Gleanings II 474 – Compliments of Nick Rost van Tonningen (August 13, 2012) Posted by John on August 13, 2012

The media a couple of weeks ago extensively covered the July 18^th bomb blast in the Syrian national security headquarters that killed several members of Bashar al-Assad’s inner circle. But the Saudis have managed to very successfully suppress most media coverage of a similar event three days later at their national security headquarters that is believed to have killed Prince Bandar bin Sultan, a son of the late Crown Prince Sultan bin Abdulazziz (who died last October). While the Saudi Ambassador in Washington, D.C. from 1983 to 2005, he became a person of substance in the US capital, & upon his recall in 2005 became Secretary-General of the Saudi National Security Council & just two days before the July 21^st blast Director-General of the Saudi Intelligence Agency – the CW is that the July 21^st Riyadh bombing was tit-for-tat for him having orchestrated the bombing in Damascus and/or the visit to Riyadh planned for late July by Syrian Brig-Gen. Manaf Tlass, a member of Bashar al-Assad’s inner circle & the Commander of the elite 104 Brigade (that in the past has been commanded by both Bashir-, & before that his late brother Basil-, al Assad), who defected to the rebels on July 6^th. But the CW isn’t always right, & often wrong, as likely in this case. For the West’s dilly-dallying in Syria, like the US’ early missteps in Iraq, has given al-Qaeda Islamists an opportunity to infiltrate the opposition & to start roiling the waters for them to fish in. Both the Damascus & Riyadh bombings likely involved long-, & deeply buried-, “moles” willing to martyr themselves for the cause (& the latter just couldn’t have been cobbled together in just three days).

A leader of the “ghuraba’a (i.e. the non-Syrian al-Qaeda sympathizers in the rebel forces) told reporters “ The Free Syrian Army has no rules or religious order. Al-Qaeda has a law that no one, not even the emir, can break … Al-Qaeda’s goal is establishing an Islamic state and not a Syrian state.” – The possibility of a Wahabbi Sunni theocracy resulting from the anti al-Assad uprising is scaring the bejesus out of minority groups in Syria, be they Alawite, Druze, Christian or Turkoman, & even out of many Sunni Syrians. But that what they may get and, if so, would be the pay-off for the lack of Western support for the rebels.

The long effort to drive the price of gold down may be a losing battle. Last week, on three successive days it nosedived at the opening in New York, by roughly US$20, US$25 & US$10 respectively, only to each time picked itself back up off the mat so that by Friday’s close it was just US$10 off from where it had opened Wednesday morning – if the Fed were behind this, which is possible, probable or likely, depending on one’s degree of cynicism, the question arises as to how much of the gold in Fort Knox might remain unencumbered, i.e. how much of it may have been used to ‘short’ the market via the proliferation of engineered “paper gold” products.

Italy’s Prime Minister Mario Monti recently told Der Spiegel, a German newsmagazine with a 1+MM circulation, that “The tensions that have accompanied the eurozone in recent years are already leading to a psychological dissolution of Europe … if this is allowed to continue Then all the foundation of the European project will be destroyed [and] if governments allow themselves to be entirely bound to the decisions of parliaments without their own freedom to act, a break-up of Europe will be a more likely outcome than deeper integration.” This prompted a comment by a key supporter of Chancellor Merkel’s Christian Democratic Party that “Mr. Monti apparently needs a clear announcement that we Germans will not be prepared to eliminate democracy in order to finance Italian debts” – Monti spoke like a true Eurocrat who believes the hoi polloi, & the politicians they elect, don’t know what is good for them & should trust them, the denizens of the EU headquarters in Brussels to decide what is good for them. And he was speaking out of both sides of his mouth; for as he was making these remarks, he was urging the Italian Lower House of Parliament to follow the Senate’s lead in approving 64BN Euro worth of spending cuts.

Sicily is increasingly being called the “Greece of Italy”. It recently needed a 400MM Euro handout from Rome to pay its 144,000 public employees (in a population of 5.1MM), &  in the past five years it received 7BN Euros in handouts from Brussels. According to the head of one of its biggest unions “Something has finally snapped here, it is the end of an era. Sicily is on the brink of collapsing, with the risk that we won’t be able to pay salaries or even run ferries from this island” – Sicily’s corrupt & Mafia-dominated society has long frustrated Northern Italians who bristle at the idea that their tax money goes to support a society in which 10x as many people work in the public sector as in their part of the country It is a sign of its useless job creation efforts that there are as many forestry workers in Sicily, which is not all that well forested, as there are in BC, which all but has wall-to-wall forests.

On August 6^th S&P announced it was changing its outlook for Greece from “stable” to “negative”, often the precursor to a downgrade. Since it is currently rated CCC (“extremely speculative”), eight steps below investment grade, the next step down, CCC-, is S&P’s ‘speak’ for “Default imminent with little prospect of recovery”.

After it became obvious investors were seeking a ‘safe haven’ in the Swiss franc, the Swiss Central Bank undertook to do whatever it took to keep it from going to levels that would negatively affect the Swiss economy’s global competitiveness. As a result, despite negative interest rates, it has had to buy so much foreign currency from foreign investors that its FX reserves at last report stood at US$384BN, up 65% YoY & an amount equivalent to 60% of its GDP. And it has been diversifying out of the US dollars : in the last year the share of US dollars in its FX reserves have declined from 28% to 22% (although in absolute numbers they still rose from US$66BN to US$85BN).

Informa, a well-regarded commodity cum agricultural consulting firm, said on August 6^th that it now expects the 2012 corn crop to be 10.4BN bushels, down 17% from its forecast just one month ago, & its yield/acre is now down to 120 bushels (down 27% from the USDA’s original forecast) – while the recent rain helped soybeans, it was too late for corn (which is said to be ‘past redemption’) – at last report 1,584 US counties, over half their total, are now designated disaster areas, 90% of them due to drought (& among the latter the share of those experiencing “extreme” or “exceptional” drought conditions doubled in recent weeks to 22.3%).

The recent fire at Chevron’s Richmond oil refinery in California, with its 245,000 bbld capacity one of the nation’s largest, could lead to serious gasoline shortages, & price hikes, for California drivers. For vehicles there use a specially configured, State-mandated gasoline; so it won’t be possible to bring in gasoline from elsewhere to make up the shortfall.

For the first time in four years, the Union Pacific railroad is taking lumber-hauling railcars out of storage since shipments of lumber & wood products are up 10% YoY – further evidence that the US housing industry is past hitting bottom (a ‘green shoot’?).

What can happen to aging oil fields is demonstrated by Mexico’s offshore Cantarell field in the Bay of Campeche. Once Pemex’ flagship field, production peaked at 2.1MM bbld. In 2003. By 2006 this had declined to 1.5MM bbld., in early 2009 to 770,000 bbld, last year to 500,000 bbld & last April  to barely 400,000 bbld (it produced a heavy crude & the decline in its production is one reason – the other being Venezuelan heavy crude is going to China – why US refineries in the Gulf region are clamouring for the Keystone pipeline (so as to provide them with more cheap heavy crude from the oilsands – the Bakken in North Dakota produces light oil that is no good to them). Fortunately for Pemex the nearby Ku, Maloob & Zaap fields have taken up some of the slack, at last report producing at a 900,000 bbld rate.

Amidst all the hype about shale gas, it is worth noting that BHP, which last year spent US$4.75BN buying its way into Arkansas’ Fayetteville shale gas field, recently announced it was writing down the  value thereof on its books by US$2.84BN, i.e. by 60%. And the low price of gas has resulted in the number of rigs drilling for gas in the US being down 43% YoY to 498 (which is significant since shale gas wells tend to have a short productive life so that constant drilling is required to maintain production) while the number of rigs drilling for oil  was up 39% to 1,429. And none other than Rex Tillerson, the CEO of Exxon (a company that has ‘bet big’ on shale gas), said earlier this year that at present prices producing gas is not profitable. So those building pipe dreams on continued low natural gas prices may be in for a rude awakening.

Some of you occasionally flag articles in Rolling Stone magazine for me, most recently Bill McKibbin’s Global Warming’s Terrifying Math (http://www.rollingstone.com/politics,news/global-warmings-terrifying-new-math-20120719). Perhaps your curiosity will be triggered by these factoids in its opening two paragraphs :

• “June broke …3,215 high temperature records across the United States. That followed the warmest May on record for the Northern Hemisphere – the 327^th consecutive  in which the temperature of the entire globe exceeded the 20^th– century average”; and
• Saudi authorities reported … that it had rained in Mecca despite a temperature of 109 degrees, the hottest downpour in the planet’s history”.

This was a great two weeks for environmentalists. A week or so ago Richard Muller, the Founder & Scientific Director of the heavily Koch-funded Berkeley Earth Surface Temperature Study (BEST), came out of the closet in a NYT Op-Ed piece, saying he had ceased being a climate change skeptic & now believed that global warming was real, and then  went one step further  by saying “humans are almost entirely the cause” (bolding his). Then on August 7^th, in his opening remarks to the 5^th National Clean Energy Summit in Las Vegas, Sen. Harry Reid, the senior Democrat Senator from that state & the Senate Majority Leader, said among others that climate change “deniers still exist, fueled and funded by dirty energy profits. These people aren’t just on the other side of the debate. They’re on the other side of reality.“ On the other hand, in a speech at Dartmouth College on August 2^nd, Todd Stern, the Obama Administration’s top climate negotiator, said insisting on a 2°C target in negotiations would lead to “deadlock” & that the US approach in climate change negotiations needed “more flexibility” (which almost immediately led to severe criticism by the EU & many ‘small island nations’, and to his office issuing a “‘clarifying” statement that “Of course the US continues to support this [2C] goal. We have not changed our policy.” (As to the 2°C target, the above-mentioned article from Rolling Stone dwells extensively on that). Be that as it may, it’s amazing the difference a 25-year drought & a collapsing corn crop makes to people’s outlook on climate change!

Nature abhors a vacuum! So predators, like bears, wolves & lynxes, once hunted to extinction, are making a comeback in parts of Germany, Switzerland & Northern Italy where they haven’t been seen for a long time. But the real credit should go to the change in people’s attitudes towards wildlife & the preservation of species.

GLEANINGS II – 474

Thursday August 9^th, 2012

IRAN SHOULD BE VERY FEARFUL OVER THE NEXT 12 WEEKS (Haaretz)

• On August 2^nd former Mossad Chief Ephraim Halevy was quoted in the NYT as saying this, & that same day he told Israel Radio that if the Iranians “continue to play the game” in the nuclear talks with the world powers, they would be underestimating Israel’s resolve. This  came after a visit to Israel by US Defense Secretary Leon Panetta, that coincided with an executive order by Pres. Obama boosting sanctions against Iran, targeting foreign banks that help Iran sell its oil (which didn’t stop Netanyahu, with Panetta at his side, from declaring “Neither sanctions nor diplomacy have yet had any impact on Iran’s nuclear weapons program” & Defense Minister Ehud Barak from telling Panetta he sees an “extremely low” probability sanctions ever compelling Iran to give up its nuclear activity).

This suggests Netanyahu’s decision will be driven by developments in the US election, with an attack being delayed as long as it looks Romney will come out on top (& his decision influenced by US gambling multi-billionaire Sidney Adelson, who has both Netanyahu & Romney in his pocket). And the decision to attack or not could be affected by an emergency elsewhere (i.e. in Syria or Europe), just as in 1956 when the Anglo-French attack on Egypt gave the then Soviet Union license to deal militarily with the Hungarian uprising. Elsewhere in Haaretz a voice of sanity in the wilderness was that of David Grossman, a regular contributor to the paper, a multi prize-winning author & one of Israel’s leading advocates of a two-state solution, asking “Why aren’t ministers & defense officials standing up right now, and saying ‘We will not be a party to this megalomaniacal vision, to this messianic-catastrophic world view’?”

ISRAEL’S FADING DEMOCRACY (NYT, Avraham Burg)

• My generation of the 50’s grew up in the belief Israel & the US shared basic values, democracy, human rights, respect for other nations & human solidarity. But my children believe that what our two nations share is war, bombs, threats, fear & trauma. Netanyahu has managed to push American Jews into pressuring an Administration whose values they share & whom they should be helping to save Israel from itself.
• Israel once was a secular, social democratic state. But its core values have changed;  today it is a religious, capitalist state with its religiosity defined by the most Orthodox interpretation of Judaism & its capitalism having erased much of the past social solidarity. Early in the life of the State of Israel, for its founders being a Jew was no different than being Italian, French or American, whereas today it is all about ethnicity & religion : in my own family my father was a enlightened rabbi & philosopher, while much of the younger generation now is ultra-Orthodox and/or ultranationalist settlers.
• The reason for creating a Jewish state was to enable Jews to live safely in a pluralistic, democratic state that would protect them against both external & internal threats. But we failed to separate the synagogue & the state, and didn’t foresee the evil that would flow from brutally controlling another people against their will. So now the winds of isolation & narrowness blow through Israel &, if this continues, some day all vestiges of democracy will disappeared & Israel will become just another Middle Eastern theocracy.
• But this need not be so. In Northern Ireland & South Africa citizens are no longer at each other’s throats. Similarly the Israelis too could decide they wanted freedom & equality for all, Jews & non-Jews, the principles on which Israel was founded. Two states with two peoples that respect each other would be the best solution; but if our short-sighted leaders miss this opportunity, the same could apply in one state for two people. And I say to the cynics “Yes, we still can”, & to Israelis “If you will it, it’s no dream!”

Both of Burg’s parents were Holocaust survivors. He has long been associated with the Labour Party, and was Speaker of the Knesset from 1999 to 2003 & head of the Jewish Agency from 1995 to 1999 (which recovers property lost during the Holocaust & coordinated the move of half a million Jews from the former Soviet Union to Israel). He has been controversial : in 2003 he called for a quick withdrawal from the occupied territories (two years before Sharon orchestrated the withdrawal from Gaza) & wrote in Yedith Ahronoth  “Israel, having ceased to care about the children of the Palestinians, should not be surprised when they come washed in hatred and blow themselves up in the centres of Israeli capitalism”, and again in 2009 when, in the Doha debates at Georgetown University he argued the affirmative side of “It is time for the US to get tough with Israel”, drawing 63% audience support.  

FOOD CRISIS LOOMS (The Moscow News, Nataha Doff)

• As the worst drought in over half a century ravages US crops, people are looking to Russia, the world’s second-largest grain producer, to prevent a repeat of 2007-2008. But they should perhaps look elsewhere (but where?). Last week Western Siberia’s Allai & Orenburg regions joined a handful of others that had earlier declared states of emergency due to extremely hot & dry weather. The cold winter affected 6% of the grain crop & now the drought in the South & in Siberia is finishing the job. According to the Agriculture Ministry, in the Southern Krasnodar region, where the harvest is complete, the crop was just 5MM tons, down two-thirds YoY. Some places in the Ural & Western Siberian regions have been hit with temperatures of over 30 C for over a month. The Agriculture Ministry last month cut its forecast for all grains to 80MM tons  (down 15% YoY) & is said to be about to cut it further to 77MM tons. And with Russia needing 72MM tons to meet its domestic needs, another export ban is feared and, while officials deny this, Goldman Sachs in a July 16^th report on corn, called a “new Russian export ban” the biggest risk to its forecast.

For Western Canadian farmers this is a dream come true : a good crop and good prices.

A YEAR LATER, S&P DOWNGRADE OF US LOOKS LIKE A DUD (AP, Paul Wiseman)

• It was to have created chaos in financial markets, driven up US interest rates, pushed down the dollar, and scared investors out of stocks & into gold. So the Down Jones dropped 635 points on the day after the S&P announcement. But now, one year later, it looks like a non-event. The Dow Jones is up 1,600 points. The dollar has rallied & gold is down. And neither Moody’s nor Fitch have followed S&P’s lead.
• But things aren’t that simple. S&P feared that America’s dysfunctional political system wouldn’t come up with credible plans to reduce the federal debt; and it hasn’t as the two political parties are as deadlocked as ever. Yet investors still want Treasuries & the 10-year UST yield has gone from 2.58% to 1.57%, the Dow Jones is up up 14% & the dollar 6%, while gold is down 3%. And the US still has what amounts to the world’s currency.
• Bad as things are in the US, they are worse elsewhere, especially in Europe. For the US the day of reckoning is probably still years off (until its budget problems worsen when the Baby Boomers retire & start collecting Medicare & SS benefits). According to Phillip Swagel, a University of Maryland economist who served in Bush 43’s Treasury Department, “We have a fiscal challenge that is massive, but it’s a little ways away … with Europe the fire is at the doorstep.” So investors have fled Europe for the safety of US Treasuries.

This is “the best-looking horse in the glue factory” theory; but he too eventually gets a bullet in the brain. Real demand for UST securities is drying up & the main thing keeping the UST market afloat has been the expansion of the Fed’s balance sheet. The above seems to assume that what happens in the Atlantic region is the only thing that matters – a quaint notion long overcome by events. And it ignores the fact that in financial markets change, more often than not, comes like a thunder clap in a blue sky after which people ask themselves “How come I didn’t see this coming?” – because they didn’t want to (see it). 

STANDARD CHARTERED FACES SUSPENSION (Bloomberg, Greg Farrell)

• The London-based bank derives almost 90% of its revenue & profit from Asia, Africa & the Middle East. But on August 6^th New York State’s Department of Financial Services accused it of having run, between 2001 & 2007, US$250BN in wire transfers for Iranian banks through its New York branch for Iranian banks, alleging it had removed any reference to their role in them at a time US banks were required to identify & filter all dollar-clearing transactions involving banks in countries facing US sanctions, incl. Iran, even if handled by third party banks. It warned its license to do business in the state may be suspended & claimed that, when in 2006 the head of its US unit warned his London-based superiors its dealing with Iran could expose it to “catastrophic reputational damage”, the response had been “Who are you to tell us, the rest of the world, that we’re not going to deal with the Iranians?” (nevertheless, one year later the bank stopped taking new business in Iran & in 2012 pulled out altogether).

This differs from other recent examples of bank malfeasance in that it didn’t abuse customers or shareholders, in fact quite the contrary. But it has the same root cause : a sense of invulnerability & a philosophy of ‘the end (profit maximization) justifies the means’. But, while none of those who disregarded their fiduciary responsibilities have gone to jail, some Standard Chartered executives could face jail time; for they committed a more heinous crime : they ignored government rules! 

WHY OUR BUDGET CANNOT BE BALANCED (The Omega Letter, Ed DeShields)

• This year the federal government had revenues of US$2.5TR, expenditures of 3.8TR & a deficit of US$1.3TR. Its spending falls into three categories : interest (US$0.22TR), the entitlement social programs (US$2.25TR) & government operations of US$1.3TR (roughly two-thirds of it security-related-, & one-third all non-security-related). So, since the mandatory Social Program-, & quasi-mandatory debt servicing costs eat up all of the government’s revenues, the government is borrowing every penny it needs to run its military & non-military operations. This means the budget cannot be balanced.

There have been several such doomsday predictions circulating on the Internet. The numbers are correct (coming, as they are, from page 210 of the President’s 2013 Budget Message to Congress) but the conclusion flawed. Once America’s political leaders accept the nation has a problem & find the intestinal fortitude to tell their fellow Americans that (which may be an easier sell than generally believed because poll after poll shows many of them think America is “on the wrong track”), it becomes a matter of defining the immediate priority. And that it is not balancing the Budget or eliminating the Deficit! Rather, the key problem is that the rate of growth of the debt has been outstripping that of GDP. And addressing that problem is not quite as impossible task as some talking heads would have us believe. For we measure GDP growth in real-, but that of the debt in nominal-, terms. So assuming GDP growth, & inflation-, of 2% each, the first stage target would be to “cap” the deficit at 4% of GDP, i.e. roughly US$600BN, still painful but far more manageable than US$1.3TR. And if the economy were to grow a little faster, & inflation go a little higher, (& the growing cost of the Social programs were constrained – in FY12 it is up 8.6% YoY), it would become easier for the US to dig itself out of the debt swamp that successive Republican Presidents have created (when President Carter took office the debt/GDP ratio was 35.8% & when he stepped down 32.9%; the corresponding figures for Reagan were 32.9% & 52.6%, for Bush 41 52.6% & 68.1%, for Clinton 68.1% & 57.7%, for Bush 43 57.7% & 74.1%. And while for Obama these numbers have been 86.4%, 95.1% & 99.7% on December 31^st 2009, 2010 & 2011 respectively, much of the increase in 2009, & at least some of that in 2010, was due to the delayed effect of the flawed response of the Bush 43 Administration to the 2008 financial crisis that Obama would have been wise to disown on the very day he was elected. These numbers raise two interesting issues. One, the cost of servicing the national debt is not all that big a factor in the overall scheme of things and that, while higher interest rates will hurt & the average maturity of the US federal debt, at 5+years, is shorter than that of most other major countries, the Treasury’s efforts of recent years to extend it have bought the US a little more time than it would have had a few years ago. And the other, more interesting, one is that the US government would benefit from higher inflation in two ways (especially if real interest rates stayed in negative territory) : it would reduce the real burden of the debt & it would allow a higher “cap” on the rate of growth thereof.            

‘GOLDEN OPPORTUNITY FOR CHINESE LENDERS IN US (China Daily, Ariel Tung)

• With many Western banks still keeping a tight rein on capital, Chew Ping, Managing Director of China Operations at S&P, believes they have a ‘golden opportunity’ to play a larger role in the US. This is echoed by Brian Caplen, the editor of the UK financial magazine The Banker. He noted that, while five years ago they were unlikely to lend to US corporations, now “Chinese banks still are able to extend credit while US and European banks incurred so many bad loans during the crisis they need to recapitalize … their capacity to lend is less now” and that, while in 2007 they generated just 4% of global bank profits. this has since risen to nearly 30%.

This will enhance, & accelerate, the growing Chinese presence in the US corporate world & construction industry; thus Chinese money & manpower are key to California’s Rapid Rail plans. 

KNIGHT RESCUE SPOTLIGHTS HIGH-SPEED TRADING RISK (G&M, Joanna Slater)

• On August 6^th six investors, incl. 45% TD Bank-owned TD Ameritrade, agreed to throw the Jersey City-based Knight Capital Group a US$400MM lifeline. The company is a major player in US equity markets (accounting for over one sixth of all trades executed on both the NYSE & NASDAQ). But on August 1^st one of its computer-driven trading programs went wacko & started spewing out orders on the NYSE that created havoc in the trading of about 150 stocks (one of which quadrupled in price in minutes), the subsequent ‘unwinding’ of which cost Knight an estimated US$440MM, over half its capital.

Most computer-driven trading programs exist for purposes  other than high-speed trading (which accounts for close to 40% of all trading activity on a number of stock exchanges, incl. the NYSE). But there is no evidence, as the headline suggests, that it was a high-speed trading program that sunk this company. Still, events such as this may cut the use of, & reliance on, such programs.

GROUP SMUGGLED IN IEDs FROM LEBANON (Daily Star)

• On August 8^th the Israeli authorities arrested a group of Israeli Arabs from the city of Nazareth, numbering between eight & twenty depending on the source, for involvement in the smuggling 20 kg. of C4 explosives into Israel from Lebanon. Hezbollah was said to have been behind this & that they had been waiting for instructions before using them.

This cannot help but feed the Netanyahu-inspired paranoia of many Israelis; for if you catch one, you cannot help but wonder how many others there might be out there

RUSSIA MOVES NUCLEAR MISSILES TO CUBA (Intelhub.com, Paul Joseph Watson)

• Putin was recently quoted in the online version of Pravda as saying “with the full consent of the Cuban leadership, on May 11 of this year, our country not only resumed work in the electronic center of Lourdes, but also placed the latest mobile strategic nuclear missiles of the ‘Oak’ class in this island. They (the Americans) did not want to do it in an amicable way, now let them deal with this … It is no secret that in recent years the US created a bufferzone around Russia … The only response to this could be an asymetric expansion of the Russian military presence abroad, particularly Cuba.” And last week the Head of the Russian Navy, Admiral Victor Chirkov, told the RIA Novosti News Agency the “creation of logistics points in Cuba, the Seychelles and Vietnam is being worked out (the latter at the one-time US base at Cam Ranh Bay that the US is now also coveting in the context of the shift in US foreign & military policy to the Pacific/East Asian region).  

As to the radio-electronic facility at Lourdes, Cuba, in October 2001 President Putin announced its closure as a “gift” to President Bush 43 for his undertaking no US missile defense systems would be deployed in Eastern Europe. But with NATO’s missile defense system about to reach “interim operational capability” in late May, Putin said on May 11^th that this promise had been broken & that “I, like a man, have kept my word. What have the Americans done? … It is no secret that in recent years the US has created a buffer zone around Russia involving … not only the countries of Central Europe, but also the Baltic states, Ukraine and the Caucasus.”

NEW BOREI CLASS NUCLEAR MISSILE SUBMARINE TO  ENTER SERVICE (Examiner.com)

• On July 18^th, in the Great Hall of the Kremlin, President Putin told a group of military officers  prior to them taking up new senior command positions that “Reliable protection of Russia remains our absolute priority. We are modernizing the armed forces, optimize their management, we do a lot of retrofitting . A significant event will be the putting into service of the Navy submarine “Yuri Dolgoruki” (this will be the most advanced sub in the Russian Navy. 170 metres/580 feet long with a hull diameter of 13 metres/42 feet, both identical to the US Navy’s Ohio-class subs, it has a crew of 107, incl. 55 officers (vs. the Ohio class’ 155, incl. 15 officers), a submerged speed of 29 knots (33.4 mph/54 kmh), marginally faster than the Ohios & an ability to dive to 450 metres/1,500 ft., much deeper than the US subs, & carries 16 or more Bulava (upgraded 15 year-old Topol) sea-launched inter-continental ballistic missiles (SSBMs), each carrying up to 10 hypersonic (Mach-5 plus), individually guided & maneuvrable 100-150KT nuclear warheads with a 8,000 km (5,000 km) range.                       

For the first 15 years after the collapse of the Soviet Union, the Russian armed forces were allowed to deteriorate. But Putin has started to rebuild them as part of his (pipe?) dream of restoring Russia to the former super power status of the Soviet Union, enabled to do so by the cash flow from high oil prices. But while the Russian State Armaments Program for 2007-2015 envisaged the Navy receiving 5 Borei-class submarines, as well dozens more other subs & surface vessels, it looks like it is running behind schedule; for the Yuri Dolgoruki  was taken out of drydock in April 2007 & started sea trials in late 2008, and there is no sign as yet of two other Borei-class submarines, the Alexander Nevsky & the Vladimir Monomakh, construction of which was to have been completed in 2009 & 2011 respectively. And even if Russia were to complete its proposed sub-building plan its two dozen or so, its submarine fleet would still only be one-third of that of the US Navy.