*** 27-Oct-15 World View -- US Navy to challenge China in the South China Sea today
This morning's key headlines from
GenerationalDynamics.com
- US Navy to challenge China in the South China Sea today
- What was the purpose of Russia's Caspian Sea cruise missile attack on Syria?
- Insurers taking increasingly risky investment bets
****
**** US Navy to challenge China in the South China Sea today
****
US Navy destroyer USS Lassen, to be sent into South China Sea near China's man-made islands (Reuters)
We recently reported on plans for the US Navy to send a vessel into
the South China Sea close to the man-made island chain that China has
been building, apparently to provide a platform for a large military
base. (
"16-Oct-15 World View -- China and US poised for South China Sea military confrontation"
)
There are now reports that the U.S. Navy plans to send the destroyer
USS Lassen within 12 nautical miles of artificial islands built by
China in the South China Sea within 24 hours. The ship would likely
be accompanied by a U.S. Navy P-8A surveillance plane and possibly P-3
surveillance plane.
According to an unnamed Pentagon official: "This is something that
will be a regular occurrence, not a one-off event. It’s not something
that’s unique to China."
In the past few weeks since the reports first surfaced, there have
highly nationalistic and belligerent Chinese media reports, such as
the following from the Global Times that I quoted in my last article:
<QUOTE>"Despite the legitimacy of China's construction work
and the public good it can provide, if the US adopts an aggressive
approach, it will be a breach of China's bottom line, and China
will not sit idly by.
China has remained calm with self-restraint even in the face of
Washington's escalating provocations, but if the US encroaches on
China's core interests, the Chinese military will stand up and use
force to stop it."<END QUOTE>
However, there have been no such threats coming from China's Ministry
of Defense, suggesting that there won't be an immediate military
confrontation after all. However, tensions are sure to increase, as
nationalistic anti-American fury is sure to increase in China.
Many people have expressed concern that American would just stand by
and do nothing but observe as China annexed regions of the South China
Sea belonging to other nations, just as Nato stood by and only
observed Russia's annexation of Ukraine's Crimean peninsula last year,
and just as Britain stood by and only observed as Adolf Hitler annexed
part of Czechoslovakia in 1939, leading to World War II. So the fact
that the Obama administration is taking this step to stand up to China
will come as a surprise to a lot of people, including me.
From the point of view of Generational Dynamics, China and the United
States are headed for war anyway, whether America stands up to China
in the South China Sea or not.
Reuters and
CNN and
Global Times (Beijing 15-Oct)
****
**** What was the purpose of Russia's Caspian Sea cruise missile attack on Syria?
****
It's now been almost three weeks since Russia's president Vladimir
Putin ordered the Caspian Sea fleet to launch a volley of 26 cruise
missiles at Syria, traveling 1,500 km over the countries of Iran and
Iraq to reach their targets in the Syrian cities of Raqqa, Idlib and
Aleppo. (
"8-Oct-15 World View -- Russia dramatically escalates Syria war launching cruise missiles from Caspian Sea"
)
There seems to have been no follow-up from the October 7 Caspian Sea
missile attack, and so a number of questions have arisen as to the
purpose of the attack, and why the Russians didn't simply attack the
same targets through airstrikes, or through missiles launched from
Russia's Mediterranean fleet or from the Latakia, Syria, airbase. It
seems clear that Russia's purpose was to send a message. But what
message(s) was Russia sending?
Besides the obvious message to the West that Russia's military is back
in the game, there were several other messages:
- In addition to Russia, there are four other nations adjoining
the Caspian Sea: Azerbaijan, Iran, Kazakhstan, and Turkmenistan.
These five countries have been negotiating for years on the issue of
dividing up the Caspian’s offshore waters and seabed while
simultaneously developing their own nationalist energy policies.
Russia's clear naval superiority in the Caspian will be a major factor
in the negotiations. - As we've been recently reporting, Russian troops are taking control of Tajikistan's border with Afghanistan.
Russia has been using the threat of jihadists from
Afghanistan to convince Central Asian nations to allow Russian troops
back on their soil, as part of Vladimir Putin's apparent effort to
reconstruct the Soviet Union through the CIS (Commonwealth of
Independent States, formerly of the Soviet Union). The Caspian Sea
launch occurred just before a meeting of CIS leaders in Kazakhstan on
October 16, at which Central Asian leaders agreed to a Russian-backed
military cooperation agreement. - There's a similar message to countries in the South Caucasus,
including Georgia, Armenia and Azerbaijan. Russian media has
repeatedly suggested that jihadists fighting in the Syrian conflict
could pose a growing threat of religious extremism to these nations,
and has used that threat in negotiations over military and commercial
agreements. - Some analysts see it as a marketing opportunity to help Russia
sell the Kalibr 3M-14T missiles used in the October 7 attack to
potential foreign buyers. - Others attribute it to vanity: The attack was launched on Vladimir
Putin's 63rd birthday.
The Russian launch from the Caspian Sea has forced civil aviation
changes. The Kazakhstan carrier Air Astana announced it was altering
the route of its Almaty-Baku flight to reduce the risk of a potential
missile-related accident, or a repeat of the shoot-down of Malaysian
Airlines Flight 17 over eastern Ukraine in July 2014. The European
Aviation Safety Agency (EASA) has issued a warning concerning all
flights crossing the airspace above the Caspian Sea, Iran and Iraq.
EurasiaNet and
Jamestown and
Silk Road Reporters
****
**** Insurers taking increasingly risky investment bets
****
As another sign that the financial services organizations are
returning to the abusive practices that led to the financial crisis of
2007-8, BlackRock Inc. has found that insurance companies are
increasingly making risky investments.
The most serious investment problem facing insurers is the low
interest rate environment, led by the near-zero Federal Reserve funds
rate, currently at 0.12%. In normal times, insurers invest money is
corporate or government bonds, but in the current environment, the
yield (interest rate) on these bonds is also close to zero.
According to BlackRock analyst David Lomas:
<QUOTE>"The mix of divergent central bank policy, bond market
liquidity risk, and a heightened regulatory regime, presents the
industry with a dilemma. Opportunities exist to protect balance
sheet health and maintain challenged business lines, but investors
need to quickly get familiar with diversifying portfolios into
higher-risk, higher-yield assets, and also closely manage the
risks inherent in these new areas."<END QUOTE>
S&P 500 Price/Earnings ratio at astronomically high 22.07 on October 23 (WSJ)
In other words, many insurers are investing in risky derivatives and
exchange-traded funds, in the hope of getting higher yields. In
addition, many insurers are investing in stocks, despite the high S&P
500 Price/Earnings ratio. Insurers are incurring exactly the same
kinds of risks that led to the last financial crisis.
There's a big irony in this situation. As we said, the biggest
investment problem is the low interest rate environment, led by the
Fed's near-zero funds rate. But insurers say that one of their
biggest risks is that interest rates may increase, triggering a
correction in stock prices, and possibly a recession.
Generational Dynamics predicts that we're headed for a global
financial panic and crisis. According to Friday's
Wall Street Journal, the S&P 500 Price/Earnings index (stock
valuations index) on Friday morning (October 23) was at an
astronomically high 22.07. This is far above the historical average
of 14, indicating that the stock market is in a huge bubble that could
burst at any time. Generational Dynamics predicts that the P/E ratio
will fall to the 5-6 range or lower, which is where it was as recently
as 1982, resulting in a Dow Jones Industrial Average of 3000 or lower.
Bloomberg and
Insurance Asset Risk
KEYS: Generational Dynamics, USS Lassen, China, South China Sea,
Ukraine, Crimea, Adolf Hitler, Czechoslovakia,
Russia, Caspian Sea, Syria, Raqqa, Idlib, Aleppo, Kalibr 3M-14T,
Azerbaijan, Iran, Kazakhstan, Turkmenistan, Tajikistan,
Commonwealth of Independent States, CIS,
Georgia, Armenia, Azerbaijan, Vladimir Putin,
European Aviation Safety Agency, EASA,
BlackRock Inc., David Lomas, Price/earnings ratio
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