DABERIAM XXVIII

December 2006

Since October we seem to have been living in a balmy world - the weather has been kind, hurricanes in America did not happen, commodity prices have declined including oil, and a feeling of happy complacency and general well-being has set-in in the run up to Christmas.

International politics have become rather surreal. Bush’s drubbing in the American elections had made him appear powerless, to the glee of Liberals and countries unfriendly to the West. In Britain, Prime Minister Blair is more and more seen as an invention of public relations and media management. Photo calls, word bites, posed appearances, and managed events wear thin as the infrastructure of the State deteriorates; education produces a rising level of illiteracy and the health service spins inexorably out of control, the military is underpaid and ill equipped. Worst of all the Attorney General, the supposedly independent head of the judiciary, now appears to take orders from Downing Street - the list is endless. In Europe, the small rise in growth rate looks destined to decline as the Central Bank ratchets up interest rates and Germany raises taxes. The Governments of Europe and America react to events and lack cohesion or the mechanism to create strategy.

The rest of the world, however, paints a more optimistic picture. China and India continue their dramatic growth with governments, particularly in the case of China, focussing on the long-term process required to improve the lot of their population. China’s development is clear and fascinating. The current five-year plan has the strategies and the processes in place to deal with environmental pollution, health and education and includes the staggering proposition that industrial jobs in modern factories with equivalent housing will get three hundred million people into the earning economy and out of the abject poverty and the short life expectancy in farming. China seems to be inspiring the rest of Asia and India to raise their game. It is also beginning to intervene in the management of the dysfunctional countries of Africa. While this is motivated by the need for oil and other commodities, it will almost certainly be a good thing for the people of these countries, compared with the state of chaos now prevalent. 

Global Economic Indicators

World Economic Growth  (World Bank figures)	2005 (est.)	3.20%	2004	3.40%	2003	2.90%
Base rates: 30 Nov 2006	USD	5.25%	EUR	3.25%	GBP	5.00%
MSCI World Equity Index	30/11/2006	239.636	31/12/2005	203.143	YTD %	17.96%
Gold (PM London Fix $ per ounce)	30/11/2006	646.70	31/12/2005	513.00	YTD %	26.06%
Oil (WTI Crude $ per barrel)	30/11/2006	63.14	31/12/2005	61.04	YTD %	3.44%

The wildcard in international terms is, of course, Russia. This one-man Government with old-fashioned views of the world, smarting under the humiliation of its collapse in power that brought the end of the Cold War, has found a new weapon. The rise in the price of oil and gas that is funding terrorism in the Middle East and around the world, is also giving Russia for the first time a weapon more effective than the bomb.

In economic market terms, it is the marginal supply or demand that moves prices in the market. The Russian Government policy of taking direct control of its gas assets and intelligently using that supply to negotiate with each State in Europe has been the most fascinating exercise in political economic domination, possibly ever seen since the granting of monopolies by European Monarchs. In the space of little more than a year, Russia has gained economic control over the supply of gas and the pipelines of greater Europe, all achieved without causing even a ripple in the political consciousness of the countries it can now disrupt. In a word, if Mr Putin wishes to influence policy of any or all countries in wider Europe he can, by waving his hand over the gas tap. 

None of these observations should be regarded as pessimistic, other than that current Western event-driven governments are proving no match for the countries with governments that understand process and strategy. Luckily China and Russia are, by and large, primarily motivated by the need, at least in the short term, to improve the lot of their people. 

The conclusion, therefore, from the analysis is that 2007 will probably be as benign as 2006, with clouds perhaps gathering in 2008 - election years in USA and Russia. 

My very best wishes to you for Christmas and a very happy new year.

Damon de Laszlo 
December 2006