Russia’s View of Afghanistan and the Taliban

Improving relations with the Taliban gives Moscow the ability to increase its bargaining position in dealings with Washington.

By Kamran Bokhari


Russia’s involvement in Afghanistan is not new. Dealing with the Taliban, however, is. The Russians are well aware of the constraints they face, and it is unlikely they can bring an end to the war in the southwest Asian nation. However, Russia must try to manage the insurgency because of regional security threats and the need to gain leverage in dealings with the Americans.

Afghanistan is an old stomping ground of the Russians. It was a key area where the “Great Game” between Czarist Russia and Britain played out in the 19th century. In the 1920s, the Soviet Union was a key supporter of King Amanullah Khan, Afghanistan’s first ruler who tried to modernize the country. Soviet influence in Afghanistan grew under King Mohammad Zahir Shah in the ’50s and ’60s.

The logic of the Cold War continued to shape Moscow-Kabul relations during the republican regime of Sardar Mohammad Daoud Khan, president of Afghanistan from 1973-78. The Soviets had the closest ties with Afghanistan in the era of a Marxist regime from 1978-92. In the ’80s, Moscow militarily intervened with over 100,000 troops to support the communist government against Islamist insurgents backed by the United States, Saudi Arabia and Pakistan. The Kremlin maintained its ties to the country even after the fall of the Soviet Union and during the days of intra-Islamist civil war in the ’90s.


Former Afghan Taliban fighters turn in their weapons as part of a government reconciliation process in Jalalabad, on Feb. 24, 2016. NOORULLAH SHIRZADA/AFP/Getty Images


Also in the ’90s, the Russians backed certain Islamist factions they had fought during the ’80s to combat the Taliban, even as Russia maintained its own links to the jihadist movement. By the time the Marxist regime collapsed in April 1992 (three years after the Soviet military withdrawal and months after the implosion of the Soviet Union), the communists had been obliterated as a political force. For a while, the Russians were busy sorting out their own mess at home. But it wouldn’t be long before they were forced to pay attention to what was happening in Afghanistan, especially given the emergence of the Central Asian republics as independent states. Moscow had no choice but to side with the least radical of the groups.

Thus, Russia, in cooperation with Iran and India, backed the Northern Alliance rebels during the years of the Taliban regime, from 1996-2001. After the fall of the Taliban regime in the aftermath of 9/11, the Russians supported anti-Taliban forces. In fact, Russia provided an alternative supply route to NATO forces fighting the Taliban in the late 2000s when the main one running through Pakistan had become unreliable.

The Russians were intent on seeing the West do the heavy lifting in the fight against the Taliban. At the same time, Moscow was happy to see Washington embroiled in wars in the Muslim world because a United States bogged down elsewhere could do very little against a resurging Russia. In the past few years, the Russians have seen that Afghanistan is no longer important to the U.S. This has caused a shift in Russian thinking. On one hand, the Kremlin has been forced to get involved because the U.S. has scaled back its involvement. However, Russia has the additional benefit of inserting itself in an area of interest for the U.S. in hopes that it can increase its leverage over Washington.

As a result, Moscow has been moving toward enhancing relations with the Taliban. The latest move entails the governor of Afghanistan’s southern Farah province, Mohammad Asif Nang, claiming that Russia provided Taliban insurgents with sophisticated weaponry, Shamshad TV reported on Jan. 16.

These weapons included 82mm mortars, night-vision devices and missiles. Nang added that it is unclear whether these weapons reached the Taliban via Pakistan or Iran. Nang’s comments are the latest and most specific indicators that Afghan officials increasingly believe that Russia has begun militarily backing the jihadist movement.

There is no definitive proof that Russia is supplying the Taliban with weapons. It may be that some weapons used by the jihadist militiamen are Russian. Afghanistan and the wider region are awash with weaponry. Certainly those weapons are obtainable on the black market.

But the issue is not weapons. Given that their insurgency has steadily been gaining steam, the Taliban are not hurting for weapons. It is also not in the interest of Russia to add more fuel to the proverbial fire. Russia’s interest is in limiting the spillover effect into Central Asia and inside its own borders.

For this reason, Russia over the past year has become very open about its relationship with the Taliban. That relationship is largely diplomatic, although some intelligence-sharing takes place regarding the Islamic State, a common enemy.

On Dec. 27, a trilateral meeting was held in Moscow between senior Russian, Chinese and Pakistani officials. This was the third such gathering between the three countries to discuss the deteriorating security situation in post-NATO Afghanistan. Russian Foreign Ministry spokeswoman Maria Zakharova told journalists that the three sides agreed on a “flexible approach to remove certain [Taliban] figures from [international] sanctions lists as part of efforts to foster a peaceful dialogue between Kabul and the Taliban movement.” The Kremlin’s point man on Afghanistan, Zamir Kabulov, has been managing the developing relationship between Moscow and the Afghan jihadist group.

In a Dec. 31 interview with Turkey’s official press service, Anadolu Agency, Kabulov – a seasoned diplomat and a former KGB official with extensive experience in the country and with the jihadist movement – openly said that with the exception of certain elements, the Taliban’s core represented an Afghan national force. The implication is that the Taliban need to be distinguished from al-Qaida and IS. The Russian view is that despite the fluidity within the broader jihadist space, the Afghan jihadist group does not have transnational aspirations. It is important to keep in mind that this is also the U.S. position, which would explain U.S.-Taliban negotiations that have taken place in recent years but yielded no success.

Therefore, the question is why is Russia engaged in a diplomatic process that it knows the U.S. has failed at? Given their far greater historical interactions with Afghanistan, the Russians are unlikely to be under any illusion about Afghanistan. Of all great powers that have dealt with Afghanistan, the Russians know too well how difficult a country it is to pacify. But unlike the U.S., the Russians cannot simply ignore it given that the country sits on the southern flank of a major Russian area of influence.

The Russians are not bound by Western ideals of democracy and freedom that limit the extent to which the U.S. can work with the Taliban. The Russians also are not as invested in the Afghan state.

The Russians will continue to work closely with the Taliban in the hope that the relationship will allow Russia to counter IS and other Islamist militants. Meanwhile, Afghanistan, while not as important as Syria to the U.S., is still a place in which Washington is invested. By getting involved in a country with about 10,000 American troops, the Russians hope to enhance as much as possible their leverage over the United States. Improving relations with the Taliban gives Moscow the ability to increase its bargaining position in its broader dealings with Washington.

It is ironic how geopolitics has forced the Russians to go from fighting jihadis in Afghanistan to aligning with them.


Bond Trading Wave Gets Harder for European Banks to Catch

Deutsche Bank and others have capital constraints and restructuring distractions

By Paul J. Davies
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Deutsche Bank, whose Frankfurt, Germany, headquarters is shown Monday, remains constrained by relatively thin capital. Photo: Alex Kraus/Bloomberg News


The capital markets business is back. While U.S. investment banks are taking advantage, it is less certain that Europeans can.

J.P. Morgan and Morgan Stanley have both reported big rebounds in fourth-quarter bond trading. Corporate debt markets have seen strong new issuance to start 2017 as well, which is normally an indicator of good trading activity. But large European investment banks face obstacles in getting in on the action: They may be frustrated by capital concerns or distracted by restructuring.

Deutsche Bank could see the biggest recovery in 2017. Even it needs the right sort of activity, though, and smart ways of taking it on.

Trading related to foreign exchange and interest rates is likely to be the biggest spur to activity, according to analysts at Goldman Sachs, which they say will benefit Deutsche Bank and Barclays more than Credit Suisse. If successful, Deutsche should enjoy the biggest rebound in earnings expectations, though partly because expectations have been slashed heavily.

Since the start of 2015, forecasts for 2017 profit at Deutsche’s investment bank division have been cut by more than half, according to Credit Suisse analysts.




Recovery from a low base is better than no recovery at all, though. The question is whether Deutsche can jump on the increase in activity. The German bank remains constrained by its relatively thin capital, which makes it harder to take on extra risk to earn more revenue.

It has reached a $7.2 billion settlement with U.S. authorities over mortgage bond sales—one of the major uncertainties hanging over it—but it still has to settle a highly uncertain probe related to Russian equity trades, which could eat up more capital.

Furthermore, the finalization of global capital-rule changes has been delayed until at least March, leaving the industry in the dark about how much more capital it needs. Analysts at Credit Suisse think Deutsche will need to raise €5 billion to €6 billion ($5.4 billion to $6.4 billion) to meet its final requirements.

There are things that Deutsche can do to get revenue without straining capital. For example, it can lay off large parts of the counterparty credit risk involved in derivatives trading to big hedge funds or other sophisticated investors. The extra business would be slightly less profitable, but it still would boost overall returns.

Banks also can take less risk by shifting the assets off their books much more quickly. A good indication of how much trading assets a bank holds is its value-at-risk number. Less risk by that measure doesn’t have to mean weaker revenue. J.P. Morgan’s fourth-quarter trading value-at-risk was 30% lower than for the same period in 2015, but its trading revenue was 30% higher. Morgan Stanley also cut risk while boosting revenue.

Deutsche could pull off a similar trick and have its investment bank start to look healthier.

The problem is the cost of past bad behavior and very high central costs, which will still drag down overall returns this year, limiting the benefits to Deutsche’s shareholders.


America’s Russian Hypocrisy

Nina L. Khrushcheva
. Matryoshka Trump and Putin in Moscow



NEW YORK – I hate agreeing with Vladimir Putin, even a little. Russia’s president is dragging his country – the country of my birth – backwards, and falsely argues that violating international law is somehow good for Russians. But the hysterical response of Americans to the Kremlin’s alleged efforts to influence the US presidential election has forced me to look at things from Putin’s perspective.
 
To be sure, the US intelligence agencies’ allegations that Russia purveyed fake news and released hacked emails, in order to hurt Hillary Clinton’s chances against Donald Trump, are not baseless. It is certainly in Putin’s character to purloin secrets and create disinformation; he was a KGB operative, after all.
 
Likewise, the accusations that Putin is holding a dossier of compromising material on Trump, though uncorroborated, also ring true. It would make little sense for Russia to spare Trump, of all people, from its schemes. And, beyond Trump, Republican Party leaders must know that if Russia hacked the Democrats, their own servers must have been hacked, too.
 
Even if the alleged dossier’s sensational details are not accurate, chances are that Russia is holding at least some compromising business records, or even Trump’s tax returns – information that Trump has worked very hard to keep hidden from the American public. If Trump doesn’t play nice, taking Russia’s side on issues ranging from NATO to Ukraine, he will likely see his secrets laid bare, just as Clinton’s were.
 
The US response to this prospect has been extreme. Those firmly in Trump’s camp are willing to indulge the fragile bromance between Trump and Putin, despite its obvious vulnerability to exploitation by both sides. Others, including some senior Republicans, cite the recently released US intelligence report on Russia’s suspected interference in the election and demand stern measures against Putin’s government, even though a new Cold War is clearly in no one’s interest.
 
In my view, the intelligence report itself was fundamentally problematic. Full of conjecture and bias, the report is based on the argument that Putin must be an enemy, because he doesn’t share Western values. But how could he? Russia was never fully welcome in the Western world order, much less able to participate in it on equal terms. That is why Putin has sought to create his own international order.
 
In fact, in the early days of his presidency, Putin wanted Russia to be part of Europe. But he was immediately confronted with NATO’s expansion into the Baltic states. In 2006, then-President George W. Bush’s administration announced plans to build a missile-defense shield in Eastern Europe, in order to protect the Western allies against intercontinental missiles from Iran. Russia viewed the plan – which President Barack Obama went through with last year – as a direct threat, and a sign that calls for closer ties should be regarded with caution.
 
The US has supported anti-Putin forces since 2008, but ramped up that support in 2011, when Putin, then the prime minister, prepared to return to the presidency. In 2013, the US cheered the protests in Ukraine that ultimately ousted the pro-Russian president, Viktor Yanukovych.
 
But while Yanukovych was undoubtedly a crook, the US supports plenty of crooks. Its effort to deny Russia, or any other power, the right to possess similarly odious factotums is pure hypocrisy.
 
Such duplicity has pervaded US foreign policy. Bush’s war in Iraq was launched on the basis of tendentious intelligence. For his part, Obama supported the Arab Spring uprisings, but offered no pro-democratic strategy – an approach that has led Libya to become a failed state, Egypt to become even more dictatorial, and Syria to collapse into nightmarish and protracted conflict.
 
Meanwhile, the US National Security Agency was spying on everyone, whether friend or foe.
 
The US intelligence report asserts that Putin is seeking to undermine liberal democracy. It seems clear, however, that his more immediate goal is to expose the West’s double standards, thereby breaking down Western barriers to his pursuit of Russian interests. If the US can behave so badly without apology, Putin’s thinking goes, why should Russia be denied its sphere of influence in, say, Ukraine?
 
For that matter, why shouldn’t Putin have attempted to help out Trump? Ukrainians campaigned for Clinton, believing that she would advance their interests. It is perfectly reasonable that Putin would back Trump, who had repeatedly expressed admiration for his leadership, over Clinton, who had compared him to Adolf Hitler. The notion that he shouldn’t take steps to protect his interests is ideological partiality disguised as objectivity, and it lends credence to Putin’s claims that the West is out to get him.
 
Don’t get me wrong: despite its imperfections, the US remains a positive force in the world. Indeed, it may well be the only strongly positive force, along with the European Union, which should stop squabbling and start curtailing megalomaniacal and illiberal leaders like Hungary’s Putin-infatuated prime minister, Viktor Orbán.
 
Moreover, the prospect that their new president is in Putin’s pocket should certainly be worrying to Americans. And the West’s policies toward Russia – economic sanctions or military exercises in border countries like Poland – are not necessarily wrong. What is wrong is that those concerns and policies are driven largely by anger over Putin’s own nationalism, rather than by a careful consideration of the diplomatic and strategic milieu.
 
If the US allows itself to become caught up in suspicion and conjecture about Russian involvement in its recent election, it will most likely find itself locked in an even more destructive confrontation with Putin. Instead, the US should devise a sound, thoughtful, and measured approach toward Russia – one that appeals to values not as propaganda, but as the basis of a more straightforward and credible foreign policy.
 
 


A “Massive Selloff” Could Be Around the Corner

Justin Spittler


You better buckle your seatbelt.

U.S. stocks could soon take a turn for the worse. Most investors aren’t prepared for this. They’ve been lulled to sleep.

That’s because U.S. stocks have gone nowhere in recent weeks. The S&P 500 has hovered between 2,258 and 2,282 since the start of the year. The Dow Jones Industrial Average has also traded within a tight range.

When the markets are this calm, many investors put their guard down. They buy more stocks than they should. They lighten up on gold. They forget about their stop losses.

But Dispatch readers know that you should be extra careful when the market is quiet. After all, history has shown that periods of calm trading often precede violent moves.

Plus, investors have no reason to be complacent. If anything, they should be nervous.

Bonds are tanking. Inflation is rising for the first time in years. And a former reality TV star is about to become president of the United States.

In other words, the U.S. stock market may look calm. But a storm could be brewing below the Surface.

• Traders are betting that volatility will come roaring back…

MarketWatch reported yesterday:

Demand for one-month call options tied to the CBOE Volatility Index, a popular gauge of stock-market volatility, has spiked in the past week, a sign that some are bracing for a sharp downturn following the inauguration of President-elect Donald Trump.

In that time, investors have purchased 250,000 VIX call options with a strike price at 21, and another 100,000 with the strike at 22, according to Brian Bier, head of sales and trading at Macro Risk Advisors, an options brokerage.

A call option is basically a bet that an index or asset will rise in value.

In this case, traders are betting that the VIX, which is hovering around 12, will almost double when Trump takes office.

This is a serious red flag.

When the VIX rises, stocks fall. In this case, MarketWatch says we would need to have a “massive selloff” for these call options to become profitable.

• If stocks do crash, investors are going to seek shelter…

Normally, most investors buy bonds when stocks tank.

That’s because bonds are less risky than stocks. If a company runs into trouble, management has a legal obligation to pay its bondholders before it takes care of its shareholders.

The bond market is also deeper and more liquid than the stock market. There are more buyers and sellers. This makes it easier to get out of a position you don’t want.

• Bonds have also done better than stocks during major financial crises…

After the dot-com bubble popped, U.S. 10-year Treasurys gained 17% in 2000. That same year, the S&P 500 fell 9%. The next year, Treasurys returned 6% while U.S. stocks fell 12%.

The same thing happened during the last housing crisis. Bonds gained 20% in 2008 while the S&P 500 plunged 27%.

This is why many people run to bonds during times of panic.

Unfortunately, this “tried and true” strategy might not work the next time stocks crash.

• The bond market is a train wreck right now…

Just look at what’s happening with U.S. 10-years.

In July, this popular safe haven yielded 1.4%. Today, it yields 2.3%.

This might sound like a good thing. After all, who wouldn’t want to earn more interest? But you have to realize something about bonds. Their yield rises when their price falls.

• The bloodbath in bonds has likely just begun, too…

Right now, investors are betting on higher economic growth, inflation, and interest rates. None of these things are good for bonds on their own. Together, they’re a perfect storm.

Bill Gross and Jeffrey Gundlach—Wall Street’s “Bond Kings”—also think you should avoid bonds right now. In fact, both world-class investors expect bonds to enter a long-term bear market.

In short, the bond market isn’t a safe place to park your money. The good news is that there’s an even better way to protect yourself.

• Gold is the ultimate safe-haven asset…

Unlike bonds, gold isn’t someone else’s liability. It’s real money.

It's preserved wealth for thousands of years, and through every sort of financial calamity. No other asset comes close to matching its track record.

• Gold has jumped 6% since the start of the year…

It’s now trading at its highest level since November. But it’s likely headed much higher.

You see, despite its recent rally, gold is still cheap right now. It’s trading 11% below last year’s high. And it’s more than $800 below its inflation-adjusted all-time high.

If you’ve wanted to buy gold for protection, now’s a good time. We encourage most investors to put 10% to 15% of their money in gold.

• Once you own enough physical gold for protection, you can own gold stocks for profit…

Gold stocks are leveraged to the price of gold…meaning gold doesn’t have to rise much for them to soar.

Like gold, gold stocks are cheap. The VanEck Vectors Gold Miners ETF (GDX), which tracks large gold stocks, is 25% below last year’s high…and that’s after a big rally this year.

GDX tracks some of the biggest names in the gold business. Its top holdings include miners Barrick Gold, Newmont Mining, and Goldcorp. These are fine companies. Their shares could double or even triple over the next few years if gold keeps rising.

Most people love those kinds of returns. But instead of investing in a fund like GDX, you could make two, three, or even five times that much money by betting on the next great gold stock.

Chart of the Day

You can buy a fund for anything these days.

There are funds that track the S&P 500, the price of oil, and the U.S. dollar. There are also many funds designed to track volatility.

These funds might seem like a perfect investment if you expect the VIX to rise. But most investors should never go near them.

That’s because these types of funds don’t actually own the VIX. They own futures contracts linked to the VIX. This is very important.

You see, futures contracts eventually expire. The longer you hold them, the more value they lose.

Because of this, you should never hold a volatility fund for a long time. They’re meant for short-term trading.

Below, you can see what would have happened if you bought one of the most popular volatility funds back in July. Over the past six months, the iPath S&P 500 VIX Short-Term Futures ETN (VXX) has plunged 53%. The VIX is down just 4% over the same period.

Unless you're an experienced trader, you should avoid volatility funds at all costs. You would be much better off investing in a traditional safe-haven asset like gold.