Streetwise Professor

September 9, 2015

The Future of Chinese Futures

Filed under: China,Commodities,Derivatives,Economics,Energy,Politics,Regulation — The Professor @ 8:19 pm

China has created some amazingly successful futures markets in recent years. By contract volume, the top 5 ag futures are traded in Zhengzhou, Dalian, or Shanghai, as are 4 out of the top 5 metals contracts. Once upon a time, China also had the most heavily traded equity futures contracts. Once upon a time, like two months ago.

Then the crash happened, and China thrashed around looking for scapegoats, and rounded up the usual suspects: Speculators! And it suspected that the CSI 300 Index and CSI 500 Index futures contracts were the speculators’ weapons of mass destruction of choice. So it labeled trades of bigger than 10 (!) contracts “abnormal”–and we know what happens to people in China who engage in unnatural financial practices! It also increased fees four-fold, and bumped up margin requirements.

The end result? Success! Trading volumes declined 99 percent. You read that right. 99 percent. Speculation problem solved! I’m guessing that the fear of prosecution for financial crimes was by far the biggest contributor to that drop.

The stock market (led, as is usually the case, by index futures) was bearing bad news, so the Chinese decided to shoot the messenger. Then back over it a few times with a tank and bury it in cement. Just to make sure.

There is a wider lesson here. Namely, China may talk the reform talk, but doesn’t walk the reform walk. It likes one way bets:  markets when they are rising, not when they are falling. And not just the futures markets have been told to get their minds right. Chinese authorities-and by authorities, I mean security services-have told fund managers not to sell, only buy. A market with Chinese characteristics, apparently: all buyers and no sellers. Kind of zen actually, in the spirit of “what is the sound of one hand clapping?”

This urge to exercise ham-fisted control is exactly the kind of thing that will impede China’s development going forward. It will undermine the ability of capital markets to do their jobs of incentivizing the accumulation of capital and directing it to the highest value uses.

China’s predilection for control has manifested itself in futures markets in other ways. You might recall some months ago that I wrote about China’s threats against Singapore and ICE if the American exchange offered lookalike contracts on ZCE cotton and sugar at its new Singapore affiliate. Yesterday ICE announced the contracts it will launch in Singapore, and cotton and sugar lookalikes were conspicuous by their absence.

No competition for us, thank you. We’re Chinese.

This protectionism may help ensure the success of China’s new futures market initiative: an oil futures contract. Protectionism and pricing in yuan and constraints on the ability of mainland firms to trade overseas make it likely that the contract will succeed. The Chinese are overoptimistic, however, if they believe this contract will supplant WTI and/or Brent. LME and COMEX copper, and ICE cotton and sugar, to give some examples, have thrived even as Chinese markets in these commodities grew. Moreover, myriad restrictions on the ability of foreigners to trade in China and the currency issue will make the Shanghai contract impractical as a hedging and speculative vehicle for non-Chinese firms and funds: the main non-Chinese trading will likely be arbitrage plays between Shanghai, CME/NYMEX and ICE, which will ironically serve to boost to the US exchanges’ volumes.

And the crushing of the CSI300 and CSI500 contracts will impede development of a robust oil futures market. The brutal killing of these contracts will make market participants think twice about entering positions in a new oil futures contract, especially long dated ones (which are an important part of the CME/NYMEX and ICE markets). Who wants to get into a position in a market that may be all but shut down when the market sends the wrong message? This could be the ultimate roach motel: traders can check in, but they can’t check out. Or the Chinese equivalent of Hotel California: traders can check in, but they can never leave. So traders will be reluctant to check in in the first place. Ironically, moreover, this will encourage the in-and-out day trading that the Chinese authorities say that they condemn: you can’t get stuck in a position if you don’t hold a position.

In other words, China has a choice. I can choose to allow markets to operate in fair economic weather or foul, and thereby encourage the growth of robust contracts in oil or equities. Or it can choose to squash markets during economic storms, and impede their development even in good times.

I do not see how, given the absence of the rule of law and the just-demonstrated willingness to intervene ruthlessly, that China can credibly commit to a policy of non-intervention going forward. And because of this, it will stunt the development of its financial markets, and its economic growth. Unfettered power and control have a price.


September 8, 2015

Dear Mr. President: FU. Sincerely, the Pentagon

Filed under: Military,Politics — The Professor @ 9:16 pm

The Bowe Bergdahl case largely disappeared from view, likely because it was overtaken by so many other foreign policy foulups. The Isis explosion. The Syria implosion. The Iran capitulation.

But the story re-emerged yesterday. Well, sort of re-emerged: the coverage has been muted, at best, despite the fact that the charges are sensational.

Not only did the Pentagon charge Bergdahl with desertion: they charged him with “misbehavior before the enemy,” which could result in his incarceration for life. This is about the most serious charge that can be brought. The UCMJ equivalent of the white feather:

Article 99—Misbehavior before the enemy

Text. “Any member of the armed forces who before or in the presence of the enemy—

(1) runs away;

(2) shamefully abandons, surrenders, or delivers up any command, unit, place, or military property which it is his duty to defend;

(3) through disobedience, neglect, or intentional misconduct endangers the safety of any such command, unit, place, or military property;

(4) casts away his arms or ammunition;

(5) is guilty of cowardly conduct;

(6) quits his place of duty to plunder or pillage;

(7) causes false alarms in any command, unit, or place under control of the armed forces;

(8) willfully fails to do his utmost to encounter, engage, capture, or destroy any enemy troops, combatants, vessels, aircraft, or any other thing, which it is his duty so to encounter, engage, capture, or destroy; or

(9) does not afford all practicable relief and assistance to any troops, combatants, vessels, or aircraft of the armed forces belonging to the United States or their allies when engaged in battle; shall be punished by death or such other punishment as a court-martial may direct.” ….

Maximum punishment. All offenses under Article 99. Death or such other punishment as a court-martial may direct.

Based on what was reported about Bergdahl’s conduct, there is a colorable case that he violated (1)-(5), and (7)-(8).

The White House fought tooth and nail to stop the Pentagon from charging Bergdahl for desertion: bad optics, dontcha know, to have embraced a deserter’s family in the Rose Garden, and to have traded 5 hard core terrorists for him.

The Pentagon not only defied Obama on this: they doubled down and charged Bergdahl with desertion and cowardice before the enemy. A charge almost never used. So the Pentagon is saying: Mr. President, you embraced the family of an utterly dishonorable coward in the Rose Garden, and traded five terrorists for him.

FU, in other words.

I have been writing for some time that I suspect that there is intense conflict between the White House and the Pentagon. This event is clear evidence that those suspicions are true. (The ongoing Gitmo saga is another example.) The Bergdahl swap offended the Pentagon’s sense of honor, and this is its way of making that plain.

Unfortunately, this has largely fallen on deaf ears. There has basically been one AP story, which appeared on Labor Day. (My guess is that the administration pressured the Pentagon to bury the story on a holiday weekend.) As usual, the media covers for Obama.

It is a big deal-or it should be-when the Pentagon defies the president so flagrantly, and pugnaciously. That is the sign of a deeply dysfunctional civilian-military relationship. This is particularly disturbing when the nation faces so many security challenges simultaneously: under these circumstances, it is dangerous to have a military at odds with its commander in chief, and vice versa. This story is about much more than Bergdahl. But it is getting no coverage whatsoever. Instead, we get wall-to-wall coverage of the Trump Circus. Both are symptoms of a troubled Republic.

Update (9/9/15). For further evidence of a deeply dysfunctional relationship between civilian command authority and the military, see this article about alleged distortion of intelligence about the “war” against Isis. This administration corrupts all it touches. The VA. The IRS. The EPA. And now, the military and the intelligence community.

September 7, 2015

Putin May Flirt With OPEC, But He’ll Never Put Out

Filed under: Commodities,Economics,Energy,Russia — The Professor @ 6:57 pm

Ambrose Evans-Pritchard reports on the remarks about potential cooperation between Russia and OPEC uttered by that tease, Arkady Dvorkovich:

Riyadh has made it clear that it will not cut output to shore up prices unless non-OPEC producers share of the burden. This essentially means Russia, the world’s biggest producer.

Mr Dvorkovich, the head of Russia’s economic and energy strategy, said his country was in constant talks with OPEC in order to bring about a “more rational policy” but was coy on whether the Kremlin would break the impasse and strike a deal with the Saudis.

“Our consultations do not imply directly that we are going to see any coordinated action. Perhaps ‘yes’, perhaps ‘no’, most likely ‘no’,” he said, speaking at the Ambrosetti forum of world policy-makers on Lake Como. “We are sending signals to each other.”

Russia insists that it cannot switch off output as easily as the Saudis, given the harsh weather in the Siberian fields, a claim dismissed by OPEC as a negotiating ploy.

For his part, our favorite mullet man, Igor Sechin, says that Russia is different than OPEC countries, and cannot play along:

“The Russian oil industry is private, with a high number of foreign shareholders,” Mr Sechin told an audience at the FT Commodities Retreat in Singapore. BP owns 20 per cent of Rosneft, the Russian state-backed oil company, which is majority owned by the Kremlin.

“The Russian government cannot administer the oil industry like an Opec country can,” he said, adding that Russia would also face technical difficulties in shutting production in regions such as Siberia, where extremely cold winters could cause wells to fracture if they were closed.

Although I agree there are real difficulties in shutting down Siberian production, the remarks about Russia’s inability to administer the oil industry is a crock. Suppress the giggle reflex about foreign shareholders, and remember that Russia levies export taxes on crude (and products) that can be used to “administer” the market. If Putin desired to reduce foreign sales of Russian oil in an effort to support price (perhaps in coordination with the Saudis or Opec), he could readily do so by increasing the export tax. Russian exports would decline, the world price would rise, and the Russian domestic crude price would fall. (Russian refining capacity would constrain how much oil can be diverted from exports to domestic use.) Thus, the Russian government undoubtedly has the policy tools to cooperate with OPEC to support the world price.

But truth be told, Russia doesn’t trust OPEC to adhere to production cuts, and OPEC doesn’t trust Russia to adhere to export cuts. OPEC has heard Sechin and Putin whisper sweet nothings in its ear before (in 2009, particularly) and have learned that flirting or no, Putin doesn’t put out.

In other news of unrequited love, there have been numerous stories of late about Russian disappointment about the failure of its dreams of a romance with China. Most notably, Putin returned empty handed from his recent trip to Beijing to witness China’s commemoration of the end of WWII. Most notably, Gazprom failed to secure financing for a gas pipeline into western China, it announced that its deal to ship gas to the east was delayed, and Timchenko (a target of US sanctions) failed to secure Chinese funding for the Yamal project. (Which may be a good thing, as it would be bringing LNG into a glutted market . . . which could explain Chinese reluctance.)

Putin was deluded if he thought that he could pivot to China and get a good deal after the US and Europe imposed sanctions. The Chinese realized that he was turning to them primarily out of weakness, and tough bargainers that they are, it was inevitable that they would exploit his weakness: the alternatives for Putin were a deal on very unfavorable terms, or no deals at all.

Market developments have only intensified Putin’s predicament. The decline in oil prices has increased his financial desperation. Moreover the fact that the decline in oil prices is due primarily to a slowdown in China’s economy means that the Chinese have less need for Russian resources, and less capital to invest: China has to focus on dealing with its own pressing problems, and helping Russia is not a priority. Putin was already deeply exposed to China risk through the resource price channel, and sanctions and his pivot only increased that exposure through an investment channel. Now that risk has crystalized, and Putin is doubly effed.

Just like Glencore, the subject of my previous post, Russia and Opec are at the mercy of China. Russo-Opec cooperation isn’t going to happen. It is devil take the hindmost among oil producers, and the individual incentive for all of them is to produce up to capacity. Price will mainly affect future investments in capacity, not utilization of existing capacity. In the near to medium term, before depletion and lower investment in the US reduce supplies, price will be demand driven, and primarily China demand driven at the margin. Russia and Putin are along for the ride, and can’t do a damn thing about it.

Regardless of What Happens to Glencore or Noble, The Commodities River Will Keep on Rolling

Filed under: Commodities,Economics,Energy,Financial crisis — The Professor @ 4:16 pm

It is not outside the realm of possibility that my analysis of whether commodity trading firms are systemically risky-“too big to fail”-will be put to the test not once, but twice, in the coming weeks and months.

One firm that has shipped a lot of water lately is the biggest, by far: Glencore. This spawn of Marc Rich has been hit very hard by the sharp decline in copper and coal prices in particular. It’s CDS spreads have widened dramatically, tripling to 450 bp before tightening some in the last few days. Its stock price is down dramatically. S&P has changed its rating to BBB/Negative, meaning that a downgrade to junk is possible.

In response, the company has announced rather radical measures to slash debt in order to maintain its vital investment grade credit rating. It has announced a cut in its dividend and an issuance of new equity via  a rights issue (about a quarter of which  will be purchased by management). It is also shopping assets, notably the recently acquired grain trading assets acquired with the Swiss firm bought Canada’s Viterra. It has responded to the copper price decline by shutting a mine in Africa.

The market’s initial reaction to these moves has been positive: Glencore’s stock rose when it announced these measures.

Glencore’s distress is a direct result of the sharp declines in copper and coal prices, which in turn are the direct result of the slowdown in China.

Although Glencore’s origins were as a trading firm, and it is still considered a trading firm, it is in many respects the exception that proves the rule, and hence is not a harbinger of doom for other traders. As I documented in my first white paper, The Economics of Commodity Trading Firms, Glencore is the most asset heavy of the firms commonly considered traders. Moreover, its assets are concentrated in the upstream, especially in the aftermath of its acquisition of Xsrata. In its current incarnation, it is more of a mining firm with a trading firm attached, than a trading firm.

Glencore always touted that its trading operation could be an internal hedge for its upstream activities: trading profitability is driven by volumes and margins, and these are less sensitive to commodity supply and demand conditions than prices, because the inelasticities of supply and demand mean that price, rather than volume, bears the brunt of demand and supply shocks. The Glencore argument makes sense, but there is only so much that the trading arm can do to offset an upstream bloodbath. Glencore’s exposure to flat price is so large now that in the grim pricing environment of the present it swamps the ability of the trading arm to bail it out.

Will it escape insolvency? I don’t know, precisely because its fate is out of its control, and dependent on flat prices, which neither I nor its management can predict with any certainty. Events, my boy. Events. Because of its upstream exposure, Glencore is on a ride on the China train. (By the way, those who thought that Glencore was a lower risk than other miners because of some superior ability to predict flat price because it is a trader: what were you thinking?)

If it goes insolvent, will it matter? Well, it’s creditors will mind. But beyond that, the arguments I made in my other white paper, Not Too Big to Fail, imply that the knock-on effects will be minimal. Industrial and mining firms can fail, and go through insolvency/bankruptcy without larger systemic effects.

The possible Viterra sale illustrates another point I made in the paper. Namely, that the financial distress of a commodity trader does not mean that the supply of commodity transformation services will decline. The distressed firm’s assets can continue to operate. One way to ensure that they continue to operate efficiently is to sell them to others. The wheat, canola, and barley that go through Viterra’s elevators don’t really care whose name is on the door. Nor, for the most part, do the farmers upstream or the consumers downstream.

What about other commodity traders? The purer traders they are (i.e., the less upstream asset exposure), the better off they are. Indeed, the lower price environment in oil in particular facilitates the contango trade because contangoes tend to widen when prices decline. BP’s trading arm announced lower profits in Q2 precisely because the contango play was not as profitable: I would expect that to turn around in Q3 and Q4 if prices remain low and the contango remains fat. As another example, Vitol made a well-timed purchase of the remainder of a Dutch oil storage company, presumably to allow it to exploit such plays.

The other firm that could test my arguments is the Hong Kong firm Noble. Nobles issues are somewhat different than Glencore’s. Noble’s accounting has come under sharp questioning, by a rather mysterious outfit called Iceberg (which Noble claims is basically the blog of a disgruntled ex-employee).

The issue is Noble’s aggressive booking of profits on long term deals. Something like 90 percent of the book value of its equity is attributable to these accounting items, whereas for other firms the figure is more on the order of 5-10 percent. Iceberg has also questioned Noble’s reported leverage, alleging that it has engaged in various off-balance sheet repo transactions (a la Lehman repo 105) to conceal debt.

The market has taken these charges seriously.  Noble’s stock has taken a pounding. It rebounded some recently, when Mitsubishi announced the acquisition of a 20 percent share of Olam, another Asian commodity firm whose accounting had been challenged, attracting some aggressive short sellers. But even with the rebound, Noble is flirting with dangerous territory and is at serious risk of insolvency or illiquidity if its bankers get sufficiently concerned (which amounts to insolvency for a commodity trader, which is very dependent on access to credit). Noble’s CDS spread reached 700+ bp in mid-August.

In the event of the worst happening, I again would expect that the pain would be limited to the creditors. Other firms, likely Japanese or Chinese trading firms, would pick up the pieces, and perhaps the whole caboodle. The commodities Noble moves would be moved by somebody else. Banks would eat a loss, but that’s part of their business. Other commodity traders’ accounting would get more scrutiny, from their creditors in particular. And that’s not a bad thing.

Commodity firms have come and gone over the years. (Everybody remembers Enron. Anybody remember Cook Industries? Andre Cie?) But the big commodities river keeps on rolling along.

September 6, 2015

If You Are Going to Talk Smack About a Four Star, You Better Back it Up: John Schindler Doesn’t

Filed under: Military,Politics — The Professor @ 8:07 pm

Twitter is a strange place, part information gold mine, part cesspool. One of the distinctive phenomena is that of the Twitter exhibitionist who tweets incessantly, and gains a following of acolytes who retweet and tweet sick-making praise to him (or her). The exhibitionist often has some expertise, but usually gains a following more through repetition, bravado and the ignorance of the followers, who often don’t know any better.

One such exhibitionist is John Schindler, who in addition to being a Twitter exhibitionist, is one in real life: he had to resign his position at the Naval War College in disgrace because he texted below-the-belt selfies to a woman, who (a) did not appreciate it, and (b) was not impressed. Normal people would go under a rock and hide after such humiliation. But not Schindler. He laid low for a while, but soon returned to Twitter with a vengeance. He has parlayed his Twitter fame into appearances on Fox News and guest pieces at various publications, including the Daily Beast and the L.A. Times.

He is a nasty piece of work, as a look at his timeline shows. Recently he leveled a very bitter attack on the retiring Army Chief of Staff, General Raymond Odierno:

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Odierno’s sin? At the time of his mandatory retirement, he signed on as an advisor to Jamie Dimon at J. P. Morgan. So this apparently makes him a sellout and a whore.

What was he supposed to do? Take up needlepoint? Commit seppuku for “fucking over soldiers” and “losing wars”?

And let’s look at Schindler’s accusations. As for being a “mouth breather” and “idiot”, Odierno has a masters degree in nuclear effects engineering. A subject a little bit more rigorous than Schindler’s (history). It’s not a subject for dummies. (One of the most impressive profs I had at Navy was a Marine Corps major who was a nuclear effects engineer whom I called Major Mohawk. Smart guy.) Odierno also has a degree from where Schindler used to teach before his photography hobby got him into trouble.

As for losing wars, Odierno served in a variety of positions in Iraq from the invasion in 2003, where his 4th Infantry Division was part of the follow on force (because Turkey denied it from being deployed to launch a planned assault from Turkish soil). Odierno’s role in the occupation was subject to some criticism for overaggressiveness, but the division has in the middle of the hornet’s nest of the Sunni Triangle. He subsequently was in operational command of The Surge, which was far more successful than the efforts that preceded it.  He didn’t lose Iraq. In fact, he was instrumental it creating the possibility of saving it, before that was thrown away.

As for “fucking over soldiers”, which Schindler insinuates he saw: well, if you make a charge like that, you better back it up with credible evidence. Schindler does not.

As for working after retirement, it’s not uncommon for generals and admirals. Omar Bradley was chairman of the Bulova Watch Company. Matthew Ridgeway, a true American hero in WWII and Korea (whom I compared to Petraeus at the onset of The Surge), was on the board of Gulf Oil. Many flag officers have served on corporate boards after retirement.

The public record clearly does not support Schindler’s accusations, which border on slander. Odierno has had a distinguished public career. If you talk smack like Schindler did, you have to bring more than a Tweet to the game.

So what explains Schindler’s attack? That Odierno went to work for a bank (as an advisor, mind you)? Maybe: Schindler exhibits some Occupy tendencies, admitting that he is a socialist who believes the “power structure” is unjust. But the vitriol seems very personal, even for someone as routinely nasty as Schindler. I’m guessing that Odierno does not suffer fools, and that in his interactions with Schindler at NWC he made that plain, and it left a mark on Schindler.

As for the bulk of Schindler’s Twitter output, he cashes in (figuratively!) on his stint working for the NSA years ago. Kind of ironic, isn’t it, that a guy who blasts a four star general with decorations out the wazoo for trading on his government service does the same. Though for a lot less money. Come to think of it, that may be part of the issue here. Schindler brags about his counterintelligence expertise, which begs the question: if he was so good, why did he punch out? I am also skeptical about people who are so vocal about their work in intelligence: the real pros don’t brag.

His commentary on Twitter and on his blog is rather tedious and not that insightful. I guffawed at his presumptuous tweets announcing how he has to keep telling people that the US Secretary of State is a target of foreign intelligence services. Who knew? What would we do without such penetrating insights?

And I have to say that I have to doubt Schindler’s counterintelligence genius based on events that came to light after his scandal. For some months prior, Schindler had been trolled hard on Twitter by someone who trolled me as well, on Twitter and here on the blog: this troll appeared in comments on SWP as Mr. X (whom I am sure long-time readers remember with fondness!) and a variety of other incarnations every time I blocked the source IP. On Twitter, this troll had one account (before being banned) that had a handle based on Schindler’s XXCommittee blog name. This individual also emailed me a few times, including one in which she included a picture of a hanged Nazi war criminal and insinuated that come the revolution I would be dealt with by citizen’s justice.

It turns out that Schindler was engaged in an email exchange with said troll, which came to light as result of a FOIA request to NWC. I figured out who the troll was. I know Schindler was told who the troll was. One clue that it is the same troll is the reference to the Hatch Act, which featured in Mr. X’s comments as well as in one of the emails in the linked piece. But he apparently never figured it out. So yeah. He’s your man to ferret out GRU agents (whom he sees behind every tree, BTW).

So go ahead, fanboys. Follow your hero. Retweet him. Even though he slanders far better men than he on zero evidence whatsoever. When he’s not engaged in art photography, that is.




September 5, 2015

Amateurs Talk Tactics. Professionals Talk Logistics. And Idiots Talk BS.

Filed under: Military,Politics,Russia — The Professor @ 5:46 pm

The last couple of days have seen a frenzy of excitement about the possibility of an imminent Russian intervention in Syria. The hive buzzed very loudly when the Pentagon said it had seen reports of increased Russian activity in Syria. This means only that they read the linked article and other stories appearing in places like Ynet, not that they are providing confirmation based on US intelligence.

Yet, connecting a few dots, the journalist behind the story claims to have discovered a heretofore unknown Rembrandt.


I have no doubt that Russia has an interest in propping up Assad. That it has, and may be reinforcing, regime protection, intelligence, and advisory elements on the ground in Syria. That perhaps even a few Russian pilots are reprising the role of their “Honcho” forebears in the Korean War. But as for a major Russian ground intervention in Syria, not even Putin is that crazy. An expedition to Syria would make the Soviet Afghanistan adventure look like Napoleonic or Alexandrine genius.

Put aside for a moment the bloodletting the Russians would put themselves in for. Let’s just look at the logistics, and remember that while amateurs talk tactics, professionals talk logistics.

  • Operations outside of bases would require the deployment of thousands, and perhaps tens of thousands, of troops just to defend the lines of communications of those operating at the pointy end of the spear.
  • A major expeditionary effort would require massive supply, and the Russians would have to operate at the end of a very long logistical tether.
  • The most direct supply line would run through the Bosporus and Dardanelles, that is, through Turkish waters. Turkey is Assad’s inveterate enemy. Would you run an operation which would require you to place your logistic jugular under your ally’s mortal enemy’s knife?
  • The alternative, through the Baltic, North Sea, Atlantic, and Mediterranean, is very long, and also requires passage through narrow straits.
  • Russia’s navy is craptastic. It has extremely little sealift capability, and use of civilian vessels is problematic. This is what you need to support overseas expeditions. Russia has nothing even close.
  • Port capacity in Syria is limited, and it would be extremely vulnerable to sabotage and direct attack from the myriad anti-Assad forces. Again, large numbers of men and materiel would be required just to defend the ports. Tartus has four piers (and then only if floating piers are operational), and it can only handle four medium-sized ships: it is too small to handle even a Russian frigate or destroyer. You can’t support major ground operations through that soda straw.

Then there are other considerations, such as:

  • Russia is already militarily committed in Donbas, and has precious little additional capacity to deploy in Syria.
  • Russia has never, ever, engaged in a major overseas expedition, analogous to what the US has done routinely for the past 75 years. Syria is not Donbas, Abkhazia, or Transnistria.
  • The Russian economy is already in dire straits, and cannot afford to commit to a bleeding ulcer campaign in a peripheral region.
  • Another well-known military adage is: Don’t reinforce failure. Assad is failing.

Other than that, it makes total sense for Russia to go large in Syria to bail out a tottering client. Total sense!

The US should actually hope that Putin is this stupid. But he’s not.

To put things in perspective, one of the things that got the hive buzzing was the transit of a couple of Ropucha class amphibious ships, each with a cargo capacity of a whopping 450 tons (8-10 tanks), and an Alligator class gator, with a cargo capacity of 1000 tons. Hardly enough to support a major operation, which requires capabilities such as this. (And by the way, I saw Russian amphibious ships-sides streaked with rust-transiting the Bosporus on my visits to Istanbul in 2013 and 2014. This is like a shuttle run.)

And let’s consider the source, shall we? The story is being flogged by Michael Weiss. Based in large part on geolocators operating in mom’s basement, Weiss has predicted six out of the last zero times that Putin has mounted an invasion of Ukraine. (Full disclosure: I thought Putin was likely to invade last fall. I was wrong. I confess to having little confidence in my ability to predict his next steps there. But Weiss never betrays any contrition at his previous failed predictions.)

And the other things I could tell you, relating to Weiss’s The Interpreter’s mysterious funding (including its relationship with Khodorkovsky), and its use of anonymous sources and unverifiable sources that it translates. And there are some other things that are even more bizarre. But you’ll have to take my word for it.

So yes, Russia will provide materiel support to Assad. It will do what it can to facilitate Iranian and Hezbollah resources flowing to Syria. But a major intervention? We should be so lucky.


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