Monday, November 12, 2007

Know Your Enemies

Talk about your axis of evil; from the November 19th Weekly Standard:
In late October, the Russian newspaper Kommersant reported that China's Chengdu Aircraft Industry Group will sell 24 of its new-generation Jian-10 (J-10) fighter aircraft to Iran in a contract valued at $1 billion. The Moscow-based daily received the information from a source inside HESA--a division of the Iran Aircraft Manufacturing consortium. This would be the first purchase of a new-generation combat system by the Iranian air force since the early 1990s. (China's state-run Xinhua news agency denounced the story as "false and irresponsible" and denied that there have been any negotiations, but did not outright deny the sale.)

Last week, the Paris-based defense and strategy publication TTU reported that China is planning to supply the J-10 to Syria as well. The Chengdu fighter would replace an aging arsenal of Russian aircraft largely acquired by Damascus during the Soviet era. Intelligence on the growing cooperation between Syria and Iran indicates that Tehran will finance this Syrian procurement. Having the two allied nations operate the same front-line fighter aircraft will create economies of scale, for instance by allowing maintenance and servicing facilities to be shared.

Russia's connection to the J-10 and the reason for the report originating from Kommersant is that the J-10s are powered by the AL-31FN jet engine built by the Salyut Production Association in Moscow, generally considered to be the most advanced military engine manufacturer in Russia. Chinese industry has struggled but failed to develop a reliable, high-performance jet engine. Both of China's new-generation fighters--the J-10 and the FC-1/JF-17--are powered with Russian engines.


MaxedOutMama said...

Carl, try to clear out of stocks as much as your tax situation will permit. There is a hockey stick in debt default for consumer, shortly to be followed by a hockey stick in commercial debt.

The Swiss franc and yen carry trades are unwinding. Oil and wheat have topped and are going to decline.

The emerging markets look to be going slack. They were mostly boosted by cheap lending and some of that lending was based on the carry trade currencies.

It's time to build a big cash position. Today will be light trading, and some major players will be trying to push the market up. They'll probably succeed, and then try to unwind their own positions this week.

It is highly unlikely that the markets can sustain any significant moves higher in the next six months, and extraordinarily likely that a lot of selling will go on.

Carl said...


I'm a good lawyer, a decent economist, and can fake electrical engineering, at least for a while. But I'm clueless about finance. Can you explain in words of three or fewer syllables why the credit crunch will turn into a equities melt-down?

MaxedOutMama said...

Financials had too great a share of overall corporate profits. Many of them are taking losses right now, and will be for several more quarters. There will be, but isn't now, very much domestic investment going on. It's basically flat right now, and would have been negative last quarter if it hadn't been for a build up of inventories.

So the companies can't afford to spend a whole lot on ops from their profits, and meanwhile exceptional tightening of lending ensures that it's not going to be done from credit.

The domestic economy is driven by profits. Insider data that you don't see in the papers show sales tax receipts sort of falling off a cliff. Over the last four months it has been very marked. Consumers aren't really spending a whole lot less, so that means businesses are pulling back. That's why Cisco took a beating.

All of the normal indicators are showing recession.

Plus, all main vectors show a slowdown. We are long past critical mass. You literaly can't have major slowing in businesses and constraints on consumer spending AND a credit crunch without a downturn in the economy. It's impossible.

Anonymous said...

J-10, Russian powered whatever . . . yada yada yada.

None of it matters; you trash the things BEFORE they ever get off the ground.

At that point, it doesn't matter if they're powered by GE or Pepsi; they're both junk on the ramp.