Category: Economy

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ISRAEL-TURKEY CONFRONTATION: Is Cyprus Ground Zero for War?

Since 1974 Turkey has occupied 40% of Cyprus, constituting in what the international community holds is an illegal occupation. In that time Turkey has driven out the Greek Cypriots from the Turkish enclave in the northern part of the island, where the ethnic Greeks had made up more than 80% of the populace.

As Turkey has swung further and further towards an Islamist style republic, with an increasingly autocratic president in Erdogan, Israel and Cyprus along with Greece have begun to form various economic alliances as a buffer to Turkey’s expansion. While Cypriot animosity to their Turkish occupiers cannot be overstated, Israel’s increasingly strong economic position and regional leadership capabilities in the technology and military arenas is both attractive and reassuring.

Greece, Cyprus, and Israel have jointly developed an East Med gas pipeline that will take their gas to Europe.  This has given them the need to also create a joint task force in dealing with threats from Iran, Hezbollah, and Turkey to both Cyprus’ and Israel’s gas and oil fields.

With Turkey trying to establish itself as the leader of the Islamic world, it has grown more and more antagonistic to Israel. Yet, behoind its stated infuriation over Israel’s self-defense from a potential Gaza stampede, the real thing bothering Erdogan is Israel’s alignment with Greece and Cyprus.

With positive relationships having been developed over the years in tourism between the three countries and now with a combination of economic, technological, and energy cooperation, Israel has become the stable anchor and friend both Cyprus and its big brother Greece have sought.



Turkey has grown very cool to the idea of energy collaboration between Greece, Cyprus, and Israel. In a recent visit to London Turkey’s Erdogan said that the “Eastern Mediterranean faces a security threat should Cyprus continue its unilateral operations of offshore oil and gas exploration in the region.”

Earlier this year, Turkish Navy vessels threatened to sink a drilling ship hired by Eni to explore for oil and gas off Cyprus’s shore.  Weeks before that, Turkey’s Navy had blocked the drilling vessel that Eni had hired.

Turkey claims that the drilling operations are ‘unilateral’ and claims that part of the exclusive economic zone of Cyprus is under Turkish jurisdiction.

These sorts of events and declarations have pushed Greece, Cyprus, and Israel closer together.  With the latest row between Turkey and Israel heightening tensions between the two, the frontlines of any potential conflict between the two may end up being Cyprus who has begun to rely on Israel for help with maritime security training.

With tensions mounting between Turkey and the three East Mediterranean allies,  Jonathan Cohen, US State Department Deputy Assistant Secretary for European and Eurasian Affairs said the following in hopes of calming the situation: “If confirmed, I will continue to support longstanding US policy recognizing the Republic of Cyprus’s right to develop its resources in its EEZ. The island’s oil and gas resources, like all of its resources, should be equitably shared between both communities on the island in the context of an overall settlement.”

Cohen backed by the US government appears to be placating both the internationally recognized Greek Cypriot government along with Turkey’s assertion that it deserves some of the access to Cyrus’ resources.  The problem with this approach is it rewards Turkey for it malevolent behavior at a time when it is actively engaged in wrecking havoc in several geographic areas in the region.

With the continued cooperation between Israel, Cyprus, and Greece in the offing, expect tensions to only increase with Turkey. Will there be war in the eastern Mediterranean? Perhaps not tomorrow, but with a falling Lira and an expansionist leader in Ankara, the threat is only increasing.

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International Rankings Salute Israel’s Economy

When I came to Israel in 1984 the country was an economic disaster.  Annual inflation was running at 1200%, companies paid bills in the afternoon to save 1.5% and when you received your monthly salary you made sure to spend all of it that very same day, else it would be worth 3% less the following day.  The only way people survived was that items such as salaries, mortgages, insurance policies, etc. were linked to the inflation rate and in some rare cases to the dollar exchange rate so purchasing power remained more-or-less steady for those lucky enough to have their salaries linked.

I recall traveling to the US via Zurich on business during that time and, in error, took a fistful of old Shekels with me.  I went to the currency exchange at the airport to get dollars and they were only willing to give me 60% of the official exchange rate, that’s how valueless our currency was.  And in many cases, the shekel was not convertible at all overseas.

Furthermore, by the end of 1984 foreign currency reserves were down to $1 billion and buying everything from flour to oil required foreign currency.  Israel survived because the US provided an emergency loan of $1 billion at the time to bail the country out of its “situation.”  By comparison, foreign currency reserves now reach approximately $ 100 billion.

The high tech community was in “pre-infant” stage, venture capital did not exist, home mortgages could only be secured for a small portion of the total cost of the property and car loans, when granted, were at exorbitant interest rates..  Everything had to be purchased with cash.  And today, how things have changed.

This week two major US publications have listed Israel within their top ten rankings, citing the country’s military prowess and innovation capabilities, respectively.

Web-based publication US News and World Report, best known for its influential ranking lists, named Israel as the 8th most powerful nation in the world. Meanwhile, Bloomberg News listed us as the 10th most innovative country worldwide, hailing our high-tech industry and technological advances.

Partnering with global marketing communications company BAV Group and the Wharton School of the University of Pennsylvania, US News surveyed more than 21,000 people from four regions of the world and asked them to associate 80 countries with specific attributes.

The power aspect of the survey measured how “economically” and “politically influential” a country was and took into account both its “strong international alliances and strong military alliances.”

“Israel has a technologically advanced market economy with cut diamonds, high-technology equipment and pharmaceuticals among its major exports,” US News also noted in its report, adding, however, that the country still “has one of the most unequal economies in the Western world, with significant gaps between the rich and poor.”

Rounding out the top 10 after Israel were two Arab rivals: Saudi Arabia and the United Arab Emirates.

The online news organization ranked Israel 30th overall in terms of “Best Countries” out of a list of 80. The United States, like last year, was placed at number 1 while Slovenia ranked dead last at number 80.

Bloomberg News ranked Israel number 10 on its list of most innovative countries, using an index that annually ranks economies by analyzing seven contributing factors such as research and development, spending and the concentration of public hi-tech companies.

South Korea topped the Bloomberg list for the third year in a row, followed by Sweden, Singapore, Germany, Switzerland, Japan, Finland, Denmark and France.

The US fell to 11th place from ninth mainly because of an eight-spot slump in the post-secondary, or tertiary, education-efficiency category, which includes the share of new science and engineering graduates in the labor force, Bloomberg said.

Like last year, Israel achieved first place in the “researcher concentration category,” or the number of professionals – including postgraduate PhD students – engaged in R&D per million people in the country. The country was ranked second and trailed only South Korea in the “R&D intensity” category, or R&D expenditure as a percentage of gross domestic product (GDP).

Israel also did well in “hi-tech density” – the number of domestically domiciled hi-tech public companies – placing fifth, just after South Korea and Germany.

On the venture capital side, Israeli tech firms raised $5.24 billion in 2017, a 9% increase from 2016.  This from 620 deals, according to the IVC Research Center.  The 2017 jump was aided by four large deals of over $100 million each, representing 12% of the total amount raised.   The four companies were Cybereason, ridesharing firm VIA, artificial intelligence firm Lemonade and Skybox Security.

Recently, a German-based firm that analyzes world currencies, even ranked the Israel Shekel as the second most stable currency in the world.

Had anyone projected any of this in the early 80s they would have been laughed out of the room.  But no one could have predicted what the intellectual prowess of the population could do, especially in the face of constant threats from Israel’s neighbors and a few wars thrown in as well.

A miracle on the Mediterranean?  For sure, but also testimony to what can be achieved even under the most challenging situations.

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Bitcoin price crosses $10,000, Central Banker Warns that Banks Could Be ‘Eviscerated’

The price of Bitcoin continues its ascent (as of this writing, the price is $10,800) as the ongoing global currency reset comes into greater focus. Japan has led the way in recent weeks, as approximately 60% of Bitcoin transactions have been conducted in Japanese yen. Other cryptocurrencies such as Ethereum and Litecoin have also increased in value, led by US dollar and South Korean won trades.

Incredibly, in a recent interview, St. Louis Fed President James Bullard said:

“(We could) wake up one day and most of the big banks have been eviscerated and most of that activity has moved elsewhere,”

This marks a realization that banks will inevitably become irrelevant as our world transitions to a decentralized system of currencies that central banks are powerless to stop. At this time, the FED has no practical options to manage the massive influx of capital into cryptocurrencies. Any attempt to rapidly raise interest rates to strengthen the US dollar would devastate equity and bond markets and thereby plunge the global economy into depression. While US politicians may increase threats of regulations and taxation, there is no feasible way to confiscate cryptocurrencies.




As painful as it will be for bankers to lose their livelihood (may need to sell their second homes in the Hamptons), the greater US population stands to benefit. China is planning to destroy the petrodollar system and remove the US dollar as the world’s reserve currency. The sooner the US (along with Japan and South Korea) can transition to an alternative system, the better prepared its citizens will be for future economic turmoil.

Originally Published on News from Chai.

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WARNING SIGNS: Dollar Continues to Weaken as the Skekel Keeps its Momentum

The shekel/dollar has fell below the key NIS 3.50/$ rate reaching 3.497.

In a further example of a strengthening Israeli economy due to its diversification of trading partners, the exchange rate between the shekel and dollar has continued to fall and now has broken below the key NIS 3.50/$ rate. While this may not hold, the trend seems to be a weakening dollar across the board.

The dollar has sunk to a new two month low against the euro. This is following positive data about the German economy. In contrast to this the US Federal reserve meeting earlier this month expressed concern about recent weak US economic data.

The Israeli economy has continued to surprise, showing great 4th quarter results and a higher than predicted GDP.  Israel has continued to expand its trading partners and diversify its economy.

Partnerships with India, and many countries in East Asia have contributed to Israel’s growth.

In years past, Israel’s Central Bank has bought dollars to help lift the rate back up, but in recent dips they have refrained from doing this do to adverse effects to other currency rates.  It remains to be seen if the central bank will step in if the rate continues to fall.

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India cancels $500 million Missile Deal With Israel…Now What?

As the Indian-Israeli relationship continues to grow and mature to something akin to long-lost cousins rediscovering each other, something strange appears to have happened. The Indian MoD has decided to cancel a $500 million deal for anti-tank missiles signed with Rafael in 2014.

The Indian Express reported the following on Monday:

“Ministry sources told The Indian Express that the decision to cancel the deal was based on the consideration that importing a foreign ATGM at this stage would adversely impact the programme for indigenous development of the weapon system by DRDO. Earlier, India had also rejected an offer from US-based Raytheon-Lockheed Martin for Javelin ATGM in favour of the Israeli weapon system.”

While this may seem like a serious dent in future relations between Israel and India, it isn’t and nor should it be.  The misnomer outsiders have involving the relationship between Israel and India revolves around the misunderstanding that the special relationship between the two countries is one tactical and two based on defense sales from Israel to India.

These two notions should be disposed of immediately.  The relationship between India and Israel has been growing from the ground up for over two decades.  While India recognized Israel in 1950, the two did not begin formal relations until 1990.  It was initially Israelis post the army that began to travel to India in a way which created a real grassroots relationship.

These Israelis brought back stories and connections.  These inspired more Israelis to travel to India.  When the tech boom happened Israeli companies sought out inexpensive yet quality programming in India. The economic relationship continued to be built in a decentralized manner.

Both Indians and Israelis recognize that their cultures are ancient and with that recognition a special bond has been built over the years.  Afterall, while Jews lived in exile, they appeared to have found the best treatment in India.

The reasons for the cancellation of the Rafael deal may not seem business like by Western standards, but Israelis should be supportive of India’s strategic goal of self-reliance even if it hits us in the pocket in the short-term.  It is important that alliances and strategic partnerships are based on mutual benefits where neither side holds an upper hand.  An India, which is truly independent is an India that is far better for Israel in the long term.

With all of this being said, the Indian Express reported in the same article that “the Indian military, which currently uses an inferior anti-tank missile that does not work well at night, reportedly expressed concerns that the decision to scrap the Spike deal would negatively affect its preparedness, and that there was ‘operational urgency’ for the Israeli missile.”

India, like Israel appears in need of balancing its short-term military necessities while constantly building home-grown defense equipment.  With the geopolitical circumstances around India entering a far more manic and uncertain stage, both Israel and India would do well to help each other build short-term and long-term approaches to defense partnerships.

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Global Currency Reset Happening Now as Bitcoin Price Explodes

A major risk to the solvency of the banking industry is the notional amount of financial instruments such as interest rate swaps known as derivatives. A recent report stated that US banks have over $200 trillion of derivatives exposure. This shouldn’t be a surprise as Forbes covered global derivatives exposure over four years ago: 

the risk that is still staring us in the face: the lack of transparency in derivative trading that now totals in notional amount more than $700 trillion. That is more than ten times the size of the entire world economy. Yet incredibly, we have little information about it or its implications for the financial strength of any of the big banks.

Moreover the derivatives market is steadily growing. “The total notional value, or face value, of the global derivatives market when the housing bubble popped in 2007 stood at around $500 trillion… The Over-The-Counter derivatives market alone had grown to a notional value of at least $648 trillion as of the end of 2011… the market is likely worth closer to $707 trillion and perhaps more,” writes analyst Jenny Walsh in The Paper Boat.

“The market has grown so unfathomably vast, the global economy is at risk of massive damage should even a small percentage of contracts go sour.  Its size and potential influence are difficult just to comprehend, let alone assess.”

To understand the risk of derivatives to the global economy, one should understand the history of fiat currencies and how money is created by central banks. Mike Maloney has a great series that I recommend:
Mike Maloney’s Hidden Secrets of Money

While there are real industries that make real products, one can nevertheless sense that global markets are rigged and current economic wealth is really an allusion created by the central banks. 

Recently, there has been a parabolic price move in Bitcoin (along with several other cryptocurrencies). As of this writing, Bitcoin is trading at over $2700!


According to investment manager Jeffrey Gundlach, China’s instability is one of the main drivers of this spike.

 

Bitcoin up 100% in under 2 months. Shanghai down almost 10% same timeframe, compared to most global stocks up. Probably not a coincidence!

A recent credit downgrade may have also had an impact according to The Telegraph and Bloomberg.

Forbes adds the following:

..it looks like Chinese money is going into bitcoin, global stocks and bonds. But not gold. Remember, the story of the latter 2016 and early 2017 period, out of China, has been the Chinese government’s efforts to restrict domestic capital from leaving China. It doesn’t appear that they are winning.

China has hinted at attempts to implement regulations to remedy the matter.

In a translated summary of his findings uploaded to Twitter by cnLedger, Xuedong stated, among other items, that “most Bitcoin investors are young people” and that exchange behavior such as faking trading volumes “should be examined and regulated.”

Bitcoin’s future in China “cannot work out without regulations,” he said, speaking in the wake of the US refusal of the first Bitcoin ETF.

The rise of bitcoin buying in China was simply a reaction to an inevitable currency devaluation. It was not the root cause of this devaluation. China is caught trying to balance competing interests: keep up with the latest technology to further grow its economy vs preventing a currency devaluation that could potentially lead to an economic catastrophe.

 

In addition, there is increasing implementation of Bitcoin recently on a global scale. Here are some examples:


The Japanese are Using Bitcoin More than Expected
Australia Will Recognize Bitcoin as Money and Protect Bitcoin Businesses, No Taxes
Bitcoin Coming To Russian E-Commerce Giant Ulmart Starting September 1 
India’s Zebpay Has More Mobile Users Than All Korean Bitcoin Apps Combined 
You Can Now Pay Bitcoin for Parking at 27 UK Airports 

 

Fidelity Investments is acknowledging the increased demand by allowing clients to see digital currencies on its website.

 

Incidentally, for years, rumors of China and Russia joining together to dump the US dollar have been discussed. If true, they could be holding up their economies until the right time to move towards a gold standard. This bombshell report from Zerohedge seems to confirm the idea.

 

Speaking on future ties with Russia, Chinese Premier Li Keqiang said in mid-March that Sino-Russian trade ties were affected by falling oil prices, but he added that he saw great potential in cooperation. Vladimir Shapovalov, a senior official at the Russian central bank, said the two central banks were drafting a memorandum of understanding to solve technical issues around China’s gold imports from Russia, and that details would be released soon.

If Russia – the world’s fourth largest gold producer after China, Japan and the US – is indeed set to become a major supplier of gold to China, the probability of a scenario hinted by many over the years, namely that Beijing is preparing to eventually unroll a gold-backed currency, increases by orders of magnitude.

“We discussed the question of trade in gold. BRICS countries are large economies with large reserves of gold and an impressive volume of production and consumption of this precious metal. In China, the gold trade is conducted in Shanghai, in Russia it is in Moscow. Our idea is to create a link between the two cities in order to increase trade between the two markets,” First Deputy Governor of the Russian Central Bank Sergey Shvetsov told Russia’s TASS news agency.

In other words, China and Russia are shifting away from dollar-based trade, to commerce which will eventually be backstopped by gold, or what is gradually emerging as an Eastern gold standard, one shared between Russia and China, and which may day backstop their respective currencies.

I suggested in a prior post that Bitcoin would be the best alternative for the US to counter the economic alliance between China and Russia. If there is a move toward some form of a gold standard (i.e. gold backed trade note), virtually all fiat currencies (those not backed by gold, silver, oil, etc.) will hyper-inflate. In that case, people will lose confidence in central banks and the only viable alternative will be cryptocurrencies like bitcoin.

There are small hints that the Trump administration is pro-Bitcoin: 

CNNMoney reported:

His budget director, former US House member Mick Mulvaney, had been dubbed the “Bitcoin Congressman” by some of the currency’s backers.

And vice president Mike Pence’s chief economist Mark Calabria has given speeches in support of bitcoin as well. Calabria was formerly the director of financial regulation studies at the libertarian-leaning Cato Institute before joining the administration.

In addition, there was a mysterious Sean Spicer tweet – Did Sean Spicer actually tweet a Bitcoin transaction?

But, there have been some like blogger Michael Krieger who think that President Trump is completely controlled by Wall Street. Maybe he has a point. Just look at the number of Goldman Sachs alumni in his administration. Also, the manipulation of markets (stock, commodities, bond, etc.) continues unabated. Others, like Brandon Smith, are adamant in spreading a completely bogus theory that President Trump has been selected by the central bankers to be a scapegoat for future economic calamity. No one with even a primitive understanding of economics can possibly blame President Trump for some future economic collapse. In that case, blame will be placed squarely on the FED. I easily refute Mr. Smith’s assertion and lay out the Trump strategy to end the FED in my prior post.

So, what is the solution? One approach, suggested by Dr. Ron Paul (back in 2011) would be to declare bankruptcy and return to a gold standard. The market manipulation could end with a new system in place. That would be an incredibly dangerous approach in my opinion. Imagine the 10-year bond moving up 300 basis points (i.e. from 3% to 6%) over a short period of time. With banks completely leveraged and holding trillions in derivatives, they would become effectively insolvent. The whole economy would then implode.

I think a better approach, which is maybe what the Trump administration has settled on, is to try to stave off bankruptcy (via Plunge Protection Team) until an alternate system (like Bitcoin) is in place. Ultimately, Bitcoin is an enemy to all central banks including the FED. As individuals opt to use cryptocurrencies (i.e. wire transfers, payments) and move away from using fiat currencies, the central banks lose their control over people. The central bank will effectively be irrelevant. This alternate system which is being implemented right now is part of the global currency reset that has been discussed for years.

The president of the Federal Reserve of Minneapolis, Neel Kashkari, made some interesting comments about Bitcoin recently:

“This is a topic a lot of people across the Fed are paying attention to and watching how it evolves.”

“The problem I have [with bitcoin] is while it says, by design, you’re limiting the number of bitcoins that can be created, it doesn’t stop me from creating NeelCoin or somebody from creating Bobcoin or Marycoin or Susiecoin.”

 

Perhaps Mr. Kashkari didn’t realize he was actually making an endorsement for Bitcoin with his statements. Central bankers shouldn’t be the only ones allowed to create money.

In fact, anyone can should be able to create their own cryptocurrency. You can get essential instructions from one of these articles:

How To Create Your Own Cryptocurrency
How Anyone Can Make Their Own Digital Currency


(Wow, maybe this can convince some unfortunate, misguided individuals that the Jews really don’t run the world and control all the banks.)

Back in 1980, as the price of gold and silver exploded higher, the FED raised interest rates several times. They also stopped the Hunt brothers from cornering the silver market. Today, a similar interest rate increase is not possible as the national debt (as % of GDP) is much higher than it was back then.

Although the precious metals markets are rigged, as evidenced by the Deutsche Bank settlement, highlighted in this Bloomberg article, Wall Street has limited resources for manipulating cryptocurrencies. There are no ETFs (Exchange Traded Funds) approved by the SEC that directly track cryptocurrencies like Bitcoin. So, there is limited potential of selling short Bitcoins. There could be future raids on one of the exchanges (i.e. Mt. Gox) but this will only be temporary setback and not stop the momentum of cryptocurrencies.

We can only hope that the transition is smooth. I wouldn’t count on it.

An earlier version of this article was posted on 5/25/15 at the Newswithchai blog.