US, Japan and India to meet to discuss China

Kiron Sarkar lives in London and Ireland where he works as a money manager. His full bio follows below.
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Given China’s assertion that they own the whole of the South China seas, the US, India and Japan are to meet to discuss strategy – will p-d off China, but quite sensible, given their demands;

Good news re 1 economy at least.Australian 3rd Q GDP rose by 1.0% MoM, higher than the 0.8% forecast. However, I believe a slowing China and
weaker domestic consumption, combined with a potential housing problem will remain headwinds. Still believe that shorting the A$ in due
course will be the right strategy, as will shorting the miners;

The level of election fraud in Russia’s recent elections were far, far greater than initially assumed. Apparently 99.0% of Chechens and 90.0%
of Dagestanis, together with 90.0% of patients in mental homes voted for Putin’s United Russia (UR). You will recall that Russia is
fighting, effectively a war in Chechnia and Dagestan, to keep down the local population. European observes claim “ballot box stuffing”,
“manipulation” and “flagrant procedural violations”. A exit poll conducted by a polling agency who works for the Kremlin and another
which works for an opposition party came out with the same exit poll for UR – namely 27.0%, as opposed to the 46.5% that UR “polled”.
Seems that the recent “booing” episodes when Putin turned up seems to have really reflected the mood of the people.

The Russian deputy economy’s ministers view that capital flight will amount to US$80bn is pretty optimistic. Expect oil tankers to be
conversed into safe boxes carrying vast amounts of cash to foreign parts, particularly from those who have ” benefited” from Mr Putin’s
largesse. Luxury property prices in London will be a key beneficiary;

The FT reports that the Euro Zone firewall is to be strengthened, through combining the (temporary EFSF) and the permanent ESM (to be
established by mid June). Where’s the money coming from, you may well ask? The IMF will be roped in – that is abundantly clear, in spite of
a number of you (mainly US) remaining highly sceptical. I suppose the ESM could be granted a banking license (opposed by Germany/ECB).
Without such measures, the EFSF’s “firepower” is around E500 – E600 bn, max. Certainly not enough, even it was somehow doubled. You need
approaching E3tr for the “howitzer” or “shock and awe” effect;

The UK’s Daily Telegraph carries a great story, which highlights the
undemocratic measures that the EU will employ to achieve it’s
objectives. Apparently, Article 126 (14) protocol 12 of the Lisbon
Treaty can be used to avoid referendum and allegedly Parliamentary
vote. Need to check this with the Irish. However, amusingly, the UK,
which is not part of the Euro Zone will require to vote in Parliament
due to passage of a recent act – the Sovereignty Act. That’s going to
make it really interesting. The UK better get a whole lot of goodies
in return;

The FT’s Martin Wolf writes a highly sceptical piece in today’s FT re
the proposed Euro Zone plans, agreed by Merkozy. This worries me, as
Mr Wolf is particularly astute. He despairs at the loss of
“automaticity” in terms of penalties for transgressors. This comes as
a huge shock to me – I was of the view that there would be automatic
sanctions – I clearly need to do my “homework”. The issue of private
sector losses is another issue – personally, I believe that the
private sector is not off the hook, given collective clause agreements
– though clearly will need to check again, given Mr Wolf’s views;

The FT reports that Mekozy were advised of S&P’s decision before it
was released. I remain mystified as to S&P decision and, for a number
of reasons, extremely suspicious. However, news of the S&P decision
clearly leaked prior to the European close. A number of financials
that I follow acted mighty strangely – just could not understand it
until I read the S&P report when it was released many hours
thereafter. Wonder if the stock exchange surveillance people will
look into this;

The BoE is taking precautionary measures to provide Sterling liquidity
in case of Euro Zone/ Euro problems. Sensible, though a bit
concerning. I have a copy of Brown Brothers note for those who want
it;

Brazil’s 3rd Q GDP contracted by -0.04% MoM, implying a 2.1%
annualised growth rate, which should be compared with the 7.5%
recorded in 2010. I appreciate that analysts who are far more clued up
about the country, remain sanguine – however, I feel that the
situation is deteriorating far too fast and with a slowing China
(important for Brazil’s commodity exports), I will watch particularly
carefully. 2012 GDP forecasts of around 3.0% are, in my humble
opinion, grossly optimistic;

Santander is selling it’s Colombian business – need for capital. Well,
off course it is. I’m not picking on Santander – indeed, I closed my
short far too soon – was worried about a ban on short selling in the
Euro Zone. Happened, but did not impact existing positions.

The real reason I raise this is because in the next few months, the
true horror re Spain will come out. Provincial governments are within
their budget deficits screams Mrs Salgado (the outgoing Spanish
finance Minister – actually global President of the used car
salespersons association). As the FT points out, December is the key
spending month for provincial Governments – deficits could well
DOUBLE, as was the case in 2011. For the last time, Spain is the
problem, more so than Italy. For full disclosure purposes, I’m long 10
year Italian bonds. Certainly will be looking to short the IBEX in due
course;

SUMMARY

Pretty soggy day yesterday in respect of equities – had expected a
better performance. Euro slightly better – should support equities.
European futures are marginally higher at present. Need to check out
Merkozy’s plans to be submitted to the EU and tomorrow’s ECB meeting.

Will be back in Galway Ireland tomorrow – time for a few pints of the
black stuff TJ/Ronan – indeed, quite a few, the boss permitting.

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A qualified UK accountant, Kiron joined the M&A dept of N M Rothschild in London. He was then appointed head of M&A of Rothschild (Hong Kong). On his return to the UK, he was a founding member of the Rothschild international privatisation team. Subsequently headed up the Central and Eastern European (“CEE”) team – rated No 1 in 4 out of 5 years (Privatisation International).

On leaving Rothschild, he worked as privatisation adviser to the UK Governments Know How Fund, which was established to advise Governments in CEE on policy, privatisation, economic, financial, regulatory and other issues. Subsequently European Head of Media, Tech and Telecoms at CIBC World markets. Following CIBC, Kiron advised on telecoms and energy deals in CEE.

Kiron has acted as a lead adviser in respect of over US$150bn of deals and has worked globally in both developed and emerging markets.

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