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April 24 2014

Commentary by David Fuller

Putin Warns of Consequences as Ukraine Steps Up Offensive

Here is the opening on the latest developments in this crisis, reported by Bloomberg:

President Vladimir Putin warned Ukraine against continuing its anti-separatist offensive after government troops killed five rebels and prompted Russia’s military to begin new drills on the two nations’ border.

“If it’s true that the current regime in Kiev sent the army against citizens inside its country, then it is a very serious crime against its own nation,” Putin said today in St. Petersburg. “It will have consequences for the people who make such decisions, including relations between our countries. We’ll see how the situation develops and we’ll make conclusions based on the reality on the ground.”

Ukrainian Interior Ministry and army troops destroyed three road blocks as they fought pro-Russian separatists in the Donetsk region city of Slovyansk, the ministry said today on its website. Russia’s latest drills are a response to events in eastern Ukraine and involve warplanes near the border, Defense Minister Sergei Shoigu said, according to Interfax.

An agreement to disarm rebels signed last week in Geneva by Ukraine, Russia, the European Union and the U.S. is on the brink of collapse. President Barack Obama said today the U.S. and its allies have additional sanctions against Russia ready to go because Putin’s government has yet to abide by the accord.

Russia’s Micex Index (INDEXCF) fell for a fourth day, losing 2.5 percent at 5:33 p.m. in Moscow and taking its decline since Putin’s intervention in Crimea started March 1 to 10.4 percent.

David Fuller's view

So far, stock markets have been relatively unaffected by this problem, Russia excepted.  Elsewhere, it is viewed as a minor, local conflict that is only simmering.  Historically, stock market investors and traders have only been influenced by regional crises while they are perceived to be worsening.

There is a cold eyed logic to that response.  After all, we live in a turbulent world and most crises are someone else’s problem, at least most of the time.  That can even benefit other markets on occasion.  In the global economy, misfortune will most likely cause some investors in the troubled region to seek safer havens for their capital in other countries, especially where monetary policies are accommodative, governance reasonably sound and market trends favourable.

However, more markets will eventually reflect deteriorating conditions during potentially serious conflicts, such as we currently have with Russia’s aggression against Ukraine. 

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April 24 2014

Commentary by David Fuller

Barrick Retiring Chairman Munk Says Einstein Could Not Predict Gold Prices

Here is the opening from this candid, reflective article from Bloomberg:

Barrick Gold Corp. (ABX) ChairmanPeter Munk says he finds it impossible to accurately predict the value of the precious metal being produced every day by the mining company he founded more than three decades ago.

“I really have no ability to forecast gold prices,” Munk said yesterday in an interview at Bloomberg’s headquarters in New York. “I have been in the business for 30 years, and it occupies my mind day and night.”

The world’s largest gold producer wrote down $11.5 billion in value last year and saw its profit margins squeezed as prices for the precious metal plunged into a bear market. The 2013 slump ended a 12-year bull run that swelled profits for mining companies.

Munk is in good company: Federal Reserve Chairman Janet Yellen and her predecessor Ben S. Bernanke have both said it’s hard to quantify what makes gold tick. The metal’s rebound this year defied bearish predictions from Goldman Sachs Group Inc. and Societe Generale SA.

“It’s tough because fundamentals don’t rule the market,” Jeff Sica, who helps oversee more than $1 billion of assets as president of Sica Wealth Management in Morristown, New Jersey, said in a telephone interview. “On one hand, you have algorithmic models and momentum traders ruling prices, and on the other you have those driven by sentiments.”

David Fuller's view

Most of the comments we see on gold are from a western perspective but people all over the world have an interest in the yellow metal.  Their ancestors have been interested in this unique store of value for centuries, not least in a fiat currency world which we still inhabit.  However, in the short term gold is voting machine, in competition with everything else that people might be tempted to own. 

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April 24 2014

Commentary by David Fuller

Poland Pushes Coal on Europe as Putin Wields Gas Weapon

Here is the opening of this informative article from Bloomberg:

Polish Prime Minister Donald Tusk says the country’s giant coal fields should become a cornerstone in Europe’s defense against a newly aggressive Russia.

Because the fossil fuel supplies 90 percent of Poland’s power it has less need of Russian natural gas than other Eastern European nations, burning half as much per capita as the neighboring Czech Republic, for example. As politicians wrestle with how to respond to the crisis in Ukraine, Tusk argues Europe needs to “rehabilitate” coal’s dirty image and use it to break Russia’s grip on energy supply.

“In the context of the Russian-Ukrainian conflict, the overriding objective is to lessen the dependence on Russia,” said Mujtaba Rahman, an analyst at Eurasia Group in London. “Climate objectives will be absolutely secondary to that.”

At Belchatow in central Poland, where Europe’s largest mine produces more than twice as much coal as the whole of the U.K., visitors stand on an observation platform looking into a 310 meter-deep pit that supplies the giant power station visible on the horizon. On a recent April afternoon, the entire junior Polish national soccer team arrived for a look.

Poland burns over 50 million tons of coal a year, more than any European nation other than Germany, while having the lowest reliance on natural gas among the EU’s 10 largest economies, according to International Energy Agency data. That’s a popular position in a nation where Soviet troops were stationed for four decades until the early 1990s.

David Fuller's view

Climate change alarmists will be horrified but hopefully their long-term forecasts are no better than the poor track record that most people can recall for such predictions.  Of course we want to reduce pollution and the accelerating rate of technological innovation will be the key to these future developments.

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April 24 2014

Commentary by David Fuller