Furious at Latest U.S. Attack, Pakistan Shuts Down Resupply Routes to Afghanistan “Permanently”

NATO recently literally shot itself in the foot, imperiling the resupply of International Assistance Forces (ISAF) in Afghanistan by shooting up two Pakistani border posts in a “hot pursuit’ raid.

Given that roughly 100 fuel tanker trucks along with 200 other trucks loaded with NATO supplies cross into Afghanistan each day from Pakistan, Pakistan’s closure of the border has ominous long-term consequences for the logistical resupply of ISAF forces, even as Pentagon officials downplay the issue and scramble for alternative resupply routes.

Pakistan, long angry about ISAF/NATO cross border raids, has apparently reached the end of its tether. Following the 26 November NATO aerial assault on two border posts in Mohmand Agency in Pakistan’s turbulent NorthWest Frontier Province, Islamabad promptly sealed its border with Afghanistan to NATO supplies after the allied strikes killed 24 Pakistani soldiers.

The U.S. military insists a joint patrol with Afghan forces was fired upon first and only responded with return fire and calling in airstrikes on the posts, which a commander mistakenly identified as Taliban training camps, after reportedly checking that there were no Pakistani military forces nearby. Pakistan Major General Ishfaq Nadeem, director general of military operations, rebutted Washington’s assertions one by one, commenting, “The positions of the posts were already conveyed to the ISAF through map references and it was impossible that they did not know these to be our posts.”

So, what does this mean for logistical support of ISAF forces? According to Nesar Ahmad Nasery, the deputy head of Torkham Customs, around 1,000 trucks cross into Afghanistan on a daily basis, nearly 300 of which are NATO contractors carrying NATO supplies in sealed containers. Khyber Transport Association chief Shakir Afridi said that each oil tanker has a capacity of 13,000-15,000 gallons. In October 2010 Chairman of the Joint Chiefs of Staff Admiral Michael Mullen said that fossil fuels are the number one import to Afghanistan.

 

Noting the obvious, as Afghanistan has no indigenous hydrocarbon supplies, every drop must be brought in, with transit greatly increasing the eventual cost. For 2001-2008, almost all U.S. and NATO supplies were trucked overland to Afghanistan through parts of Pakistan effectively controlled by the Taliban.

 

Ground supplies are shipped into Pakistan’s Arabian Sea Karachi port and offloaded onto trucks before being sent to one of five crossing points on the Afghan border, the most important being Torkham at the Khyber Pass and Baluchistan’s Chaman. The recent attack has put all these routes at risk, perhaps permanently. Pakistan, being the shortest and most economical route, has been used for nearly a decade to transit almost 75 percent of the ammunition, vehicles, foodstuff and around 50 percent of fuel for coalition forces fighting in Afghanistan.

 

On 27 November Interior Minister Rehman Malik, addressing journalists at the Ministry of the Interior’s National Crisis Management Cell, after strongly condemning the NATO attack on Pakistani forces, stated that the resupply routes for NATO via Pakistan have been stopped “permanently,” adding that the decisions of the Defense Cabinet Committee (DCC) on the NATO forces attack inside Pakistan would be implemented in letter and spirit, stressing that “The decisions of the DCC are final and would be implemented.”

The major issue at stake here for ISAF and U.S. forces is fuel, all of which must be brought in from abroad at high cost. In October 2009 Pentagon officials testified before the House Appropriations Defense Subcommittee that the “Fully Burdened Cost of Fuel” (FBCF) translates to about $400 per gallon by the time it arrives at a remote Forward Operating Base (FOB) in Afghanistan. Last year, the FBCF reached $800 in some FOBs following supply route bombings in Pakistan, while others have claimed the FBCF may be as high as $1,000 per gallon in some remote locations. For many remote locations, fuel supplies can only be provided by air – one of the most expensive ways being in helicopter fuel bladders.

The majority of U.S. tonnage transported into Afghanistan is fuel – 70 percent, according to Deputy Undersecretary of Defense Alan Haggerty. The Marines’ calculate that 39 percent of their tonnage is fuel, and 90 percent is either fuel or water.

According to ISAF spokesman Colonel Wayne Shanks, there are currently nearly 400 U.S. and coalition bases in Afghanistan, ranging from the massive Bagram airbase outside Kabul down to camps, forward operating bases and combat outposts.

The Pakistani supply lines have come under increasing attack by militants. Baluchistan Home Secretary Akbar Hussain Durani noted that last year, 136 NATO tankers were destroyed in 56 attacks in the province, with 34 people killed and 23 wounded in the assaults.

But NATO and the Pentagon have a backup plan – since 2009 they have been shifting their logistics to the Northern Distribution Network (NDN), a railway link running from Latvia’s Riga Baltic port through Russia and Kazakhstan terminating in Uzbekistan’s Termez on the Afghan border.

The NDN is a joint initiative of multiple Department of Defense agencies, including the US Transportation Command, CENTCOM, the US European Command, the Defense Logistics Agency and the Department of State. The NDN’s first shipment was sent on 20 February 2009 from Riga 3,212 miles to Termez, with U.S. commanders stating that 100 containers daily would be transported via the NDN. The supply trains have been given preferential right-of-way to speed the trip to about nine days. According to Pentagon officials, its goal is eventually to be able to bring 75 percent of its equipment into Afghanistan from the north.

But the true number of forces to be resupplied is far higher. Last year the Pentagon’s Central Command put the number of contractors for the U.S. military at 107,000.

According to ISAF spokesman Lieutenant Gregory Keeley in Kabul, the NDN now accounts for 52 percent of coalition cargo transport and 40 percent for the U.S., which also receives around 30 percent of its supplies by air.

Cost?

According to the FMN Logistics, the Washington DC-based logistics company that oversees the NDN and provides “full supply-chain management to ensure the smooth transit of(European Union) government cargo from various Ports of Entry including Riga, Latvia;

Poti, Georgia; Mersin, Turkey and Bandar Abbas, Iran, through to multiple NATO/ ISAF camps in North and South Afghanistan,” in January Russian Railways increased rail tariffs for freight by 10 percent and is suggesting an additional increase of 11.7 percent in 2011 to cover “operating costs.” Further east, Uzbekistan increased rail tariffs twice last year.

Bringing supplies overland on the NDN costs two or three times as much as shipping them by sea and moving them up through Pakistan.

And the NDN is not without problems of its own. On 16 November Uzbek media reported an explosion on an NDN railway line on a railway bridge on the Galaba-Amuzang section of track on Uzbekistan’s border with Afghanistan.

Besides the NDN, the Pentagon also uses a supply route through Georgia’s Black Sea Poti port via Azerbaijan’s capital Baku, where goods are transshipped across the Caspian Sea to Kazakhstan, where the goods are carried by truck into Uzbekistan to Afghanistan. While shorter than the NDN, it is also more expensive because of the constant on-and-off loading from trucks to ferries and back onto trucks. A third supply route, a spur of the NDN, bypasses Uzbekistan from Kazakhstan via Kyrgyzstan and Tajikistan, but poor road conditions in Tajikistan limit its usefulness.

So, given Pakistan’s shutdown, can the NDN absorb the increased railway traffic?

Probably, but it won’t be cheap, and will take some time to implement.

NATO’s investigation of the Mohmand attack, led by a one-star general, will release its findings on 23 December. What does Pakistan want to resolve the issue? A formal apology and resolute action taken against those responsible for the deadly cross border air strike.

The U.S. military’s Transportation Command deputy commander Vice Adm. Mark Harnitchek said of resupplying Afghanistan, “This is the logistics challenge of our generation.”

If the Pentagon does not issue an apology, then the U.S. military had better expect “the logistics challenge of our generation” to continue.

Or get out and push and push the HUMVEES and helicopters.

Source: http://oilprice.com/Geo-Politics/International/Furious-at-Latest-U.S.-Attack-Pakistan-Shuts-Down-Resupply-Routes-to-Afghanistan-Permanently.html

By. John C.K. Daly of http://oilprice.com

Free Report: The European Debt Crisis and Your Investments

Dear Investor,

In 1999, 11 European countries surrendered their currencies for the euro and a shared monetary authority. But as the world applauded, Elliott Wave International (EWI) forecast that those countries had also sealed a shared fate: to eventually collapse together in a liquidity-driven deflationary spiral.

Barely a decade later, the once-celebrated EU and its currency are facing collapse. In November 2011, EWI observed that its “pageant of concession and agreement focuses (now) on rescue and preservation rather than expansion.”

EWI’s analysts have been anticipating and tracking the credit contagion across the European nations for the past two years. Back in December 2009, EWI analyst Brian Whitmer warned that a set of troubling events across Europe were signaling that the entire continent was on edge.

In April 2011, Whitmer wrote:

Back in February 2010, we stated, “Greece’s woes aren’t over and neither are its neighbors.” Four months later, as nearly every country in Europe said they would avoid a “Greek-like fate,” the June 2010 issue added, “The only thing separating these countries from Greece is the fragile confidence that they are, indeed, distinct.”

Will the Central Bank coordination bolster confidence enough to turn around the economies of the world? Or is this just another hopeful attempt that will provide nothing more than a short-term fix?

You owe it to yourself and your investments to find out. Remember, even if you believe you’re not directly invested in Europe, there’s a very good chance that some of the companies in your portfolio are — possibly even your money market funds.

Gain a valuable perspective on the European debt crisis and get ahead of what is yet to come in this free report from Elliott Wave International.

Read Your Free Report Now: The European Debt Crisis and Your Investments.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private around the world.

US Auto Bailout: Pros and Cons – Addressing Bankruptcy in 2009

Source: ForexYard

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The first edition of this article was written in early December while the U.S. government was still considering whether or not to bail out the Big 3 – Ford, Chrysler and GM – with taxpayer money. That bailout has gone through and now we are faced with a second issue: bankruptcy.

The current debate rages over whether such a “controlled bankruptcy” will be beneficial in the long-run for the automotive and manufacturing industries, or whether it will simply push them past the point of no return. While we contemplate the pros and cons of this move try to understand that this issue is by far more complex than simply bailing out a failing industry, as we will see.

Pro #1: As President Obama has said, the systematic bankruptcy of these auto giants will allow for the restructuring necessary to make more fuel-efficient automobiles and help ease the shift to greener forms of energy in order to limit the U.S.’s dependence on foreign countries for its energy supply. The pros from this move are obvious. If this restructuring is successful, Obama may be correct and the U.S. may be capable of shifting towards more fuel efficiency and producing fewer greenhouse gases.

Con #1: While glorified in theory, and only in the long-run, the above point basically ignores the fact that the U.S. automotive and manufacturing sectors will suffer near-death experiences in the short-run. Especially since that is basically what bankruptcy means. It is a type of death certificate. As these industries are restructured over time, and while jobs are theoretically being created, those sections of employees who specialize in skills which are being cut-back will find themselves on the street, so to speak. The day-dreaming about “what will be” leaves out the whole part of economic anarchy in the short-term. This simply cannot be ignored.

Pro #2: In light of the first article, one pro of allowing bankruptcy would be to finally deliver a type of punishment to an industry which has been slow in developing more efficient technologies due to self-deception and a sense of invincibility while the rest of the world was blowing past into the field of green energy vehicles. This may be the sanction that was long overdue to large, bloated, inefficient companies which are oh-so-symbolic of this recent financial crisis and recession. Chalk this up as a victory for the American taxpayer (that is, of course, if you call bailing out a company that later declares bankruptcy a victory).

Con #2: While this bankruptcy scheme appears to be a long-term savior of an inefficient industry, the truth is that its success is highly dependent on outside factors. The success of green energy cars depends on there being demand for them. Demand for these vehicles increases when gas prices sky-rocket. However, during this recession Crude Oil has fallen off its peak of $147 a barrel last July to hover around $50 a barrel today. Without a dramatic increase to gas prices like we saw last year, the demand for greener vehicles will simply not exist. Second, American cultural mentality places a value on the status achieved by owning a large and powerful vehicle. If hybrid, or other green energy vehicles do not possess the same attached status, they will not be very successful in the States.

These merely demonstrate a few of the complexities. If these requirements are not met, a forced bankruptcy and subsequent restructuring will simply hammer the final nail in the coffin of the American automotive industry. Is bankruptcy the right move?

Share your thoughts.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Lyons Says Euro Zone Cohesion Hinges on Greater ECB Role

Dec. 2 (Bloomberg) — Gerard Lyons, chief economist at Standard Chartered Plc, the No. 1 firm for economic forecasting according to data compiled by Bloomberg, talks about the outlook for the euro zone and the European Central Bank’s role in backing indebted nations. Lyons speaks with Francine Lacqua and David Tweed on Bloomberg Television’s “On the Move.” Louise Cooper, an analyst at BGC Partners, also comments in this report.

Bond Rate Pigs Will Get Slaughtered

Bond Rate Pigs Will Get Slaughtered

by Steve McDonald, Investment U Contributing Editor
Friday, December 02, 2011 : Issue #1656

[Editor’s Note: You may recognize Steve McDonald as the host of the “Investment U Weekly Update” on Sundays. He’s also the resident bond expert for The Oxford Club’s Ultimate Income Letter. He wanted to share this important warning with our readers, who may be investing in or looking to invest in bonds.]

The most graphic reminder of how bad the bond market can sell off was 1994. I was in my fourth year as a broker and we got hit with eight interest rate increases in one year. Eight!

Every interest rate sensitive investment, leveraged bond funds especially, were crushed.

Many bond funds from this period never recovered. I had the very humiliating duty of informing many investors that the so-called widow and orphan safe funds they had purchased just lost 30 percent and it wasn’t coming back.

But the really big losses in ’94 – and there were lots of them – were due to heavy leveraging. It wasn’t a pretty sight.

Stay on the Straight and Narrow

The sickest part, the big losses were totally avoidable by avoiding leveraged funds. In other words, the rate pigs chasing the highest-yielding funds got slaughtered as they always do.

There are a few principals that govern bond investing, and they’re carved in stone: Stay on the straight and narrow and you can have a very peaceful, profitable investing life. Break them and you will pay a dear price, as many did in 1994.

That’s why it might surprise you that most bond funds are breaking all the rules right now to offer the high returns they must to attract investors; actually they’re really rate pigs, and they’ll pay the price for it, again!

The yields bond funds are claiming right now are just too good to be true and well above what you can get from individual bonds. Any knowledgeable person would question how this is possible, but rate pigs don’t care.

When rates move up – and they will – investors in these funds stand to lose billions before they even know there’s a problem.

Leveraged Portfolios

The most common technique bond fund managers use to earn these sky-high yields is leveraging the portfolio.

This is a technique that’s foreign to the average guy, isn’t fully explained in the materials published by fund companies, and will end up being the ruin of many small investors, most of whom can’t afford to replace the losses.

The underlying bonds in a mutual fund’s portfolio can be the highest quality and even within the safer maturity range I’ve been banging the table about for the last three years…

But if the portfolio is leveraged, you’re exposed to an enormous amount of risk – risk you didn’t see going in and won’t see until your share value has plummeted.

For Instance…

Let’s suppose you own a bond fund that has $1,000,000 in net assets. To leverage it the manager literally goes to a bank and borrows against that amount. Some borrow up to 70 percent and 80 percent of the fund’s value. That’s the only way they can get the high yields they must to attract the uninformed.

The mangers then use this borrowed money to buy more bonds and generate more interest. The manager looks like a genius and the rate pigs are thrilled.

The more reasonable funds only leverage 10 percent to 30 percent of their value, but even these will cost their investors.

This all works just fine until interest rates move up. When they do, the cost of all that money they borrowed starts to cost the fund more and more money in interest costs. It comes out of the cash flow, which is the interest from the bonds. If the money is going to increasing interest costs, it can’t go to shareholders.

In some cases, the new higher interest costs can exceed the coupons on some of the bonds in the portfolio…

Strike one!

Oh, and the double whammy, just when interest costs are starting to move up, the value of the bonds in the portfolio is dropping. The share price begins to plummet…

Strike two!

Mutual fund share prices and NAVs are calculated after the trading day closes, not during the trading day as stock and bond prices are. By the time you figure out this is happening, it’s too late…

Strike three!

…Throw the more obvious and avoidable factors like long average maturities – which also give higher yields and greater risk – and premium costs on closed-end funds, and you have a real nightmare on your hands.

Don’t Follow the Herd

Take 10 minutes right now; call your broker or mutual fund company and find out how much your bond fund is leveraged. If it’s in excess of 10 percent, you should think about getting out.

The herd is pouring money into any fund that pays ridiculous yields and the premiums are through the roof. If you have held your funds for any length of time, you should be able to show a profit on the sale.

To invest safely in bonds right now you should own individual bonds – municipal or corporate – not Treasuries. This will give you the control necessary to avoid the damage of long maturities and leveraging, and the premium issue can be completely avoided.

One Bond Within the Rules

Here’s an example of a bond that you can own that’s within all the hard and fast rules about bond investing.

  • International Lease – cusip 45974vb49 – the annual yield is around 7.19 percent, the price is 96.5, or $965, and it’s rated BBB – and matures on 6/1/14.

It has about a 2.5-year maturity, which keeps you in a very short-term hold and out of longer maturities, which also get killed when rates move up.

You’re also buying it at a slight discount of $965. At maturity you get par or $1,000. Not bad!

Oh, and it’s an investment grade bond! That’s always a nice cushion.

You get return well above market averages, an investment grade rating, no leveraging unless you borrowed the money to buy it, a super-short maturity and a slight discount, $965 versus a premium or par bond, which helps your annual average return.

That’s how you invest in bonds safely and profitably.

Can you get more from highly leveraged bond funds with maturities out to 20 years?

Yes, and you’ll get crushed for your effort.

Bonds can offer you security and return if you don’t act like a rate pig and obey the few basic principles that are carved in stone. Do this and you can have a very nice investment life with bonds.

You can thank me later.

Good Investing,

Steve McDonald

Article by Investment U

Bank of England Gives “Systemic Crisis” Warning, Germany’s Merkel says Eurozone “Will Take Years” to Solve Debt Problem, South Korea Adds to Gold Reserves

London Gold Market Report
from Ben Traynor
BullionVault
Friday 2 December, 09:00 EDT

U.S.DOLLAR Gold Bullion prices eased back from a week’s high of $1760 an ounce Friday lunchtime in London – straight after the publication of US jobs data – before appearing to bounce off $1750.

Silver prices also fell back, after hitting a week’s high of $33.67 per ounce.

Nonfarm payroll data published by the US Bureau of Labor Statistics Friday show that the US economy added 120,000 jobs in November – exactly in line with market expectations.

The US unemployment rate meantime fell to 8.6% – down from 9.0% in October.

Stock markets opened strongly on Friday morning – with the FTSE 100 in London up around 1.6% by lunchtime and Germany’s DAX gaining 2.0% – while commodities also gained and US Treasury bond prices fell.

“Recent US data have been slightly more optimistic than what has been factored into the market,” said Neil Jones, London-based head of European hedge-fund sales at Mizuho Corporate Bank, speaking before the nonfarm payroll release.

“That’s helping risk…the market is in the process of reducing its risk-off positions.”

Despite its slight drop following the nonfarm release, gold bullion looked on course for its biggest weekly gain since October – having risen nearly 4% since last week’s close.

“The market is betting on some kind of announcement from Europe,” reckons Saxo Bank analyst Ole Hansen.

“[Investors are] looking for the liquidity button in Europe to be pressed. That will mean high inflation, and that is giving gold the impetus it has been lacking of late.”

German chancellor Angela Merkel however, in a speech to the Bundestag this morning, repeated her objection to the notion that the European Central Bank might follow the Bank of England and the Federal Reserve by embarking on quantitative easing.

“The European Central Bank has a different task from that of the US Fed or the Bank of England,” Merkel said, adding that resolving the Eurozone crisis “is a process and this process will take years.”

Merkel also again rejected the idea of jointly-issued ‘Eurobonds’. European Union leaders are due to meet next Friday to discuss their next steps.

Elsewhere in Germany, bakery chain Wiener Feinbaecker is advertising a 5-Year bond at 7%, the Financial Times reports – noting that it is an “eloquent sign” that we could be entering another credit crunch.

“When a thriving business with profits growing at 30% a year resorts to this kind of financing, it is a pretty sure sign that banks are not fulfilling their traditional role,” the FT report says.

Bank of England governor Mervyn King yesterday warned banks to prepare for a “systemic crisis”.

“An erosion of confidence, lower asset prices and tighter credit conditions are further damaging the prospects for economic activity and will affect the ability of companies, households and governments to repay their debts,” he said.

Banks should “give serious consideration to raising external capital in the coming months” warned the BoE’s Financial Stability Report yesterday. The report suggests that one way banks could boost cash reserves is reduce the amount they pay in dividends and bonuses.

Although the report encouraged banks “to improve the resilience of their balance sheets”, it also cautioned against “exacerbating market fragility or reducing lending to the real economy”.

A closely-watched indicator of banking system stress is the gap (or spread) between the London Inter-Bank Offered Rate (the rate at which banks lend to other banks) and the Overnight Index Swap rate (determined with reference to a published overnight rate such as the Federal Reserve’s federal funds rate).

Since the start of August, the 3-Month LIBOR-OIS spread has risen from around 12 basis points (0.12 percentage points) to more than 42 basis points. It remains, however, significantly below the levels reached immediately following the Lehman’s collapse, when a credit market seize-up sent 3-Month LIBOR-OIS above 350 bps.

Korea’s central bank bought 15 tonnes of gold bullion last month – adding to the 25 tonnes it bought earlier in the year.

The Bank of Korea added to its gold bullion reserves “in a bid to diversify its portfolio of foreign exchange reserves,” said Lee Jung, head of investment strategy for the BoK’s Reserve Management Group.

“South Korea has huge reserves,” says Arne Lohmann Rasmussen, head of rates, foreign-exchange and commodities strategy at Danske Bank.

“When they are buying gold, it’s supportive for the market.”

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Bloomberg Markets’ McGuire Discusses Economist Rankings

Dec. 2 (Bloomberg) — Stryker McGuire, senior editor of Bloomberg Markets, talks about the magazine’s annual survey of economists, which ranks London-based Standard Chartered Plc as the No. 1 firm in the world for economic forecasting. McGuire speaks with Francine Lacqua on Bloomberg Television’s “Countdown.”

Forex CT 2-12-11 Video News Update

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.