Tag: finance

Earlier today, we took a closer look at Vladimir Putin’s seemingly abrupt decision to partially withdraw the Russian military from Syria.

The prevailing view seems to be that Moscow somehow intended to put more pressure on Assad to be amenable to a negotiated, political solution and indeed that may be a part of the plan. However, as we noted, it’s not exactly as if The Kremlin is leaving the Syrian leader high and dry.

Aleppo proper was surrounded just prior to the implementation of the ceasefire late last month. Hezbollah and Russia’s air force had the rebels pinned down. Their supply lines to Turkey were cut, and civilians were fleeing the city en masse to avoid what they assumed would be a bloody siege. At that point is was readily apparent that the opposition couldn’t hold out much longer. Besides, it’s not as if the IRGC and Hezbollah are just going to pack up and leave once the Russians draw down their presence.

“We are heading toward being liquidated I think,” one opposition official said. 

So it isn’t entirely clear that Assad is being forced to negotiate in Geneva by Putin’s exit any more than the HNC, which surely doesn’t want to go right back into a situation where they are on the verge of surrender. 

Rather, it appears to us that Putin sensed the perfect moment to change tactics. As we wrote this morning, “if both sides come to some kind of tenuous agreement, Putin will get to claim that Russia’s military came, saw, and conquered, then brokered a peace settlement – two things no country had been able to do in Syria since the beginning of the war in 2011.”

NYU professor and Russian security affairs expert Mark Galeotti came to a similar conclusion and penned a piece for Reuters entitled “Russia Drops The Mic: Syria Pullout Comes At Perfect Moment,” excerpts from which are found below.

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From “Russia Drops The Mic: Syria Pullout Comes At Perfect Moment”

This was not a casually chosen timeframe: 10 years is how long Soviet troops were mired in Afghanistan, another intervention that was expected to be short-lived and uncomplicated and turned out to be anything but.

Politicians tend to find it easier to start wars than to end them, to escalate rather than to withdraw. For a leader who clearly relishes his macho image and who has been articulating a very aggressive foreign policy in recent years to opt for such a stand-down is a striking act of statesmanship.

That said, Putin’s announcement that “the objectives given to the Defense Ministry and the Armed Forces as a whole have largely been accomplished” is probably accurate.

This intervention was, after all, never about “winning” the war in Syria: even the most starry-eyed optimist would not expect a relative handful of aircraft and ground forces to end this bloody and complex conflict. Nor was it primarily to save Bashar al-Assad’s skin and position.

Rather, it had three main objectives. Firstly, to assert Russia’s role in the region and its claim to a say in the future of Syria. Secondly, to protect Moscow’s last client in the Middle East, ideally by preserving Assad, but if need be by replacing him with some other suitable client. Thirdly, to force the West, and primarily Washington, to stop efforts diplomatically to isolate Moscow. For the moment, at least, all three have indeed been accomplished.

Now, Russia is a more significant player in Syria’s future than the United States. Influence is bought by blood and treasure; by being willing to put its bombers, guns and men into play, Moscow not only helped Assad but reshaped the narrative of the war. The Kurds and even some of the so-called “moderate rebels” are beginning to show willing to talk to the Russians.

At the time of the intervention, Assad’s forces were in retreat, momentum was favoring the rebels, and Moscow was terrified that the regime’s elite might begin to fragment. The client state the Soviets left behind when they withdrew from Afghanistan was actually surprisingly stable and effective. But when Defense Minister Shahnawaz Tani broke with President Najibullah, it began to break apart and was doomed; this was something Moscow feared could happen in Damascus.

However, the unexpected injection of Russian airpower on Sept. 30 not only changed the arithmetic on the battlefield, it also re-energized the regime. The scale of the bombing assault, with more than 9,000 sorties flown according Defense Minister Sergei Shoigu, allowed government forces to turn back the tide. Not only were they able to retake Aleppo and some 400 other settlements by Shoigu’s count, but the Syrian Arab Army’s morale recovered considerably too, and with it Assad’s personal authority.

Finally, on the diplomatic front there is no question that Putin’s intervention did indeed end any hope of ignoring and isolating him. Russia and the United States are joint guarantors of the ceasefire in Syria now, and even in Ukraine the two countries have renewed conversations about a settlement in the Donbas, though it was Moscow that began the conflict.

In short, for once there is more truth than rhetoric in claims of a “mission accomplished.”

Full article here

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And here’s a bit more color from Stratfor:

Russia’s involvement in Syria has been guided by a number of key priorities. The first is ensuring the stability of the allied Syrian government and by extension Russian interests in Syria. The second is demonstrating and testing its armed forces, which are undergoing a significant force modernization. The third is weakening the Islamic State and other terrorist organizations, especially given the large number of Russian nationals fighting in Syria among extremist factions. The fourth, and the most important, is for Russia to link its actions in Syria to other issues — including the conflict in Ukraine, disputes with the European Union and U.S. sanctions on Russia.

The support that the Russians and other external actors such as Iran and Hezbollah have given the Syrian government has largely reversed the rebels’ momentum, and currently loyalist forces have the advantage. However, rebel troops have not been defeated, and a significant drawdown of Russian forces could weaken loyalist efforts. However, it is important to remember that Russia alone did not reverse the loyalist fortunes; Iranian support for the Syrian government could go a long way in maintaining their advantage.

With their actions in Syria thus far, the Russians have showcased their improved combat capabilities and some new, previously unused weapons, which will likely contribute to important arms sales, including some to Iran. Russia has also largely achieved its goal of weakening the Islamic State.

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Or, all of the above summed up in one picture…

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Submitted by Lance Roberts via RealInvestmentAdvice.com,

In this past weekend’s newsletter, I reviewed the current fundamental, economic and technical backdrop of the market following the March rebound from the recent lows which was front running the ECB’s monetary policy decision.

“The question, of course, is whether the ECB’s interventions will be able to change the longer-term dynamics in the Eurozone by creating inflationary pressures and sparking economic growth? That answer is likely “no” as it has failed to do so in the past, not only in the Eurozone but also in Japan and the U.S.

 

In order for the market to change the current negative dynamics, which in turn would warrant a significant increase in long-term equity exposure, it will require a uniform improvement in the technical underpinnings and likely a breakout to all-time highs.“

As shown below, the very short-term technical trend still remains negative as the recent rally pushing into resistance at both the downtrend and the 200-dma. It is also worth noting that the 50-dma is still trading well below the 200-dma as well. 

There is a good bit of “stuff” happening in the chart above so let me draw your attention to the more important points.

• The shaded areas represent 2 and 3-standard deviations of price movement from the 125-day moving average. I am using a longer-term moving average here to represent more extreme price extensions of the index. The last 4-times prices were 3-standard deviations below the moving average, the subsequent rallies were very sharp as short positions were forced to cover.
  
  

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• The top and bottom of the chart show the overbought/sold conditions of the market. The recent rally has responded as expected from recent oversold conditions. With the oversold condition now exhausted, the potential for further upside has been greatly reduced.
  
  

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• The easiest path for prices continues to be lower as downward resistance continues to be built. The arching dashed blue line shows the change of overall advancing to now declining price trends. 

As you will also note above, the rally from the October, 2014 lows coincided with promises of more action from the Fed, “if needed,” and then actual surprise interventions by the BOJ. While the market did manage some advance following the BOJ, that announcement marked the beginning of the end of the bull rally.

Looking back to the bottom in February we see many similarities. There were rumblings from Fed officials about the possibility of “negative rates” followed by last week’s overly ambitious ECB monetary policies.

Did the ECB’s announcement also mark the beginning of the end of the current rally? We will have to wait and see.

THE FED COMETH

Today, the Federal Reserve begins its two-day FOMC confab to discuss monetary policy and will release its decision and quarterly forecasts on Wednesday.

The Fed currently finds itself in a tough spot from a “data dependent” standpoint. Last December, when the Fed Funds rate was increased, the Fed discussed the potential for further rate hikes in 2016 as inflation and employment data strengthened. With that data improving, along with the strong rebound in the financial markets, the Fed runs the risk of losing credibility if they DO NOT hike rates again on Wednesday OR give a very strong indication they will do so at the next meeting.  

The problem is that in a world where every other Central Bank is loosening monetary policy to support ailing economies and deflationary pressures, the Federal Reserve is the only one tightening policy. Historically speaking, as shown in the chart and table below, tighter monetary policies, particularly this late in an expansionary cycle, has had rather poor outcomes for investors and the economy. 

While the Federal Reserve will carefully tailor their statement as to not disrupt the financial markets, I would expect a more “hawkish” stance on policy. My personal take is that the Fed will likely NOT hike rates tomorrow, however, stronger language about further rate hikes this year will be included.

The question is whether the market likes the outlook for stronger economic growth more than a further reduction in monetary accommodation?

MARGIN DEBT SENDS WARNING

One of the things I have addressed in the past is the importance of margin debt.

“What is important to remember is that margin debt ‘fuels’ major market reversions as ‘margin calls’ lead to increased selling pressure to meet required settlements.  Unfortunately, since margin debt is a function of portfolio collateral, when the collateral is reduced it requires more forced selling to meet margin requirements.  If the market declines further, the problem becomes quickly exacerbated.  This is one of the main reasons why the market reversions in 2001 and 2008 were so steep.  The danger of high levels of margin debt, as we have currently, is that the right catalyst could ignite a selling panic.

 

The issue is not whether margin debt will matter, it is just ‘when.’  Unfortunately, for many unwitting investors, when that time comes margin debt will matter ‘a lot.’”

One of the key reasons why the October lows have been defended so vigorously over the last several months is a break below that level will begin to trigger margin calls. Whether or not this can continue until margin debt has mean reverted to more normalized levels is not likely. The chart below points out recent peaks in leverage and the subsequent cycle events in the past.

Here is a look at margin debt as a percentage of GDP and past market events. See a pattern here?

The reason I suggest that a reversion in margin debt without a full-blown liquidation cycle is unlikely is because the buying power for equities, that came from using margin, has likely reached its limits. As shown in the chart below, courtesy of ValueWalk, households are once again fully invested in financial equities.

While the technical backdrop in the short-term has improved, the longer-term picture still remains extremely worrisome. As shown below, two of the three major monthly sell signals have been triggered. The last will be the crossover of the short-term and long-term monthly averages. As previously, due to the length of time involved in monthly moving averages, by the time this signal crosses the bear market will already be in full swing. However, what is important to note is that all the signs of previous market action during a major market topping process are present.

If the markets fail to rise above the short-term moving average and then correct below the long-term, which has currently been acting as support, that will be the beginning of a confirmed bear market cycle.

Conversely, if the market can rally above old highs and, reverse the two lower sell signals, the bull market will be reconfirmed and equity exposure will need to be increased. Of course, at this moment, given the economic and fundamental backdrop, this is a low probability event. Note: I did not say it was IMPOSSIBLE, just IMPROBABLE.

As investors, who have no control over future outcomes, our job is to understand and play within the confines of statistical probabilities rather than making bets on possibilities. The latter is the playground of amateur gamblers who regularly supplies Las Vegas with the operating capital it needs to function.

However, as we approach summer, the seasonal weakness of the markets will likely resurface as the reality of Central Bank interventions are digested and focus once again returns to the real driver of asset prices longer term – profits.

“Everything eventually reverts to the mean.” – Frank Holms

via Zero Hedge http://ift.tt/252MRHQ Tyler Durden

Which ‘establishment’ are you anti-?

Source: Townhall.com

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Authored by Jessica Marmor Shaw, originally posted at MarketWatch.com,

For decades, California has been portrayed as the epicenter of earthquake country. Last year’s disaster movie “San Andreas,” in which a magnitude-9.0 quake lays waste to the state, was just the latest and most spectacular example.

Yet the Golden State has never been the No. 1 state for seismic activity. That title goes to Alaska, which sits atop two tectonic plates that bump into each other and produce an average of 1,000 tremors every month.

And in 2015, another state’s earthquakes began making national news. Oklahoma, many headlines read, has overtaken California as the earthquake capital of America (never mind Alaska’s claim). The U.S. Geological Survey registered 130 quakes over 3.0-magnitude (about where people can feel them) in California last year. Oklahoma logged 888, and Alaska had 1,575. Compare that with 2010, when the southern state saw just 41.

But why this is happening now and what it means for Oklahoma is widely misunderstood.

The ‘minor-league’ earthquake capital of America

The “earthquake capital” title is one that Oklahoma’s state geologist, for his part, says the state doesn’t deserve.

“We’re not the earthquake capital of the U.S.,” said Gerry Boak, director of the Oklahoma Geological Survey. If anything, he said, “we’re the minor league capital of the U.S.”

 

Most of the Oklahoma quakes registered in 2015 were below 4.0-magnitude. Alaska registered a 7.1-magnitude earthquake in January —roughly equal to 1 million 3.1- magnitude quakes. That one quake alone was more powerful than all of Oklahoma’s earthquakes from last year combined, Boak says.

California, too, tends to see more large (over 5.0-magnitude) quakes than Oklahoma, and seismic activity is spread throughout the state. In Oklahoma, the activity is concentrated in only about 16% of the state.

That’s no coincidence: areas where quakes are happening are the same ones that have seen a boom in oil and gas production. Oklahoma may not be the earthquake capital, but Boak says, when it comes to earthquakes that have been induced by human activity, “there’s no place that can match Oklahoma.” The state is the largest example of induced seismicity in the U.S., probably the world.

A recent post over at the data visualization site Metrocosm includes two graphics that bear out the connection. Here is a map showing the region where most of Oklahoma’s oil and gas production happens.

This is where everything gets a bit scientific, and eyes tend to glaze over. Hang in there, and we’ll reward you on the other side with a GIF of Dwayne Johnson aka The Rock battling to survive the Big One in “San Andreas.”

Fracking, in which fluid is injected under high pressure into shale rock formations, is what gets an oil well going, but fracking only lasts a few days to a week. The frack job produces some wastewater, but over time the well produces much, much more. That’s because as much as it’s an oil well, it’s a water well; for each barrel of oil produced, there are anywhere from 10 to 20 barrels of water. In a few Oklahoma wells, the ratio has been as high as 99% water, 1% oil.

That wastewater is pumped into separate underground disposal wells, which go far deeper than the fracked well. And it’s this injection of wastewater deep underground that seismologists say is inducing earthquakes.

This all might seem like picking at nits — after all, fracking is what made Oklahoma’s shale-oil boom viable. Reports have noted that the rise in quakes tracks the increase in wastes produced since a wave of fracked wells began operating in the state.

But USGS has gone to pains to correct the fracking misconception.

“We want to get the story straight of how this process works,” said Robert Williams, geophysicist for USGS.

OGS’s Boak says it’s important people realize that these earthquakes really aren’t about fracking, no matter how attention-grabbing that word can be. The Bakken Shale in North Dakota, for instance, produces much less wastewater, and hasn't induced earthquakes. The solution, he says, must be focused on “slowly restricting the amount [of water] you can inject and where you’re allowed to inject it.”

Legislators are starting to get serious about doing this. This year, Oklahoma’s Corporation Commission requested oil and gas producers to cut wastewater disposal amounts by 40% in large swaths of the state. In the past, efforts to cut back have been mostly one well at a time. Meanwhile, the collapse in oil prices has meant a brutal reckoning for the state’s oil and gas producers.

And now, here’s The Rock.

 

Will Oklahoma see an induced ‘Big One’?

So far in 2016, Oklahoma has seen six quakes of magnitude-4.0 or higher, including a 5.1. The largest earthquake ever recorded in Oklahoma was in November 2011, a magnitude-5.7 that flattened 16 homes, injured two people and was felt in parts of Illinois, Kansas, Arkansas, Tennessee and Texas. It is believed to be the largest quake induced by fluid injection in the U.S., and is likely one of the largest induced quakes ever.

USGS has taken notice.

“The more small quakes you have, the higher the chances for a larger quake to occur,” said Williams.

Boak says that should oil and gas production in Oklahoma continue at the same pace as in 2015, there would be a 6% chance of a magnitude-6.0 quake in the next four years.

If such a quake occurred close to a city or town, it would cause a lot of destruction. Just how much is unclear, but it would be felt farther and likely cause far more damage than similar events in California, where earthquake safety is a statewide priority. In nearby Missouri, a series of historic earthquakes over 7.0-magnitude in 1811-1812 rang church bells on the East Coast.

Part of the reason for all the unknowns, including the odds of a Big One in Oklahoma, is lack of good data. In the past, Oklahoma hasn’t been the focus of earthquake research or fault mapping, versus California, where infamous faults like the San Andreas have been studied for decades. Research is ramping up to understand more about Oklahoma’s geology and seismic history, but that will take time.

Meanwhile USGS is urging the people of Oklahoma to seek out information on earthquake preparedness. It might be the kind of warning they’re accustomed to: the state is known as a tornado bull's-eye and is usually among the hardest hit by flooding.

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

Even Bloomberg gets it.

In a note issued yesterday, the news behemoth reported what our readers had known for years: that “There’s Only One Buyer Keeping S&P 500’s Bull Market Alive“, namely corporate buybacks, the same “buyer” of stocks that the smart money has been selling to for the past 7 weeks.

Dispelling any confusion about who the relentless buyer into the “wall of worry” is, this is what Bloomberg wrote:

Demand for U.S. shares among companies and individuals is diverging at a rate that may be without precedent, another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year. Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever.

We got the latest confirmation of this earlier today when Bank of America said that “clients don’t believe the rally, continue to sell US stocks” to the only buyer left in town: “buybacks by corporate clients accelerated for the third consecutive week to their highest level in six months, which is also above levels at this time last year. This suggests that overall S&P 500 completed buybacks—which are reported with a lag—have likely picked up significantly as well.”

This also explains why the ECB was so desperate to unclog, and explicitly backstop with its QE expansion, the suddenly slowing corporate bond market: without a fresh influx of new IG issuance, the buyback pipeline would be indefinitely halted, which in turn would have led to more stock selling without offsetting repurchases, further downside to credit, and so on in a feedback loop that would have required a forceful intervention by central banks.

However, while buybacks have been raging for the past three months, there is a very real and imminent danger to the market torpid bear market rally, when the first quarter earnings season begins over the next few days and brings with it the infamous buyback “blackout period.”

Recall what we said almost exactly one year ago, citing Goldman:

“The closing of the buyback window ahead of earnings season has recently coincided with weaker S&P 500 performance. In half of the last eight quarters, the S&P 500 declined during the four weeks prior to earnings season. The S&P 500 rose an average of 0.3% in the month leading up to earnings season versus +1.6% both during earnings season and in the month following earnings season.

Indeed, over the past 4 quarters, the buyback blackout has without fail led to weakness across risky asset classes. So with the start imminent, how long is the lack of price indescriminate buying expected to persist? At least until the first week of May when the buybacks resume:

So while everyone’s attention is on the Fed, the biggest danger to the S&P500 has little to do with what Janet Yellen may say tomorrow, and everything to do with the marginal buyer of stocks being  put into a state of forced hibernation: after all, corporations would want nothing more than to continue the rally without pause, as a surging S&P 500 would make it even easier to issue more debt, which in turn would be used to fund even more buybacks, push their stocks even higher, and lead to even greater “equity-linked” bonuses and compensation.

What is curious, however, is that unlike a year ago, when Goldman was pitching its “basket of US stocks focused on returning cash to shareholders via buybacks and dividends”, this time Kostin and Co. are far more reserved, and instead urging clients to shun these companies which are largely drowning in debt as per the chart below, showing the highest corporate leverage in over a decade…

… and instead to buy companies with “strong balance sheets” which by definition are those who dedicate far less debt to pushing their stock price higher via such artificial and unsustainable gimmicks such as buybacks.

Will this time Goldman be right, or will the trade once again be to buy the more beaten down names over the next month, those whose buybacks are “brutally” put on hold, only to return with a vengeance come May?

We’ll find out in 6 weeks; in the meantime, beware the S&P 500 Ides of March starting today, and lasting until Q1 earnings season is over.

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

Submitted by Soeren Kern via The Gatestone Institute,

A 15-year-old German girl of Moroccan descent stabbed and seriously wounded a police officer in Hanover. The stabbing appears to be the first lone-wolf terrorist attack in Germany inspired by the Islamic State.

The incident occurred at the main train station in Hanover on the afternoon of February 26, when two police officers noticed that the girl — identified only as Safia S. — was observing and following them.

The officers approached the girl, who was wearing an Islamic headscarf, and asked her to present her identification papers. After handing over her ID, she stabbed one of the officers in the neck with a six-centimeter kitchen knife.

According to police, the attack happened so quickly that the 34-year-old officer, who was rushed to the hospital, was unable to defend himself. After her arrest, police found that Safia was also carrying a second, larger knife.

"The perpetrator did not display any emotion," a police spokesperson said. "Her only concern was for her headscarf. She was concerned that her headscarf be put back on properly after she was arrested. Whether the police officer survived, she did not care."

On March 3, Hanover Public Prosecutor Thomas Klinge revealed that Safia had travelled to the Turkish-Syrian border in November 2015 to join the Islamic State, but that her mother had persuaded her to return to Germany on January 28.

Last month, Safia S., a 15-year-old German girl of Moroccan descent, stabbed and seriously wounded a police officer in Hanover, in what appears to be the first lone-wolf terrorist attack in Germany inspired by the Islamic State.

According to police, the stabbing was premeditated: unable to join the Islamic State in Syria, Safia had determined to carry out an attack against the police in Germany.

Safia is being charged with attempted murder. She is also being charged with a terrorism offense. According to prosecutors, by travelling to Turkey to join the Islamic State, the girl violated Section 89a of the German Criminal Code, "Preparation of a serious violent offense endangering the state."

The newspaper, Die Welt, reported that Safia had been part of the local Salafist scene since 2008 — she was only seven years old at the time. She had appeared in Islamist propaganda videos alongside Pierre Vogel, a convert to Islam and one of the best-known Salafist preachers in Germany. In those videos, Vogel praised Safia for wearing a headscarf to school and for being able to recite verses from the Koran.

Safia's brother, Saleh, is reportedly being held in a jail in Turkey, where he was arrested for trying to join the Islamic State.

Until now, the only other successful Islamist attack in Germany took place at Frankfurt Airport in March 2011, when Arid Uka, an ethnic Albanian from Kosovo, shot and killed two United States airmen and seriously wounded two others. Uka was later sentenced to life in prison.

On February 4, 2016, German police arrested four members of an ISIS cell allegedly planning jihadist attacks in Berlin. In coordinated raids, more than 450 police searched homes and businesses linked to the cell in Berlin, Lower Saxony and North Rhine-Westphalia.

The ringleader — a 35-year-old Algerian who was staying at a refugee shelter with his wife and two children in Attendorn — arrived in Germany in the fall of 2015. Posing as an asylum seeker from Syria, the Algerian, identified only as Farid A., is said to have received military training with the Islamic State in Syria.

Also arrested were: a 49-year-old Algerian living in Berlin under a fake French identity; a 30-year-old Algerian living in Berlin with a valid residence permit; and a 26-year-old Algerian, allegedly with ties to Islamists in Belgium, who is living in a refugee shelter in Hanover.

The men allegedly were planning to attack Checkpoint Charlie, the iconic Cold War crossing point between East and West Berlin. They also allegedly were planning to attack the Alexanderplatz, a large public square and transportation hub in the center of Berlin.

On February 8, German police arrested an alleged ISIS commander who was living at a refugee shelter in the small town of Sankt Johann. The 32-year-old jihadist, known only as Bassam and posing as a Syrian asylum seeker, had entered Germany in the fall of 2015. German intelligence authorities were unaware of the man's true identity until the German newsmagazine, Der Spiegel, interviewed him after receiving a tip from other Syrians at the shelter. Bassam said the accusations against him are false: "I want to learn German and work as a cook," he said.

In a February 5 interview with ZDF television, Hans-Georg Maaßen, the head of Germany's domestic intelligence agency (Bundesamt für Verfassungsschutz, BfV), warned that the Islamic State was deliberately planting jihadists among the refugees flowing into Europe. "The terror risk is very high," he said.

On February 4, the Berliner Zeitung quoted Maaßen as saying that the BfV had received more than 100 warnings that there were Islamic State fighters among the refugees currently living in Germany. Some of the jihadists are known to have entered Germany using fake or stolen passports.

Maaßen also revealed that the BfV knows of 230 attempts by Salafists to canvass German refugee shelters in search of new recruits. In a recent interview with the Berlin newspaper, Der Tagesspiegel, Maaßen said that the number of Salafists in Germany has now risen to 7,900. This is up from 7,000 in 2014; 5,500 in 2013; 4,500 in 2012, and 3,800 in 2011.

Although Salafists make up only a small fraction of the estimated six million Muslims living in Germany today, intelligence officials warn that most of those attracted to Salafi ideology are impressionable young Muslims who, at a moment's notice, are willing to carry out terrorist acts in the name of Islam.

In an annual report, the BfV described Salafism as the "most dynamic Islamist movement in Germany." It added:

"The absolutist nature of Salafism contradicts significant parts of the German constitutional order. Specifically, Salafism rejects the democratic principles of separation of state and religion, popular sovereignty, religious and sexual self-determination, gender equality and the fundamental right to physical integrity."

In an interview with the Frankfurter Allgemeine Zeitung, Maaßen warned: "Salafists want to establish an Islamic state in Germany."

On February 16, more than 200 German police raided the homes of 44 Salafists in the northern city state of Bremen. The Interior Minister of Bremen, Ulrich Mäurer, said he had ordered the closure of the Islamic Association of Bremen (Islamischen Fördervereins Bremen) for the alleged recruiting of jihadists for the Islamic State:

"It is rather apocalyptic that we have people living in the middle of our city who are prepared, from one day to the next, to participate massively in the terror of the Islamic State."

In December 2014, authorities in Bremen shut down another Salafist group, the Culture and Family Association (Kultur- und Familieverein, KUF), after some of its members joined the Islamic State.

More than 800 German residents — 60% of whom are German passport holders — have joined the Islamic State in Syria and Iraq, according to Die Welt, based on the most recent data compiled by the Federal Criminal Police Office (Bundeskriminalamt, BKA). Of these, roughly one-third have returned to Germany. Around 130 others have been killed on the battlefield, including at least a dozen suicide bombers.

In a February 19 interview with the Neue Osnabrücker Zeitung, the head of Europol, Rob Wainwright, said that up to 5,000 European jihadists have returned to the continent after obtaining combat experience on the battlefields of the Middle East. He added that further jihadist attacks in Europe were to be expected:

"Europe is now facing the greatest terrorist threat in more than ten years. We expect that ISIS or other Islamist groups will carry out an attack somewhere in Europe, with the aim of achieving high losses among the civilian population. In addition, there is the threat posed by lone-wolf attackers. The growing number of foreign fighters presents the member states of the EU with completely new challenges."

A recent poll conducted by YouGov for the news agency, Deutsche Presse Agentur (DPA), found that 66% of Germans expect the Islamic State to carry out a jihadist attack on German soil in 2016. Only 17% of those surveyed believe there will be no attack; 17% said they did not have an opinion.

Speaking at a gathering of international police in Berlin on February 25, Hans-Georg Maaßen, the spy chief, warned that Germany is not an island: "We have to assume that we will become the target of jihadist attacks, and we need to be prepared."

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

Amid the last two weeks of exuberant short squeeze in crude oil (and anything energy related), investors pulled over $400 million from USO (the largest oil ETF). This week's $348 million outflow is just shy of the record $354 million outflow in Dec 2013. As these outflows hit so bullish positions in oil ETFs have been dropping and bearish positions building once again.

The biggest Oil ETF fund outflow since Dec 2013…

Chart: Bloomberg

As bulls pull back and bears re-emerge (after their record-breaking squeeze)…

Chart: Bloomberg

It seems – judging by the last 2 days – that the ammo for any further headline-induced short-squeeze has left the playing field…for now.

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Last night we reported that the PBoC is now considering a Tobin tax on FX transactions.

The follows reports that a series of big name money managers – or, as China calls them, “speculators,” “predators,” and “crocodiles” – have placed outsized bets against the yuan.

In January, at Davos, George Soros predicted a Chinese hard landing and said he was betting against Asian currencies. That prompted a series of “Op-Eds” from the Politburo’s various media mouthpieces including a hilarious post that ran the People’s Daily entitled, “Declaring war on China’s currency? Ha, ha”

Subsequently, Kyle Bass laid out his thesis for betting on further RMB depreciation. China’s banks, Bass says, are going to need to be recapitalized and in a very big way. That recap will eat up what remains of China’s FX reserves and force the PBoC to effectively print money to shore things up.

These attempts, China said in the Op-Ed mentioned above, “cannot possibly succeed.” “About this,” the piece continues, “there can be no doubt.”

But in case there was any “doubt,” the PBoC is now looking to erase it by effectively hiking margins on FX trading (that’s what this amounts to). It’s similar to what Beijing did last autumn when, in another effort to combat “speculation,” the PBoC raised the reserve requirement on forwards trading. That move was greeted with skepticism. “They were moving towards market-oriented reforms. This is 10 steps back,” a currency trader in Hong Kong said, at the time. Last night, we got nearly identical comments from an FX strategist at CBA in Singapore. “Now is not a good time to roll out Tobin tax as the market is already concerned about whether China will be able to increase capital account convertibility in the coming years, and this is another step backward to achieve that goal,” he said, adding that “The Tobin tax can be considered as a form of capital control.”

Right. That’s because China is panicking and just about the last thing anyone in the PBoC wants is to have the likes of Kyle Bass make Xi look like an imbecile. 

And so, a tax it will be because no matter how (realtively) stable the RMB is now, it won’t stay that way going forward. Especially not with expected USD strength from Fed policy divergence and the focus on keeping the yuan at least stable against the trade-weighted basket adopted in December. And of course there’s the whole collapsing exports problem.

Here are some analyst reactions that should give you some insight into what the Street thinks about China’s latest move to crush “speculators”:

• ANZ (Khoon Goh, FX strategist)
  • Imposition of a Tobin tax may curb trading liquidity in the yuan market
  • Unnecessary at this point to introduce tax considering that the yuan has stabilized after being volatile at the start of the year

• SEB (Sean Yokota, head of Asia strategy)
  • A Tobin tax in China may backfire and weaken CNY
  • Moving completely in the opposite direction of letting markets set prices rather than the govt
  • Country still wants to increase volatility over time; Tobin tax goes against this

• China Merchants Bank ( Liu Dongliang, senior analyst)
  • Short-term capital outflows from China may accelerate if Tobin tax is imposed on FX transactions
  • May trim trading volumes over the medium term

• Mizuho Bank (Ken Cheung, currency strategist)
  • Any introduction of Tobin Tax will raise the costs of trading yuan in the short term
  • Measure will impose adverse impact on market liquidity and development
  • Even though long-term investment may be excepted from Tobin tax, this rule will make investors more cautious to enter the yuan market

• CBA (Andy Ji, FX strategist)
  • Tobin tax can be considered as a form of capital control
  • Levy will hurt market sentiment and cause investors more panic, as this shows existing capital controls are not enough to curb outflows
  • Not a good time to roll this out now, as market is already concerned about whether China will be able to increase capital account convertibility in the coming years

• Bocom International (Hao Hong, chief China strategist)
  • If the tax is widened to CDS, swaps, traders cannot express their views on the currency
  • Impossible trinity is the macro constraints that decision makers have to work with, between an independent monetary policy, stable currency and free capital flows

• DBS (Tommy Ong, managing director for treasury and markets)
  • Possibility of this being implemented is not very high
  • Can’t guarantee volatility will come down since it’s difficult to identify if currency trading is down to speculation or genuine need

• Templeton Emerging Markets Group (Mark Mobius, executive chairman)
  • It’s part of plan to make sure FX reserves are not exiting at a rapid rate
  • It’s positive they don’t want to see a big decrease in foreign reserves

Will a Tobin tax stop the outflows? Probably not and in fact, it could backfire and cause the market to panic further.

But it may still make life a bit more painful for those who think they can play the PBoC like Soros played the BOE. 

So go on speculators, “make Xi’s day”…

via Zero Hedge http://ift.tt/1V9Rfk9 Tyler Durden

Authored by John Mauldin via MauldinEconomics.com,

Everyone is missing the serious problem that ultra-low interest rates have created for retirees.

Pension funds are still assuming that future returns will be in the 7½–8% range. And as people get older and have no practical way to go back to work, pension funds that are forced to reduce payments in 10 or 15 years (and some even sooner) will destroy the lifestyles of many.

So what made Europe and Japan agree that negative rates-with all their known and unknown consequences—are a solution to our current economic malaise?

I have been trying to explain this by comparing economic theories to a religion.

Everyone understands that there is an element of faith in their own religious views, and I am going to suggest that a similar act of faith is required if one believes in academic economics.

Economics and religion are actually quite similar. They are belief systems that try to optimize outcomes. For the religious, that outcome is getting to heaven, and for economists, it is achieving robust economic growth-heaven on earth.

I fully recognize that I’m treading on delicate ground here, with the potential to offend pretty much everyone. My intention is to not to belittle either religion or economics, but to help you understand why central bankers take the actions they do.

The No. 1 Commandment of a Central Bank

Central bankers are always-and everywhere-opposed to inflation. It’s as if they are taken into a back room and given gene therapy. Actually, this visceral aversion is also imparted during academic training in the elite schools from which central bankers are chosen.

This is our heritage; it’s learning derived not only from the Great Depression but also from all of the other deflationary crashes in our history (not just in the US but globally).

When you are sitting on the board of a central bank, your one overriding rule is never to allow deflation to occur on your watch. No one wants to be thought responsible for bringing about another Great Depression.

And let’s be clear, without the radical actions taken in 2008–09 to bail out the banks, drop rates to the zero bound, and institute quantitative easing, we would likely have been facing something similar to the Great Depression.

While I don’t like the manner in which we chose to bail out the banks, some form of bailout was a necessary evil.

Whenever we enter the next recession, we are going to do so with interest rates close to the zero bound. Most of the academic research both inside and outside the Fed suggests that quantitative easing, at least in the way the Fed did it the last time, is not all that effective.

If you are sitting on the Federal Reserve Board, you do not want to allow deflation to happen on your watch. So what to do? You try to stimulate the economy. And the one tool you have at hand is the interest-rate lever.

Since rates are already effectively at zero, the only thing left is to dip into negative-rate territory. Because, for you, allowing a deflationary malaise to set in is a far worse thing than all of the potential negative consequences of negative rates put together.

It’s a Hobson’s choice; you see no other option.

Different Schools of Economic Thought

There are multiple competing economic theories on the government’s role in monetary policy making. The operative word is theories.

Each is an attempt to describe how to manage a vastly complex modern economy. Some see too much debt as the cause of our current malaise. Others think that lowering taxes would allow consumers and businesses to keep more of their income and hopefully spend it.

In the not too distant human past, shamans and soothsayers conjured theories about how the world worked and how to predict the future. Some examined the entrails of sheep, while others read meaning into the positions of the stars (or whatever their prevailing theory dictated) and told leaders what policies they should pursue.

An astute priest would pretty quickly figure out that the best route to priestly job security was to foretell success for the politician’s/king’s/tribal chief’s pet policy course.

In today’s world, economists serve exactly the same function. They skry their data sets—a latter-day version of throwing the bones—and then, based on the theory by which they believe the data should be interpreted, they confirm the orthodox policy choices of their political masters. And so their careers prosper.

This is not to disparage economists—not at all. They really do try to come up with the best possible policies—but the range of policy alternatives is constrained by the economists’ (and the general society’s) belief system.

If you believe in a Keynesian world, then you will prescribe lower rates and more fiscal stimulus during times of recession. If, however, you believe in a competing model, such as the Austrian theory postulated by Ludwig von Mises, then you believe that smaller government, far less fractional reserve banking (if any at all), and a gold standard are appropriate.

There are also other competing theories, each with its own model of how the world works, but I think you already got my point.

There’s No Right Answer in Economics – Just Faith in Theory

If we had adopted, for example, an Austrian model in 2008–09, we would have had a much deeper recession, and unemployment would have risen higher. The recovery, on the other hand, would theoretically have come more quickly as prices cleared and debt was resolved.

However, that period of time before the recovery began would have been devastating to the millions of families who would have faced even more crippling unemployment than we saw. That is an experiment we did not conduct, so we will never truly know whether that path might have been less painful in the long run.

Austrians are willing to face a series of small recessions as part of the price of maintaining a free economy, rather than postponing recession and trying to fine-tune what is supposedly a free market economy by means of monetary and fiscal policy.

An analogy would be the theory that allowing small and controllable forest fires today might prevent a large, utterly devastating forest fire in the future.

Nassim Taleb’s important book Antifragile makes a strong case that businesses, markets, and whole societies are much better off if they allow relatively minor random events, errors, and volatility to correct as quickly as possible… rather than continually patching them over to avoid short-term pain.

Decentralized experimentation in the economy by numerous complex actors capable of taking risks works better than a directed economy that encourages the buildup of excessive risk throughout the entire economy.

The problem is, there really is no one clearly right answer as to which economics belief system is best. I know what I believe to be the correct answer, but that belief is based on the way I understand the world—and the world is vastly more complex than anyone’s theory can be.

No theory allows for a perfect solution for all participants. Rather, each theory picks winners and losers, with the overall objective of creating an economy that has maximal potential to grow and prosper.

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