Month: August 2014

Authored by Dr. Rand Paul, originally posted at The Wall Street Journal,

As the murderous, terrorist Islamic State continues to threaten Iraq, the region and potentially the United States, it is vitally important that we examine how this problem arose. Any actions we take today must be informed by what we’ve already done in the past, and how effective our actions have been.

Shooting first and asking questions later has never been a good foreign policy. The past year has been a perfect example.

In September President Obama and many in Washington were eager for a U.S. intervention in Syria to assist the rebel groups fighting President Bashar Assad’s government. Arguing against military strikes, I wrote that “Bashar Assad is clearly not an American ally. But does his ouster encourage stability in the Middle East, or would his ouster actually encourage instability?”

The administration’s goal has been to degrade Assad’s power, forcing him to negotiate with the rebels. But degrading Assad’s military capacity also degrades his ability to fend off the Islamic State of Iraq and al-Sham. Assad’s government recently bombed the self-proclaimed capital of ISIS in Raqqa, Syria.

To interventionists like former Secretary of State Hillary Clinton, we would caution that arming the Islamic rebels in Syria created a haven for the Islamic State. We are lucky Mrs. Clinton didn’t get her way and the Obama administration did not bring about regime change in Syria. That new regime might well be ISIS.

This is not to say the U.S. should ally with Assad. But we should recognize how regime change in Syria could have helped and emboldened the Islamic State, and recognize that those now calling for war against ISIS are still calling for arms to factions allied with ISIS in the Syrian civil war. We should realize that the interventionists are calling for Islamic rebels to win in Syria and for the same Islamic rebels to lose in Iraq. While no one in the West supports Assad, replacing him with ISIS would be a disaster.

Our Middle Eastern policy is unhinged, flailing about to see who to act against next, with little thought to the consequences. This is not a foreign policy.

Those who say we should have done more to arm the Syrian rebel groups have it backward. Mrs. Clinton was also eager to shoot first in Syria before asking some important questions. Her successor John Kerry was no better, calling the failure to strike Syria a “Munich moment.”

Some now speculate Mr. Kerry and the administration might have to walk back or at least mute their critiques of Assad in the interest of defeating the Islamic State.

A reasonable degree of foresight should be a prerequisite for holding high office. So should basic hindsight. This administration has neither.

But the same is true of hawkish members of my own party. Some said it would be “catastrophic” if we failed to strike Syria. What they were advocating for then—striking down Assad’s regime—would have made our current situation even worse, as it would have eliminated the only regional counterweight to the ISIS threat.

Our so-called foreign policy experts are failing us miserably. The Obama administration’s feckless veering is making it worse. It seems the only thing both sides of this flawed debate agree on is that “something” must be done. It is the only thing they ever agree on.

But the problem is, we did do something. We aided those who’ve contributed to the rise of the Islamic State. The CIA delivered arms and other equipment to Syrian rebels, strengthening the side of the ISIS jihadists. Some even traveled to Syria from America to give moral and material support to these rebels even though there had been multiple reports some were allied with al Qaeda.

Patrick Cockburn, Middle East correspondent for the London newspaper, the Independent, recently reported something disturbing about these rebel groups in Syria. In his new book, “The Jihadis Return: ISIS and the New Sunni Uprising,” Mr. Cockburn writes that he traveled to southeast Turkey earlier in the year where “a source told me that ‘without exception’ they all expressed enthusiasm for the 9/11 attacks and hoped the same thing would happen in Europe as well as the U.S.” It’s safe to say these rebels are probably not friends of the United States.

“If American interests are at stake,” I said in September, “then it is incumbent upon those advocating for military action to convince Congress and the American people of that threat. Too often, the debate begins and ends with an assertion that our national interest is at stake without any evidence of that assertion. The burden of proof lies with those who wish to engage in war.”

Those wanting a U.S. war in Syria could not clearly show a U.S. national interest then, and they have been proven foolish now. A more realistic foreign policy would recognize that there are evil people and tyrannical regimes in this world, but also that America cannot police or solve every problem across the globe. Only after recognizing the practical limits of our foreign policy can we pursue policies that are in the best interest of the U.S.

The Islamic State represents a threat that should be taken seriously. But we should also recall how recent foreign-policy decisions have helped these extremists so that we don’t make the same mistake of potentially aiding our enemies again.

via Zero Hedge http://ift.tt/1zSzzvm Tyler Durden

Once upon a time, news and fundamentals mattered.

Then the Fed came and ever since then the main question has been where the highest concentration of shorts is, just to squeeze the margin call daylights out of them, and generate alpha (a strategy we highlighted back in 2012).

And while shorting crappy, illiquid stocks has not worked for a long, long time because under ZIRP capital is misallocated with reckless abandon usually ending up promptly in the most worthless companies, it was not until the past year when the shorting brigade decided to assault the most liquid, allegedly, instrument: the US Treasury bond itself.

It is here where said brigade has stumbled again and again, and where despite promises of an economic recovery and inflation (and thus higher rates), the 10Y, and especially the 30Y, continue to plough ever higher, much to the amazement of the “it’s all getting better brigade” signalling nothing but economic contraction and deflation for the future.

And, as Citi’s Amitabh Arora points out, things for TSY shorts are about to go from bad to worse. To wit:

Flow Analysis: Over the last 3 months we have seen good appetite for EGBs, net buying of USTs, and flat demand for JGBs. However, the buying of USTs hasn’t been in 10s where the main short is located. Hedge funds are accelerating their buying of EGBs (across the curve) and decreasing their selling of USTs. Real money has resumed their buying of USTs and has started to sell EGBs. 

 

Futures Positioning in US. Since 2010, the CFTC has published a supplement to their weekly commitments of traders report specific to financial products. Asset managers are long, while dealers, hedge funds, and other buy side investors are short. Using alternative positioning indicators, we assess where we can give credence to the CFTC data, and where there is more to the picture than the CFTC data reveals.

 

Two main position imbalances

 

The clearest position concentration is short USTs (Figure 1). As the grey shaded squares indicate, the short has increased materially over the last 3 months. Equally importantly, there is an absence of corresponding longs in any client group to balance these shorts. Together that points to the prospect of even lower UST yields.

 

In other words, as wave after wave of shorts enters the “it’s going to crash any minute now” Treasury short, what will continue happening is precisely the opposite, sending yields ever lower until finally the Fed will have to step in and warn that it may be about to sell TSYs in order to launch the long-overdue repricing, first in rates and then in risk.

via Zero Hedge http://ift.tt/1zSzzv9 Tyler Durden

Submitted by Igor Alexeev via OilPrice.com,

Last week, Ukrainian Prime Minister Yatsenyuk pushed a bill through the Verkhovna Rada that would see his country’s gas transportation system sold off to a group of international investors. The provisions of the law would permit the transit of natural gas to be blocked. This decision may hurt the fragile industrial recovery in Germany and finish off Ukraine’s potential as a gas transit route to Europe.

Germany, which is the industrial heart of the European Union and a major creditor for its debtor nations, is facing the challenge of the double-edged consequences of its inverted Ostpolitik as it pertains to the trade in natural gas. Even the temporary transit risks ensuing from Kiev’s decision to block the pipeline may cause a business slump.

The Nobel laureate Joseph Stiglitz offered an unnerving forecast for the German economy. The Columbia University professor, speaking at the conference in the southern German city of Lindau, described economic growth in the Eurozone as “sluggish.” The German economy in particular failed to grow during the second quarter, threatening the EU’s fragile industrial recovery.

In the years to come, coping with Kiev’s attempts to jeopardize the gas-transit system and cut off Europe from its quintessential energy source in the east could become a real headache for Germany’s foreign minister, Frank-Walter Steinmeier. The most vivid example of Ukraine’s self-destructive policy that has the potential to affect European taxpayers is the recent sale of its gas transportation system.

The imminent agreement, with many conflicting political overtones, will allow sales of 49 percent of Ukraine’s gas transportation system to a cobbled-together coalition of foreign shareholders.

First, the non-transparent deal — sponsored by high-ranking government officials — is a textbook case of restrictive practices that violate World Trade Organization rules. Secondly, the pipeline itself is anything but an attractive offer.

The major players in the European energy market are very well aware of the quality of the asset. They know that the pipeline is sorely in need of repair and is dependent on gas from a third party. According to some provisions of the law, the transit of natural gas through Ukraine can be blocked. If it really happens, the pipeline’s price will immediately plummet to $2 to $3 billion.

Who would buy a broken-down car that can only run using your neighbor’s gas?

That’s why, in July, Prime Minister Yatsenyuk was so interested in pushing the bill through the Verkhovna Rada that he threatened deputies with his resignation. Last week Mr. Yatsenyuk finally succeeded in passing the buck.

For many years, Ukraine has argued that its gas transportation system is an asset of national importance that wasn’t for sale. But the Euromaidan protests changed everything. Ukraine’s new media reported that Chevron wants to buy into the country’s transit company. While the official representatives of the corporation declined to comment on the “rumors,” last year Chevron co-sponsored a conference, “Ukraine in Washington 2013,” which starred the U.S. Assistant Secretary of State Victoria Nuland. Her deep involvement in Ukrainian politics, along with her unorthodox but honest vision of the EU, is generally well known.

In passing the new law, government officials in Kiev and the Verkhovna Rada (now dissolved) ignored the fact that the majority of business-savvy Ukrainian voters would never approve the all-Ukrainian referendum on the summertime sale of the country’s last reasonably valuable asset. After all, the industrial region of Donbass has been irrevocably lost and the country needs to collect taxes.

The situation surrounding the pipeline deal is reminiscent of the tactics of the United Fruit Company in the mid and late 1960s. Radically right-wing governments were installed in Central and Latin America and that corporation gained control over those countries’ main export, bananas.

In Eastern Europe, many countries are not ready to follow Ukraine’s footsteps and renounce energy sovereignty. It’s no longer fashionable to be a banana republic. The deep-seated crisis in Ukraine and the success story of Nord Stream have encouraged other EU countries, such as Hungary, to diversify their natural-gas supply routes. Hungary’s secretary of state for public diplomacy and relations, Zoltán Kovács, recently quoted a statement from his country’s prime minister, Viktor Orbán: “No one can question our sovereign right to guarantee our natural gas supplies.” The leaders in Budapest are sure that no economic recovery is possible in Germany and EU without long-term natural-gas contracts. All EU members will benefit from stable regional trade patterns.

Events in Ukraine should not dominate the agenda of the whole continent. That would simply be dangerous. It has already become a cliché to compare the Ukrainian crisis with the Spanish Civil War. A couple of years ago, the total “Ukrainization” of EU policy would have been perceived as a bad joke. Today 300,000 jobs are at stake in Germany and it is high time for Berlin to step in and prevent the nationalist frenzy in Kiev from ruining decades of successful business cooperation. Heiko Lohmann, a German natural-gas expert, believes that a fundamental prerequisite for normalization is the continuity of energy relations.

Viewed from this perspective, Hungary’s position looks much more “pro-European.” Interestingly, the EU’s official energy policy papers (the European Ten-Year Network Development Plan (TYNDP 2011-2020) and Energy Infrastructure Priorities for 2020 and Beyond) contradict the hardline political statements of the acting members of the European Commission. According to the published data, Brussels expects to increase natural gas imports from Russia up to 40 percent. Time will tell whether Ukraine’s problem-plagued gas transportation system will play any role in these plans.

via Zero Hedge http://ift.tt/1pqCU4q Tyler Durden

“Strategy” or “No Strategy”? Minutes after last night’s admission by the President that “we don’t have a strategy yet,” the White House public relations department went into full damage control mode. Shameless spokesman Josh Earnest used the word “strategy” 33 times in a brief interview with CNN’s Wolf Blitzer and this morning the “clarifications” continue. As NBC reports, “The president hasn’t yet laid out a specific plan for military action in Syria,” White House press secretary Josh Earnest. “And the reason for that is simply that the Pentagon is still developing that plan and he is still reviewing it.” This seems to us like yet another admission that there is ‘no strategy’ akin to being half pregnant.

 

Seemed pretty clear what he meant?

 

Word Cloud of CNN’s Wolf Blitzer interview with Josh Earnest

 

But no – The White House says we just don’t get it...

“The president hasn’t yet laid out a specific plan for military action in Syria,” White House press secretary Josh Earnest. “And the reason for that is simply that the Pentagon is still developing that plan and he is still reviewing it.”

 

Obama drew criticism Thursday when he said “we don’t have a strategy yet” to strike Islamic State in Iraq and Syria (ISIS) in Syria.

 

“The president was candid about the fact that the Pentagon is still reviewing options that may be available to him,” Earnest said.

 

He added that the U.S. has taken military action against ISIS in Iraq and that the U.S, has a comprehensive strategy that includes working with regional powers to stop the militants.

*  *  *

If you like your strategy, you can keep your strategy… or the dog ate it.

via Zero Hedge http://ift.tt/1CaooC2 Tyler Durden