in the East, summed up in a recent Der Spiegel editorial:

Europe, and we Germans, will certainly have to pay a price for sanctions. But the price would be incomparably greater were Putin allowed to continue to violate international law. Peace and security in Europe would then be in serious danger.

Vladimir Putin will not alter course because of a light slap on the wrist. President Obama is going to have to find Teddy Roosevelt’s “big stick” — misplacement of which is largely responsible for Russia’s current flagrant disregard of national borders. And Europe is going to have to endure real pain in order to face down the Russian threat in the East. Delivery of French Mistral warships, for example, would show that Europe remains divided and will encourage the Russian bear to grow even bolder.

Russian Deputy Prime Minister Dmitry Rogozin said, however, that he doubted France would cancel the deal, despite coming under pressure from other Western leaders: “This is billions of euros. The French are very pragmatic. I doubt it [that the deal will be canceled].”
The Moscow Times

The whole of Europe is likely to have to share the cost of cancelling deals like this, but it is important to do so and present a united front.

Markets reacted negatively to the latest escalation, with Dow Jones Europe Index falling almost 6% over the last month. 13-Week Twiggs Momentum dipped below zero after several months of bearish divergence, warning not necessarily of a primary down-trend, but of a serious test of primary support at 315. Respect of 325 and the rising trendline would reassure that the primary trend is intact.

Dow Jones Europe Index

The S&P 500 displays milder selling pressure on 13-week Twiggs Money Flow and the correction is likely to test the rising trendline and support at 1850/1900, but not primary support at 1750. Respect of the zero line by 13-week Twiggs Money Flow would signal a buying opportunity for long-term investors. Recovery above 2000 is unlikely at present, but breakout would offer a (long-term) target of 2250*.

S&P 500

* Target calculation: 1500 + ( 1500 – 750 ) = 2250

CBOE Volatility Index (VIX) spiked upwards, but remains low by historical standards and continues to suggest a bull market.

S&P 500 VIX

China’s Shanghai Composite Index broke resistance at 2150, suggesting a primary up-trend, but I will wait for confirmation from a follow-through above 2250. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 2050 is unlikely at present but would warn of another test of primary support at 1990/2000. The PBOC is simply kicking the can down the road by injecting more liquidity into the banking system. That may defer the eventual day of reckoning by a year or two, but it cannot be avoided. And each time the problem is deferred, it grows bigger. So the medium-term outlook may be improving, but I still have doubts about the long-term.

Shanghai Composite

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

The ASX 200 is likely to retrace to test the rising trendline around 5450, but 13-week Twiggs Money Flow holding above zero continues to indicate buying support. Recovery above 5600 is unlikely at present, but would present a target of 5800*. Reversal below 5050 would signal a trend change, but that is most unlikely despite current bearishness.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

The Time Has Come for Europe to Act | SPIEGEL ONLINE

From a DER SPIEGEL editorial:

Europe, and we Germans, will certainly have to pay a price for sanctions. But the price would be incomparably greater were Putin allowed to continue to violate international law. Peace and security in Europe would then be in serious danger.

Read more SPIEGEL Editorial: Time to Impose Tough Sanctions on Russia – SPIEGEL ONLINE.

Margaret Thatcher’s free market legacy | Charles Moore

Margaret Thatcher’s biographer Charles Moore discusses the former Prime Minister’s legacy. Moore provides insights as to how Margaret Thatcher’s stance on the market economy developed and how she popularised it. He seeks to outline her approach to foreign affairs, in relation to the EU, the US, and her broad approach to the Cold War.

What Ukraine Crisis Means for Future of Europe | SPIEGEL ONLINE

Interesting extract from Spiegel interview with Prof. Timothy Snyder from Yale:

SPIEGEL: What motivates Putin?

Snyder: I think Putin is playing an all-or-nothing game, geopolitically speaking. He no longer cares about tolerable relations with the EU or about a solid relationship with Ukraine. Putin has opted for something else, a much larger project, to destabilize Ukraine and the EU. It’s an all-or-nothing game because there is no going back, now that he has embarked on this path.

SPIEGEL: Can he win?

Snyder: There are two options now: Either he achieves his goals, or the European Union achieves political unity and ideological stringency. It would have to define itself as Russia’s adversary and, most of all, develop a joint energy policy with which it could affect Putin. If the EU could do that, there would be radical consequences for Russia. Then Putin would have to fall back on China, and Russia would become China’s Ukraine.

via Experts Discuss What Ukraine Crisis Means for Future of Europe – SPIEGEL ONLINE.

Challenging Putin’s Values | NYTimes.com

Thomas L. Friedman’s opinion at the NY Times:

…….Ukraine is not threatening Russia, but Ukraine’s revolution is threatening Putin. The main goal of the Ukraine uprising is to import a rules-based system from the E.U. that will break the kleptocracy that has dominated Kiev — the same kind of kleptocracy Putin wants to maintain in Moscow. Putin doesn’t care if Germans live by E.U. rules, but when fellow Slavs, like Ukrainians, want to — that is a threat to him at home.

Don’t let anyone tell you the sanctions are meaningless and the only way to influence Russia is by moving tanks. (Putin would love that. It would force every Russian to rally to him.) If anything, we should worry that over time our sanctions will work too well. And don’t let anyone tell you that we’re challenging Russia’s “space.” We’re not. The real issue here is that Ukrainians, as individuals and collectively, are challenging Putin’s “values.”

We couldn’t stop them if we wanted to. They’ve been empowered by globalization and the I.T. revolution. Get used to it, Comrade Putin.

Read more at Challenging Putin’s Values – NYTimes.com.

EconoMonitor » U.S.-China Trade War in the Offing?

China wants to develop what it sees as key industries by giving Chinese companies a leg up in both the Chinese and global market. Its trading partners don’t want to see their firms placed at a disadvantage, and in several cases have challenged Chinese policies. China is challenging them right back, arguing that those countries do the same thing, and that people who live in protectionist glass houses shouldn’t throw stones. If they do, China can match them “tit for tat.” (A similar battle involving cross-accusations and threats between the EU and China began unfolding this week — you can read about it here).

There’s a critical difference, though, between China and its trade partners. They all may both have policies that can be called protectionist, but they come from different starting points. In the U.S., trade restrictions and subsidies tend to be the exception to the rule, and when they do occur, are usually transparent. There’s a public approval process and an overt policy that can be challenged at WTO. In China, restrictions and subsidies are pervasive, due to the large state role in the economy, and often hard to pin down.

via EconoMonitor : EconoMonitor » U.S.-China Trade War in the Offing?.

What Would Margaret Thatcher Do? – WSJ.com

In his speech resigning from the cabinet in 1990, by which he toppled Mrs. Thatcher as Conservative Party leader and prime minister, her former close ally Geoffrey Howe accused her, in her obsession with preserving the British nation-state, of living “in a ghetto of sentimentality about our past.”

It does not look quite like that now. Indeed, it was Mrs. Thatcher herself, a couple of years after she left office, who identified the problem with European construction. It was, she said, “infused with the spirit of yesterday’s future.” It made the “central intellectual mistake” of assuming that “the model for future government was that of a centralized bureaucracy.” As she concluded, “The day of the artificially constructed megastate is gone.”

via What Would Margaret Thatcher Do? – WSJ.com.

Cameron’s Rejection of EU Summit Isolates Britain

“There is now little point in Britain staying in the EU,” said MacShane, who was a minister in Tony Blair’s generally pro-Europe Labour Party government. “It is an historic turning point and Britain might as well get out now, as Europe’s future will be settled without us.”

…….The economic impact of leaving the European Union would be difficult to predict. British companies might lose easy access to European markets — where they now enjoy open trade, with few barriers — but Britain also might be able to negotiate a favorable trade treaty with Europe, as Israel and Mexico have done.

via Cameron’s Rejection of EU Summit Isolates Britain.

Comment: ~ Withdrawal from the EU could harm the same financial sector that David Cameron has vowed to protect. The UK may view tighter financial regulation and/or transaction taxes imposed by the EU as a threat, but interruption to trade/financial flows posed by isolation from the EU would be an even greater danger.

Self-serving myths of Europe’s neo-Calvinists – Telegraph Blogs

From a paper by Philip Whyte and Simon Tilford for the Centre for European Reform… a pro-EU group with a broadly free-market leaning.

Eurozone leaders now face a choice between two unpalatable alternatives. Either they accept that the eurozone is institutionally flawed and do what is necessary to turn it into a more stable arrangement. This will require some of them to go beyond what their voters seem prepared to allow, and to accept that a certain amount of ‘rule-breaking’ is necessary in the short term if the eurozone is to survive intact. Or they can stick to the fiction that confidence can be restored by the adoption and enforcement of tougher rules. This option will condemn the eurozone to self-defeating policies that hasten defaults, contagion and eventual break-up.

via Self-serving myths of Europe’s neo-Calvinists – Telegraph Blogs.

Europe’s Economy Shows Weakness – WSJ.com

Italy was forced to pay its highest interest rate since the euro’s creation to sell five-year bonds—a sign of skepticism that new governments in Italy and Greece will be able to simultaneously boost economic growth and reduce high public-debt levels……Industrial production in the euro zone plunged 2% in September from August, the steepest slide since February 2009, according to the European Union’s statistics agency. The decline stretched from the weak periphery of Spain, Italy and Portugal to powerhouses such as Germany, France and the Netherlands. Compared with a year ago, output rose just 2.2%—the weakest gain in nearly two years. The data suggest “the euro-zone will soon fall back into another fairly deep recession,” said Ben May, economist at consultancy Capital Economics.

via Europe’s Economy Shows Weakness – WSJ.com.