The Syrian Con

Russia calls S-300s ‘stabilizing factor’ in Syria

The failure of the European Union to agree on a new arms embargo for Syria is undermining the peace process, Moscow says. But the delivery of S-300 surface-to-air missiles may help restrain warmongers.

The comments come from Deputy Russian Foreign Minister Sergey Ryabkov, referring to the results of Monday’s meeting in Brussels. After a lengthy negotiating session, EU governments failed to resolve their differences and allowed a ban on arming the Syrian opposition to expire, with France and Britain scoring an apparent victory at the expense of EU unity.

The EU's move, which the Russian diplomat branded as an "example of double standards", opens the door for Britain and France to supply weapons to Syrian rebels fighting the regime of President Bashar Assad.

Criticizing Europe’s decision to open the way for potential arms shipments to Syrian rebels, Russia insists that its own sale of arms to the Syrian government helps the international effort to end the two-year-long conflict, the diplomat added. He was referring to the delivery of the advanced S-300 long-range air defense systems, which Russia is carrying out under a contract signed with Syria several years ago.

S-300 anti-aircraft missile system. (RIA Novosti / Vladislav Belogrud)



“Those systems by definition cannot be used by militant groups on the battlefield,” Ryabkov said. “We consider this delivery a factor of stabilization. We believe that moves like this one to a great degree restrain some hotheads from escalating the conflict to the international scale, from involving external forces.”

The S-300 is a series of Russian long-range surface-to-air missile systems designed to intercept ballistic missiles, regarded as the most potent weaponry of its class. The missiles are capable of engaging aerial targets as far away as 200km, depending on the version used.

However, Russia has neither confirmed, nor denied “the status of those shipments.”

“The only thing I can tell is that we are not refusing from them,”Sergey Ryabkov said. “We see that this question worries our partners, but we have no reason to reconsider our position in this sphere,” he said.

Despite the uncertainty around S-300 shipments, Israel said it will know how to act if Russia does supply surface-to-air missiles.

"I can say that the shipments are not on their way yet," Defense Minister Moshe Yaalon told reporters. "I hope they will not leave, and if, God forbid, they reach Syria, we will know what to do," he said, without disclosing his sources.

Israel is concerned by possible Russian supplies to Syria, saying that advanced weapon systems could end up in the hands of Iran or the Lebanese Hezbollah group.

Once the Russian SAM missiles are deployed by Syria, it will have a better control of its airspace. The country endured three airstrikes this year, which are widely thought to have been conducted by Israel, but were never officially confirmed as such.

Britain and France have made a commitment not to deliver arms to the Syrian opposition "at this stage,"an EU declaration said. EU officials, however, said the commitment effectively expires on August 1.

UK Foreign Secretary William Hague has defended the lifting of the EU’s embargo, saying that Britain would only send arms to Syrian rebels with other countries. At the same time he assured that this would not violate international law.

London and Paris have argued support for rebels fighting Assad by allowing EU arms deliveries, despite the fact that extremist elements are known to work alongside the rebels.

Other EU governments, led by Austria and Sweden, argued that sending more weapons to the region would increase violence and spread instability.

RT

Japan Central Bank Admits Sending Schizophrenic Signals To Market

It doesn't take an Econ Ph.D to realize that what Japan is trying to do: which is to recreate the US monetary experiment of the past four years, which has had rising stocks and bonds at the same time, the first due to the Fed's endless monetary injections (and pent up inflation expectations) and the second due to quality collateral mismatch and scarcity and shadow bank system funding via reserve currency "deposit-like" instruments such as TSYs, is a problem. 

After all, those who understand that the BOJ is merely taking hints from the Fed all along the way, have been warning about just that, and also warning that once the dam breaks, and if (or when) there is a massive rotation out of bonds into stocks, it is the Japanese banks - levered to the gills with trillions of JGBs - that will crack first.

Apparently, this elementary finance 101 logic has finally trickled down to the BOJ, whose minutes over the weekend revealed that members are pointing out "contradictions" in the Kuroda-stated intent of doubling the monetary base in two years, unleashing inflation, sending the stock market soaring, all the while pressuring bondholders to not sell their bonds.

As the FT reports, "According to the minutes of the April 26 policy meeting, released on Monday, a “few” board members said the BoJ’s original stance “might initially have been perceived by market participants as contradictory”, causing “fluctuations in financial markets”.

More on Mrs. Watanabe's confusion from the FT:

After Haruhiko Kuroda’s first meeting as BoJ governor on April 4, the bank said it would lower interest rates across the yield curve, thus pushing investors into riskier assets such as loans and stocks. At the same time, it said it aimed to achieve a 2 per cent rate of inflation at the earliest possible opportunity – implying upward pressure on rates.

Since then, prices of bonds have slumped amid record levels of volatility, as traders have struggled to adjust portfolios in light of what some called the “Kuroda shock”.

Kazuhiko Sano, chief strategist at Tokai Tokyo Financial Holdings, said investors are “very confused”, adding that “many are reluctant to buy bonds right now”.

Which is why tomorrow, the BOJ has no choice but to "explain" to banks that they must all hang in there and nobody must sell JGBs, or everyone drowns at the same time: "the BoJ plans to hold a meeting on Wednesday with traders of Japanese government bonds to discuss ways to fine-tune its bond-buying operations." Expect the BOJ to be quite persuasive in forcing yet more capital misallocation. Why? Because as we first showed over a week ago, according to the BOJ itself, a 100bp (parallel) rise in market yields would lead to mark-to-market (MTM) losses of 20% of Tier-1 capital for regional banks and 10% for the major banks. And, as we added, "he who sells first wins..." We already got a first instance of panic dumping last week when the 10 Year JGB hit 1% and when the stock market crashed. 

How long until the second case of first selling? Indeed, the BOJ is at least finally pointing out what has been obvious to most for years: "In its latest report on financial stability, published last month, the BoJ said that a “substantial” rise in JGB yields without any improvement in economic activity could weaken banks’ capital ratios, thus “affecting the resilience of the financial system and the real economy”."

Luckily, at least some at the BOJ realize just how idiotic such jawboning against logic is, perhaps those left over from the Shirakawa regime, who also understand that 2% inflation and soaring yields for a country with 240% debt/GDP is suicide:

Yet the comments from the BoJ board members revealed in the minutes are a sign of the “tensions” behind the united policy front, said Naka Matsuzawa, chief Japan bond strategist at Nomura.

Mr Matsuzawa said the BoJ was “chasing two rabbits at the same time”, alluding to the bank’s stated desire to lower nominal yields while pursuing a higher target for inflation, which implies a rise in interest rates.

“Eventually, the target is the same, to push up the economy. But en route, they are having contradictory implications for JGBs,” said Mr Matsuzawa.

While it is unclear how many BoJ board members have raised concerns about “contradictions”, Masaaki Kanno, chief economist at JPMorgan and a former BoJ official, said “a few” probably meant two in this instance.

In the meantime, that biggest threat to market stability - liquidity evaporation - has appeared in the world's second largest bond market:

After the April 4 announcement that the BoJ would increase its bond purchases to about Y7tn-8tn each month in an attempt to double Japan’s monetary base within about two years, liquidity within the JGB market has evaporated, sending yields soaring. Banks have raised their long-term prime lending rates to compensate, meaning that monetary conditions have tightened, rather than loosened, under the new governor.

Not only that, but as we showed over the weekend, the number of repo fails involving JGBs has exploded. How long until the far smaller Japanese shadow market slams shut?

So what is the bottom line? Simple: more Fed copycatting, which means the arrival of the monthly POMO schedule:

Some analysts say the BoJ should make its actions more digestible by shifting to a system of daily purchases of Y300bn-Y400bn, rather than eight operations a month of about Y1tn each.

And instead of giving the market a couple of hours’ notice each time, the BoJ should supply a detailed schedule of its purchases a month in advance, they say, spelling out sizes and target maturities in a similar manner to the US Federal Reserve.

Bottom line: the BOJ's very credibility is now on the line:

Without better management of the world’s second-biggest bond market, nerves will remain fragile, said Shogo Fujita, chief Japanese bond strategist at Bank of America Merrill Lynch.

“The BoJ has to kill the volatility it has raised. [The governor’s] credibility is at stake, right now.”

And since for the voodoo priests of monetarist, Keynesian policy, credibility, i.e. faith in an artificial and failing fiat construct, is all that matters, they better not blow it, or as the former CEO of Alliance Bernstein warned last night, and despite the best wishes from Buba's Jens Weidmann, Kuroda's experiment will be short if very violent one.

Zero Hedge

The U.S. Dollar Collapse Is Accelerating

Japanese Stocks Extend Overnight Plunge Over 14%

As if the overnight session in Japan was not bad enough, futures markets are indicating yet more weakness from the market that seemed (until 3 days ago) incapable of falling. With a 14.3% drop from its May 22nd highs, Japan's Nikkei 225 is struggling to find buyers for this dip. What is interesting is the bid for European peripheral debt and equity markets this morning and the bounce in US futures (with no commensurate move in JPY which is hovering around 101). Gold and Silver are up around 1% with the USD unchanged. Treasury Futures imply a rise of 1-2bps in yield.







and just as the NKY saw its blow-off top, now US equities are ignoring the drop (for now)...

Russia to Deploy 4 New Arctic Warships by 2020

MOSCOW, May 27 (RIA Novosti) - The coast guard division of Russia’s Federal Security Service (FSB) will deploy four new warships to protect the nation's Arctic zone by 2020, the FSB press service said on Monday.

Eleven border protection facilities are to be built in the Arctic, while automated surveillance systems are to be deployed in the area as part of the Russian Federation State Border Protection program for 2012-2020, an FSB representative said.

Russia has officially set a goal of deploying a combined-arms force by 2020 to protect its political and economic interests in the Arctic, including military, border, and coast guard units.

Deputy Prime Minister Dmitry Rogozin said in December 2012 that Russia risks losing its sovereignty by the mid-21st century if it does not assert its national interests in the Arctic today.

RIA Novosti

Hizballah fires rocket toward Israeli Metula

Residents of Israel’s northernmost town of Metula were roused before dawn Monday, May 27 by an exploding rocket fired from the Lebanese town of Marjayoun about 10 kilometers north of the border. It landed on open ground, causing no casualties or damage. DEBKAfile’s military sources report: Just 48 hours after Hassan Nasrallah’s war speech, Hizballah, Iran’s proxy, had joined the war of attrition President Assad has directed against Israel from the Golan.

The IDF has so far made no mention of the widely reported rocket attack although Lebanese media said an Israeli drone was hovering over the Marjayoun area.
Metula was attacked the day after three Grad missiles were fired from a point east of Mt Lebanon to explode in the Hizballah-controlled Dahiya district of Beirut, injuring five people and causing some damage.

It was fired by local Sunni elements sympathetic to the Syrian rebels. The Shiite Hizballah decided to retaliate against northern Israel – for a reason. It made clear that the position laid out by Prime Minister Binyamin Netanyahu and Defense Minister Moshe Yaalon that “Israel is not involved in the Syrian war” is not reciprocated either by Syrian President Bashar Assad or Hizballah’s leader Hassan Nasrallah.

Nasrallah’s strategy in the face of domestic criticism of his heavy military commitment to Assad is to demonstrate that the troops he sent to fight in the Shiite-Sunni conflict raging in Syria are in fact waging war on the common enemy, the Jewish state.

This rocket against Metula was also intended to direct attention away from the massive ongoing boost of the Lebanese terrorist group’s military contingents fighting in Syria. Sunday and early Monday, another 2,000 elite Hizballah combatants poured into Syria from Lebanon to augment the 5,000-6,000 already present there.

The new arrivals were transferred straight to the battlefront in south Damascus. Rebel forces report they are under assault by a combined force of Lebanese Hizballah and Iraqi Shiite fighters.

Neither the United States nor Israel or Turkey has raised a finger to block this dangerous influx of Hizballah fighting forces into Syria although it is strongly tipping the scales of war in Assad’s favor.

Sunday overnight, Hizballah secretly ordered the call-up of reserves to reinforce its strength for fighting on three active fronts, Syria, Israel and opponents at home. Its agents went around Hizballah centers in towns and villages across Lebanon with orders for members to report for duty at once.




DEBKAfile