Tag: finance

One month ago, just as Cushing storage was rapidly approaching its operational capacity, we warned that Cushing (and increasingly all parts of PADD 2) is denying storage requests. We also said that overall PADD 2 inventories had risen to a new record high 155 million barrels…

… hinting that it was just a matter of time before excess production would be shifted to other regions, most notably the Gulf Coast, or PADD 3.

In the intervening month, this is precisely the dynamic we have observed, which culminated with today’s weekly DOE announcement which saw not only a massive inventory build, one which surpassed the estimate threefold (surpassing yesterday’s gargantuan API build in the process), but also has confirmed that oil storage is now shifting away from Cushing and PADD 2 to PADD 3 just as we expected, to wit:

• PADD 1: East Coast +1.8
   
• PADD 2: Midwest -0.1
   
• PADD 3: Gulf Coast +9.0
• PADD 4: Rocky Mount +0.1
• PADD 5: West Coast -1.4  

This confirms that the shift away from Midwestern storage to the Gulf Coast has begun in earnest, which was to be expected for a region that is already at operational capacity, even when netting out the excess oil that is being “exported” out of the US to Europe, Asia or Latin America. In fact, as shown in the chart below, with over 533 million barrels in storage, it is only a matter of time before oil overflows into swimming pools and household buckets.

 

Unfortunately, while most of this was as expected and suggests  that the excess supply situation in the US is getting worse by the day, not even we expected the dour picture painted by some key industry participants.

According to Reuters, trading houses such as Vitol, Glencore, Gunvor and Trafigura whose most profitable business line in recent months has been oil transit and offshore storage, are betting on oil markets remaining oversupplied for at least two more years even as crude prices stage a recovery driven by early signs of falling production.

These traders are looking to extend or lock in new leases on storage tanks for crude oil and refined products in key hubs as far out as the end of 2018, sources at storage firms and trading houses say.

As we have shown repeatedly in the past by demonstrating surging contangos, storing oil in a heavily oversupplied market has been a cash cow for traders and oil companies in recent years as markets bet that future oil prices will be significantly higher than current ones.

Or, looked another way, that current prices will remain very low. Indeed, “lower for longer.”

Ian Taylor, chief executive of top oil trader Vitol, said on Tuesday that “stocks of crude and products continue to build and these will weigh upon the market.”  Like other traders, Vitol has invested in recent years in storage, and last August acquired the other half of its VTTI storage subsidiary for $830 million.

As we also showed two weeks ago, with oil prices rising substantially since mid-February to around $40 per barrel, this has led to a significant narrowing of the crude contango despite a stock overhang of 300 million barrels, which means storage plays such as Vitols are suddenly far less lucrative.

Indeed, crude oil has found more of a balance in recent weeks through supply disruptions in Iraq, Libya and Nigeria (all of which are transitory).

However, while upstream, or crude, supply may have artificially stabilized modestly, downstream products have continued to build, something we also noted one month ago in “There’s A Feeling Of Bits Of Ice Cracking All At Once” – This Is The ‘Big New Threat’ To Oil Prices” in which we showed the dramatic buildup of gasoline and distillate products. 

Reuters today also touches on this and cautions that “refined oil products have not followed suit” the broader oil rebalancing. In fact “gasoline and blending components have been quietly building, squeezing the amount of storage left in Europe. U.S. gasoline stocks, when adjusted for current consumption, are just at the top of their 10-year range.”

Krien van Beek, head of sales at RVB Tank Storage Solutions, a tank storage broker in the Netherlands, said traders are seeking storage on 12-month leases for products such as gasoline and naphtha outside key hubs in northern Europe, Singapore and the United States. “They are prepared to look at storage for the longer term because of the contango in the market but everyone is cautious about costs because we are at the top of the storage market,” van Beek said. “Since the standard storage options are taken, traders are considering less conventional and less attractive locations.”

According to RVB, global commercial tank capacity is around 900 million cubic meters across 4,400 facilities – not including “captive tanks” in refineries that are not open to commercial buyers.

In short: because the US is already on the verge of operational capacity for most liquidity commodities, soon the entire world will likewise be full to the brim with excess oil, distillates and gasoline as oil production continues to ooze into what the Saudis recently characterized as a 3MM b/d oversupplied market.

Which brings us to what Reuters describes as a key production “choke point”, one which is “forming in middle distillates – the diesel used to power trucks and generators, and the heating oil that warms homes around the world in winter.”

Typically, these stocks fall over the winter. But warm weather this year kept this from happening – all while refineries worldwide ran full steam to feed seemingly insatiable demand for gasoline in the United States, China and India.

Global distillate stocks in the developed world are close to a record high, in the thick of refinery maintenance season, and in the run-up to the time when gasoline use hits its summer high point, but interest in diesel typically fades.

“Absent run cuts, the market faces another round of rapid stockbuilds once refineries return from maintenance,” Robert Campbell of Energy Aspects said in a note.

At that point, the oversupply becomes self-fulfilling as the supply curve inverts that much more while producers scramble to find any marginal buyer in a world drowning with product, and unless some dramatic solution is found to stem the supply of the most upstream product, namely oil, whose dynamics we explained one month ago as follows…

As Paul Horsnell, global head of commodities research at Standard Chartered puts it, “There’s a feeling of various bits of ice cracking all at once” in the oil market, with both crude-oil and gasoline inventories at extremely high levels… People are worried about a short-term issue, particularly in the U.S., particularly at Cushing.”

 

The good news is that we are likely very close to the worst case scenario playing out: refiners are unlikely to start buying more crude in the coming weeks. Instead, many will begin seasonal maintenance ahead of the busy summer-driving season. That could leave some oil producers scrambling to find places to store their output. Prices in some regions might have to drop sharply to justify the cost of shipping the oil to where it can be stored.

… with every passing week in which nothing changes in the fundamental supply/demand picture, the most likely outcome will be a violent inventory liquidation over the next few weeks, one which will be accompanied by a substantial plunge in oil prices resulting from wholesale dumping as producers rush to sell product to anyone who will buy it.

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

In February, Cripsin Odey’s quite bearish $11 billion Odey Asset Management had a tumultuous month: it was down -10.6% as the overall market levitated relentlessly on low volume hopes of central bank stimulus and intervention ever since the February 11 lows, leading to the biggest short squeeze in history and the most overbought market ever.

 

However, as Crispin himself would go on to admit, February’s 11% drop was just an appetizer. Because what happened in March, when Crispin went on to not only fight the Fed but declare war on every single central bank, was unprecedented. In his own words “by mid-March the fund was rising and falling by over 5% per day. At which point this was no longer an investment market but a battlefield.”

Does he regret it? Not at all – Odey is convinced these desperate central bank interventions are just a confirmation that they have run out of ammo, and for the most part, he is absolutely spot on:

Central banks can ignore the CDS market, but they cannot imagine away the losses coming through the system. They cannot save the banks now, without creating a recession, with all the consequences that has for bad loans and falls in GNP. The fall in productivity is already encouraging companies to eschew capital spending in favour of buy backs, which compounds the problem of credit growing faster than the economy. Profit margins are naturally falling as wages rise faster than prices and overcapacity rules out pricing power. No wonder that central banks feel that they are nearly out of ammunition. There is not a good choice to be made.

For now their choice has been to save preserve the markets, as the next crash in stocks may well be the last before the Fed and its central planning peers have no choice but to unleash the helicopter money.

In the meantime, we eagerly look forward to observing Odey’s valiant daily fight with Yellen et al, armed with the following top 10 positions…

 

… resulting in a net exposure of just about -110% net.

 

* * *

Here are his latest monthly thoughts:

Bull markets do not die of old age. They are murdered by central banks. How far away we are from that old adage. The last six weeks have seen yet again central banks responding to further weakness in the world economy, by lowering or at least not raising interest rates and continuing to subsidise the weakest. Wherever they see any sign of distress as with the CDS market in Europe, their response is to believe that risk premiums are unfairly rising and immediately to take action to cancel the effect.

However, several years of watching central banks responding to ever falling productivity numbers by reducing interest rates have shown that they can effect asset prices with their actions, but that not only do they have almost no effect on economic activity, but they positively damage it.

The reason is simple. Banks work, like everyone else, off profit margins and the lower and longer interest rates remain close to zero, the more that net interest margins shrink and the less inclined, because profits are falling, are they to countenance new lending.

Without credit expansion there can be no strong nominal growth of GNP globally. Strangely even where there is strong credit growth, nominal incomes have responded sluggishly. For this is the good news. Over the last twelve months there have been 20% more dollars created in relation  to GNP in the USA than a year ago. In China there have been over 30% more renminbi created. This should have resulted in blow out growth of nominal incomes, but in fact GNP in the USA has grown by 4.5% and in China by just under 7%. In both instances private indebtedness has grown by multiples of that. That a 20% increase in dollars has only resulted in inflation of 2.1%, reveals that strange things are happening. It has not just been worrying us here, but also seems to have unnerved the Fed. On all our numbers such credit growth would have resulted in over 5 or 6 interest rate hikes by this time in the cycle.

What frightens them and should frighten us all is that the overcapacity built up post 2008/9 in so many industries linked with China is now coming through in a severe credit down cycle. An unwillingness to countenance closure of capacity, even as new capacity was still being added, in the face of prices that were far below fair value, have ensured these industries have ongoing losses which are still not abating. And this is where it gets interesting, because these losses are undermining the loans that these industries have. As bonds due for redemption trade below par, companies are drawing down credit lines, which would usually be the signal that bankruptcies would follow. However, because of the very weak profitability of the banking sector, these banks are not able to absorb these losses. As they wait, their loan becomes the cash to pay back the bonds and their losses expand. Banks now need rights issues but the central banks’ attention remains on trying to lower rates to reflect falling productivity. There is thus no story to attach to a rights issue for a bank. The only way that the banks would be a buy is if interest rates were to go up, repricing assets relative to deposits, but that can never be because down that route lies recession. And strangely recessions are no longer permitted. However, negative productivity rates are already telling the central banks that any growth in nominal GNP is the equivalent of eating your capital.

Central banks can ignore the CDS market, but they cannot imagine away the losses coming through the system. They cannot save the banks now, without creating a recession, with all the consequences that has for bad loans and falls in GNP. The fall in productivity is already encouraging companies to eschew capital spending in favour of buy backs, which compounds the problem of credit growing faster than the economy. Profit margins are naturally falling as wages rise faster than prices and overcapacity rules out pricing power. No wonder that central banks feel that they are nearly out of ammunition. There is not a good choice to be made.

Markets need equilibrium to prosper. When the authorities have a problem, markets have a problem. We have been hurt by this rally in China-related companies, and indeed we reduced the gross and net positioning of the fund significantly in mid-March, to help reduce the short term volatility of the fund, but we remain convinced that China is in many ways in an even greater bind over policy than the developed world. By mid-March the fund was rising and falling by over 5% per day. At which point this was no longer an investment market but a battlefield. On the day that Draghi came out with his massive market support operation, the stock markets rose 2.5% and then closed down 1.5% on their lows. Imagine how painful it was to see the markets bounce the next day and celebrate his success. At that point I reduced the short book by a third and the long book by 10%.

Despite this strong rally, there is, aside from a pickup in government spending in China, little to support growth in the world economy. Everything from rising default rates in the booming auto financing industry to new lows in LNG, dry bulk shipping prices, points to slowdown everywhere.

For equity markets, a world without credit is for now a deflationary world. The underperformance of the banking, insurance and asset management industry warn that this is when equities can de-rate as the Japanese stock market did between ’96 and ’98.

via Zero Hedge http://ift.tt/1ZtkwX9 Tyler Durden

Safe haven buying is ignoring precious metals and piling into bonds today with the long-end notably outperforming (-6bps) today. This has compressed the yield curve even more, putting more and more pressure on the “rate-hike environment” hopers who bought banks like they were told…

 

 

This has compressed 2s30s below the “Dimon Bottom”

 

Fool me three times?

via Zero Hedge http://ift.tt/1U9oowZ Tyler Durden

Turkish President Recep Tayyip Erdogan is a man who knows something about “terrorists.” After all, he’s surrounded by them. Kurds are terrorists. Opposition lawmakers are terrorists. Journalists are terrorists. Lawyers are terrorists. Hell, even teachers are terrorists in Turkey these days.

Fortunately, Erdogan knows how to deal with the “problem.” Ideally you kill them, but if for whatever reason that’s not possible (turns out some people get all hung up over the whole “human rights” thing), you throw them in jail or you deport them. 

The other thing about Erdogan is that he’s an exceptionally benevolent man who just wants to help, which is why when he finds a militant he can’t kill and needs instead to deport, he likes to warn his “friends” in the EU that he’s sending trouble their way. On Wednesday, Erdogan claimed one of the Brussels attackers was deported to Belgium in June after Ankara determined that he was a “foreign fighter”. Here’s AP:

Turkish President Recep Tayyip Erdogan said one of the Brussels attackers was caught in Turkey in June and deported to Belgium.

 

Erdogan said Wednesday that the Belgian authorities released the suspect despite Turkish warnings that he was “a foreign fighter.”

 

Erdogan did not name the attacker.

 

He said the man was detained at Turkey’s border with Syria at Gaziantep and that Turkey formally notified Belgian authorities of his deportation on July 14.

 

Erdogan said “despite our warnings that this person was a foreign terrorist fighter, Belgium could not establish any links with terrorism.“

Under the EU’s new agreement with the Turks, Erdogan will effectively be responsible for vetting all Syrian refugees that enter Western Europe (that’s part of the whole one-for-one swap arrangement).

For his trouble, he’ll get as much as €6 billion from Brussels.

We suppose the above means the EU will be much safer now that Erdogan will be able to provide an early warning on potential jihadists. It’s a good thing Ankara has never been suspected of having any ties to Sunni extremist elements…

via Zero Hedge http://ift.tt/1U9oogz Tyler Durden

“My opponents have gone crazy, [but] let them come for me. I will hang on to power until the final day” — Nicolas Maduro

The history of postcolonial Latin American politics is replete with examples of turmoil and unrest and it now appears as though we may see not one but two coups before the end of the calendar year. The quote above is from Venezuela’s hapless autocrat who is desperately clinging to power by selling the country’s impoverished citizens on his own fantasy wherein Caracas is locked in an epic ideological struggle with Washington.

To the south, there’s a far more serious (in terms of ramifications for the global economy) drama playing out. Brazilian President Dilma Rousseff is locked in a battle for her political life and for the survival of the Worker’s Party, the leftist movement founded by her mentor and former President Luiz Inácio Lula da Silva.

Rousseff could be impeached as early as May on charges that she cooked the fiscal books in 2014 in the lead up to elections. The President is also attempting to dispel the notion that she was in any way involved in bribery and corruption at Petrobras, where she was chairman. So far, the car wash probe – which is being conducted by “rockstar” judge Sergio Moro – hasn’t reached the presidential palace’s doorstep, but Rousseff feared that might change when Lula was detained earlier this month. The former President’s arrest came after Senator Delcídio do Amaral delivered damaging testimony against Rousseff as part of a plea deal with prosecutors.

In order to save Lula (and likely herself) Rousseff offered her mentor a ministerial position that would shield him from prosecution. Long story short, the gambit backfired. Moro tapped her phone and released embarrassing tapes to the media triggering massive street protests, the courts blocked Lula’s appointment, and Rousseff’s enemies in Congress pointed to the Lula debacle as still more evidence of why she needed to be impeached.

Meanwhile, the economy continues to crumble.

That, in a nutshell, is where things stand now and despite the odds, Rousseff is doing her best Maduro impression. “I will never resign under any circumstances,” she told a gathering of legal experts on Tuesday. “I have committed no crime that would warrant shortening my term.”

That will ultimately be up to a newly-formed impeachment committee (¼ of which are themselves facing Supreme Court charges) and as Reuters notes, “the political survival of Brazil’s first female president depends largely on her main coalition partner, the centrist Brazilian Democratic Movement Party [where] growing numbers of lawmakers want the party to leave Rousseff’s government.” Although a decision could be reached at a March 29 executive committee meeting, some members of the party want to push a final ruling to April.

PMDB votes could ultimately decide Rousseff’s fate on the impeachment committee and if she is indeed ousted, party leader and VP Michel Temer would take over the presidency. Of course as Globo reminded us earlier today, Temer may himself be a target in investigators’ probe.

And while lawmakers and judges battle it out for political supremacy, the central bank and its beleaguered President Alexandre Tombini are desperately attempting to rein in excessive BRL strength in an effort to ensure the currency can adjust to macro fundamentals and thus help cushion the economy.

Reverse FX swaps have helped to put a lid on the BRL appreciation that’s accompanied growing calls for Rousseff’s ouster. Here’s the total stock as things stand now:

 

As Goldman wrote last week, “to increase the efficiency of the macro adjustment and lessen the output/employment loss of the required rebalancing, the authorities should restrain BRL/USD appreciation below 3.70.” We’re at 3.66 now:

Apparently, the BCB is going to try to thread the policy needle, as it were, by using reverse swaps to contain the pace of BRL appreciation while simultaneously using expected BRL strength to justify rate cuts. If that sounds like a difficult task to you, that’s because it is.

Anyway, the real economy continues to collapse. Last month was the worst February on record for jobs…

… as employment fell 3.6% Y/Y and real wages declined by 7.5%. Here’s Goldman’s breakdown:

Employment declined by a large 3.6% yoy (-841K jobs). However, the economically active population declined 1.1% yoy (-276K individuals left the labor force). The variation (decline) of the economically active population went in the opposite direction of the +1.4% increase in the working-age population. Hence, the significant decline in the participation rate prevented an even sharper acceleration of the unemployment rate.

We expect the labor market to deteriorate further. Policy tightening, depressed consumer and business confidence, and tighter financial conditions are expected to lead to a deep recession in 2015-16, visibly higher unemployment rates in 2015 and 2016, and declining real wage growth.

 

 

We also got a look at trade data for February and that too was disaster as the country posted a current account deficit of $1.9 billion for the month on expectations of a tiny $150 million shortfall. About the only thing good to say about it was that it was better than last February’s mammoth $7.2 billion deficit. Commenting, Goldman harkens right back to the BRL discussion: “Reacquiring export knowledge and rebuilding such a culture will likely take a few years of learning; something that requires the expectation of a relatively cheap-to-fair-value BRL for some time to come, and also a conservative monetary policy stance to induce a gradual but permanent decline in the relative price of non-tradable over tradable goods.” Again, a delicate monetary balancing act.

It’s truly difficult to know what to say at this point. The country is rapidly becoming a banana republic and may well go down in history as one of the most spectacular examples of economic and political backsliding the modern world has ever seen. We won’t even speculate on the fate of the Olympics.

We’ll simply close by paraphrasing something Lula said to Rousseff on one of the phone calls Moro secretly recorded last week: “It’s all fucked [and] everyone thinking that some kind of miracle is going to happen.”

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

Gold has historically rallied for at least 100 trading days after the first hike by the FOMC, but as HSBC's Jim Steel explains, this time it could be longer. Steel sees three key reasons to remain bullish and forecasts USD1,300/oz this year (though warns that beyond that level, physical demand may weaken and help curb further rallies.)

Tightening and gold

Background: The end of the long-run bull market

A perceived change in Fed policy brought the most recent long-run gold bull market to an end. After 12 consecutive years of positive performance, gold posted its first year of losses in 2013. Gold entered a bear market in April 2013, when bullion prices collapsed more than USD100/oz over a two-day time span. Sensing a shift in Fed policy, investors began liquidating bullion in earnest in April. Gold lost almost 14% of its value within two days after unprecedented amounts of futures were sold short, triggering several stop loss limits that caused a further cascade of selling. Heavy gold ETF liquidation also occurred.

Fed policy perception played a key role in the selloff. In May and June 2013, expectations of a Fed tapering of its QE program led to rising real interest rates and falling inflation expectations that, in turn, set off more gold selling. By the time the market steadied – due almost entirely to unprecedented China-led emerging market physical buying as prices slumped – gold had declined by almost a 25% in the second quarter alone. Declines continued over subsequent months but at a more moderate pace. Nonetheless, the market remained on a downswing up to December 2015, when prices fell to a cycle low of USD1,045/oz.

Fed tightening and gold: bullish at the start of the cycle

Gold prices resumed the upswing this year. But the resumption of Fed tightening raises concerns that the recent rally may be snuffed out by Fed rate rises. Tightening Fed policies, however, do not necessarily mean the end of the current rally. The role of the Fed’s tightening cycle is important in determining USD levels (and therefore gold) and the shifts in US rate expectations continue to influence the greenback. HSBC’s FX team has pointed out in previous reports that history suggests the USD tends to weaken after the Fed raises rates. Looking at the previous four Fed tightening cycles that have happened over the past 30 years, the USD has fallen in the period immediately after the first rate rise.

The converse happens for gold. Charts 1-4 below and on the next page show that gold prices tend to rally as Fed tightening cycles get underway. Gold prices weaken going into a tightening cycle and then rally for the next 100 trading days. We seem to be well into this period but given that rate hike expectations continue to be pushed into the future (HSBC economists expect a hike in June), we expect the gold rally to last even longer.

Gold and rate hikes

This time we see room for the gold rally to be extended

Gold is still recalibrating after the 2013-2015 sell-offs. This notwithstanding, gold has already rallied more than USD200/oz, or more than 20%, since hitting cycle lows in December 2015 and the ceiling for gold may be approaching. Our top-end forecast for gold is USD1,300/oz this year. Beyond that level, physical demand may weaken and help curb further rallies.

Three reasons to remain bullish gold:

• Dovish FOMC,
• Bearish view on the USD
• Negative rates

A more dovish FOMC 

A major plank in our thesis that gold is likely to remain reasonably well-bid rests on our view that the gold market is adjusting to fewer potential Fed rate hikes and, in totality, a very shallow hiking cycle. This week’s scaling back by the FOMC of its forecasts for lifting interest rates later this year triggered a gold rally and the ratcheting down of rate hike expectations to two 25bp point increases from four previously, is likely to keep the market buoyant. Simply put, the longer the Fed holds its fire in raising rates, the better for gold.

USD to weaken

How the financial markets and, more specifically, the foreign exchange markets react going forward, will be of key importance for gold. Given that this week’s FOMC meeting was more dovish than expectations means it could spur on the broader theme of USD weakness that HSBC’s FX strategists have highlighted was already getting traction. This is bullish for gold. According to HSBC FX research, some of the bull USD argument is predicated on anticipated Fed rate hikes. The Fed, however, has commented repeatedly on the negative impact of a strong USD on import prices in depressing inflation. Although off its recent highs, the USD is still 20% stronger than it was two years ago. A stronger USD reduces the need for Fed tightening. If this is the main reason to buy the USD, it may become self-defeating at high USD levels. This runs counter to the argument for a stronger USD predicated on rate tightening and is, therefore, gold bullish. The USD gained (and gold weakened) last year on the divergence of monetary policies. This is no longer happening and we are now seeing more of a convergence. The US Fed has revised its rate projections lower, while the ECB and Bank of Japan are no longer chasing their currencies lower. HSBC FX research continues to expect EUR-USD to finish the year at 1.20, which supports our view of firm gold prices.

Negative rates

A third pillar of support for gold is the global phenomenon of negative interest rates. As we highlighted in Gold rally: Gold glows in a negative rate world, 11 February 2016, gold is one of the few beneficiaries of negative interest rates and deteriorating risk sentiment. With an increasing number of central banks implementing a negative rates policy, and this reflecting continued economic weakness, we expect gold to be supported by this backdrop. Negative rates are a sign of distress, which may increase flight-to-quality demand for gold. They lower the opportunity cost of owning gold and therefore encourage purchases. If the negative rates are deep enough or persist long enough they may encourage the hoarding of cash and gold. Gold may be a better alternative to cash in some cases as gold does not carry the risk of central bank ntervention by a monetary authority wishing to limit its currency’s appreciation.

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

Submitted by Soeren Kern via The Gatestone Institute,

The terrorist attacks on the airport and metro in Brussels are casting a spotlight, once again, on Belgium's ignominious role as a European haven for jihadists.

Several distinct but interconnected factors help explain why Brussels, the political capital of Europe, has emerged as the jihadist capital of Europe.

Scenes from the jihad on Belgium: The aftermath of yesterday's bomb attacks at the Brussels airport (left) and a metro station (right).

Large Muslim Population

The Muslim population of Belgium is expected to reach 700,000 in 2016, or around 6.2% of the overall population, according to figures extrapolated from a recent study by the Pew Research Center. In percentage terms, Belgium has one of the highest Muslim populations in Western Europe.

In metropolitan Brussels — where roughly half of Belgium's Muslims currently live — the Muslim population has reached 300,000, or roughly 25%. This makes Brussels one of the most Islamic cities in Europe.

Approximately 100,000 Muslims live in the Brussels district of Molenbeek, which has emerged as the center of Belgian jihadism.

Parallel Societies

Belgium's radical Islam problem originated in the 1960s, when Belgian authorities encouraged mass migration from Turkey and Morocco as a source of cheap labor. They were later followed by migrants from Egypt and Libya.

The factories eventually closed, but the migrants stayed and planted family roots. Today, most Muslims in Belgium are the third- and fourth-generation offspring of the original migrants. While many Belgian Muslims are integrated into Belgian society, many others are not.

Growing numbers of Belgian Muslims live in marginal districts — isolated ghettos where poverty, unemployment and crime are rampant. In Molenbeek, the unemployment rate hovers at around 40%. Radical imams aggressively canvass the area in search of shiftless youths to wage jihad against the West.

Salafism

As in other European countries, many Muslims in Belgium are embracing Salafism — a radical form of Islam — and its call to wage violent jihad against all nonbelievers for the sake of Allah.

Salafism takes its name from the Arabic term salaf, which means predecessors or ancestors — meaning of Mohammed. Salafists trace their roots to Saudi Arabia, the Mohammed's birthplace. They glorify an idealized vision of what they claim is the true, original Islam, practiced by the earliest generations of Muslims, including Mohammed and his companions and followers, in the 7th and 8th centuries. The aim of Salafism is to recreate a pure form of Islam in the modern era.

This goal presents serious problems for modern, secular and pluralistic states. A recent German intelligence report defined Salafism as a "political ideology, the followers of which view Islam not only as a religion but also a legal framework which regulates all areas of life: from the state's role in organizing relations between people, to the private life of the individual."

The report added: "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."

Although Salafists make up only a small fraction of Europe's burgeoning Muslim community, authorities are increasingly worried that many of those attracted to Salafi ideology are impressionable young Muslims who may be receptive to calls for violence in the name of Islam.

Sharia4Belgium

Before the rise of the Islamic State, the best-known Salafist group in Belgium was Sharia4Belgium, which played an important role in radicalizing Belgian Muslims.

Sharia4Belgium was outlawed in February 2015, when its leader, Fouad Belkacem, was sentenced to 12 years in prison. A partial archive of the group's former website can be found at the Internet Archive. There Sharia4Belgium issues an invitation to all Belgians to convert to Islam and submit to Sharia law or face the consequences. The text states:

"It is now 86 years since the fall of the Islamic Caliphate. The tyranny and corruption in this country [Belgium] has prevailed; we go from one scandal to another: Economic crises, paedophilia, crime, growing Islamophobia, etc.

 

"As in the past we [Muslims] have saved Europe from the dark ages, we now plan to do the same. Now we have the right solution for all crises and this is the observance of the divine law, namely Sharia. We call to implement Sharia in Belgium.

 

"Sharia is the perfect system for humanity. In 1,300 years of the Islamic state we knew only order, welfare and the protection of all human rights. We know that Spain, France and Switzerland knew their best times under Sharia. In these 1,300 years, 120 women were raped, which is equal to 120 women a day in Europe. There were barely 60 robberies recorded in 1,300 years.

 

"As a result, we invite the royal family, parliament, all the aristocracy and every Belgian resident to submit to the light of Islam. Save yourself and your children of the painful punishment of the hereafter and grant yourself eternal life in paradise."

A cache of the background image for the Sharia4Belgium website has the black flag of jihad flying above the Belgian Parliament. Until recently, the Sharia4Belgium YouTube page (also shut down) was used to incite Muslims to jihad. The group had posted videos with titles such as, "Jihad Is Obligatory," "Encouraging Jihad," "Duelling & Guerrilla Warfare," and "The Virtues of Martyrdom." Thus Sharia4Belgium paved the way for the Islamic State in Belgium.

Belgian Jihadists

One of the smallest countries in Western Europe, Belgium has become Europe's biggest per capita source of jihadists fighting in Syria and Iraq. According to data provided by Interior Minister Jan Jambon on February 22, 2016, 451 Belgian citizens have been identified as jihadists. Of these, 269 are on the battlefields in Syria or Iraq; 6 are believed currently to be on their way to the war zone; 117 have returned to Belgium; and 59 attempted to leave but were stopped at the border.

According to Jambon, 197 of the jihadists are from Brussels: 112 are in Syria while 59 have returned to Belgium. Another 195 jihadists are from Flanders: 133 are in Syria while 36 have returned.

Belgium is the EU's leading supplier of jihadists to the Islamic State per capita: around 40 jihadists per million inhabitants, compared to Denmark (27), Sweden (19), France (18), Austria (17), Finland (13); Norway (12), UK (9.5), Germany (7.5) and Spain (2).

Official Incompetence?

During the past 24 months, at least five jihadist attacks have been linked to Belgium. In May 2014, jihadists attacked the Jewish Museum in Brussels. In August 2014, a jihadist with links to Molenbeek attacked an Amsterdam-to-Paris train. In January 2015, Belgian police carried out an anti-jihadist raid in Verviers, Belgium.

In November 2015, it emerged that two of the eight jihadists who struck Paris were residents of Brussels. Police on March 18 arrested Salah Abdeslam, a Belgian-born French national of Moroccan origin, for his role in the Paris attacks. He had been months on the run. On March 22, jihadists once again struck Brussels.

After the Paris attacks in November 2015, Belgian Prime Minister Charles Michel said: "There is almost always a link with Molenbeek. That's a gigantic problem. Apart from prevention, we should also focus more on repression."

Interior Minister Jambon added:

"We don't have control of the situation in Molenbeek at present. We have to step up efforts there as a next task. I see that [Molenbeek] Mayor Françoise Schepmans is also asking our help, and that the local police chief is willing to cooperate. We should join forces and 'clean up' the last bit that needs to be done, that is really necessary."

The latest attack in Brussels, however, indicates that Belgian authorities still do not have the jihadist problem under control.

A Belgian counterterrorism official said that due to the small size of the Belgian government and the large numbers of ongoing investigations, virtually every police detective and military intelligence officer in the country was focused on international jihadi investigations. He added:

"We just don't have the people to watch anything else and, frankly, we don't have the infrastructure to properly investigate or monitor hundreds of individuals suspected of terror links, as well as pursue the hundreds of open files and investigations we have. It's literally an impossible situation and, honestly, it's very grave."

An American intelligence official reportedly said that working with security officials there was like working with children:

"Even with the EU in general, there's an infiltration of jihadists that's been happening for two decades. And now they're just starting to work on this. When we have to contact these people or send our guys over to talk to them, we're essentially talking with people who are — I'm just going to put it bluntly — children. These are not pro-active, they don't know what's going on. They're in such denial. It's such a frightening thing to admit their country is being taken over."

In November 2015, the New York Times published a scathing analysis of Belgian incompetence. It emerged that a month before the Paris attacks, Molenbeek Mayor Schepmans received a list with the names and addresses of 80 jihadists living in her district. The list included two brothers who would later take part in the November 13 attacks in Paris.

According to the Times, Schepmans said: "What was I supposed to do about them? It is not my job to track possible terrorists. That is the responsibility of the federal police." The Times continued: "The federal police service, for its part, reports to the interior minister, Jan Jambon, a Flemish nationalist who has doubts about whether Belgium — divided among French, Dutch and German speakers — should even exist as a single state."

An Artificial State

Belgium, nestled between France, Germany, Luxembourg and the Netherlands, was established in 1830 to serve as a neutral buffer state between the geopolitical rivals, France and Germany. Belgium's role as a buffer state effectively came to an end after the end of the Second World War and the subsequent move toward European integration. Over time, Brussels emerged as the de facto capital of the European Union.

For the past three decades, Belgium has faced an existential crisis due to growing antagonism between the speakers of Dutch and French. One observer wrote:

"The country operates on the basis of linguistic apartheid, which infects everything from public libraries to local and regional government, the education system, the political parties, national television, the newspapers, even football teams. There is no national narrative in Belgium, rather two opposing stories told in Dutch or French. The result is a dialogue of the deaf."

This dysfunction extends to Belgian counter-terrorism. The New York Times observed:

"With three uneasily joined populations, Belgium has a dizzying plethora of institutions and political parties divided along linguistic, ideological or simply opportunistic lines, which are being blamed for the country's seeming inability to get a handle on its terrorist threat.

 

"It was hardly difficult to find the two Molenbeek brothers before they helped kill 130 people in the Paris assaults: They lived just 100 yards from the borough's City Hall, across a cobblestone market square in a subsidized borough-owned apartment clearly visible from the mayor's second-floor corner office. A third brother worked for Ms. Schepmans's borough administration.

 

"Much more difficult, however, was negotiating the labyrinthine pathways that connect — and also divide — a multitude of bodies responsible for security in Brussels, a capital city with six local police forces and a federal police service.

 

"Brussels has three Parliaments, 19 borough assemblies and the headquarters of two intelligence services — one military, one civilian — as well as a terrorism threat assessment unit whose chief, exhausted and demoralized by internecine turf battles, resigned in July but is still at his desk.

 

"Lost in the muddle were the two brothers, Ibrahim Abdeslam, who detonated a suicide vest in Paris, and Salah, who is the target of an extensive manhunt that has left the police flailing as they raid homes across the country."

The language issue also affects integration. As a Washington Post analysis explains, "Many jobs in Brussels require knowledge of French, Flemish or Dutch, and now sometimes English, too, while most immigrants speak mostly Arabic and some French. That has blocked integration."

Open Borders

The so-called Schengen Agreement, which allows for passport-free travel throughout most of the European Union, has allowed jihadists posing as migrants to enter Europe through Greece and make their way to northern Europe virtually undetected.

In an interview with Breitbart London, Dutch Politician Geert Wilders, currently on trial in the Netherlands for free speech, said:

"Returned Syria fighters are a huge threat. They are dangerous predators roaming our streets. It is absolutely unbelievable that our governments allow them to return. And it is incredible that, once returned, they are not imprisoned.

 

"In the Netherlands, we have dozens of these returned jihadists. Our government allows most of them to freely walk our streets and refuses to lock them up. I demand that they be detained at once. Every government in the West, which refuses to do so, is a moral accessory if one of these monsters commits an atrocity.

 

"The government must also close our national borders. The European Union's Schengen zone, where no border controls are allowed, is a catastrophe. The Belgian Moroccan Salah Abdeslam, the mastermind of last November's bloodbath in Paris, travelled freely from Belgium to the Netherlands on multiple occasions last year.

Wilders concluded: "This is intolerable. Open borders are a huge safety risk. Our citizens are in mortal danger if we do not restore control over our own national borders."

via Zero Hedge http://ift.tt/1Zt4sVy Tyler Durden

Lately being a bear has meant sharing quite a crowded field. First it was JPMorgan, which not only said to sell any rallies, but three weeks ago said it had gone “underweight stocks for the first time since the financial crisis“; then technicians such as Evercore ISI summarized their sentiment as follows “I’m out; my bullish tactical call is over“, and then on Monday, even Goldman jumped on the bandwagon urging clients “to go to cash” ahead of “expected elevated volatility” and that the “current relief rally” is almost over.

Today, it’s the turn of UBS’ technicians, Michael Riesner and Marc Muller, best known for calling both of the last two market selloffs in advance (and the concurrent jump in gold), as well as timing the Feb.11 market bottom with uncanny perfection, have joined the bearish chouse, with a simple plea: “SPX Reaching 2050 Target … Take Profit/Sell!”

This is their call in a nutshell:

Last week, we saw the suggested overshooting into expiration and the SPX reached the upper end of our projected late Q1/early Q2 target at 2050, which leaves the short-term picture in the US unchanged as to what we highlighted last week. With the rally of the last few weeks and looking at our daily trend work, the SPX has reached its most overbought position since 2009!! Together with significant non-confirmations in our medium-term momentum work, and trading in the time window of our late Q1/early Q2 top projection, we see the market vulnerable for a significant reversal this week, which we would see as the beginning of a tactical top building process and subsequent correction into deeper Q2. We reiterate our last week’s comment and would not chase the market on current elevated levels.

The details:

After being aggressively oversold, we saw the February 11th risk bottom as the basis for a multi-week bear market rally in global equities into the late March/early April timeframe with a price target 2000/2050 in the SPX before starting a new significant tactical down leg into deeper summer. Last week, we said that a final overshooting into expiration is still likely, but particularly in the week after triple witching we very often see important tactical trend reversals in the market.

 

 

With last week’s extension, the SPX has reached the upper end of our suggested 2000/2050 late March/early April target range, and with this move the technical in the US has obviously not changed. The February/March rebound was nearly vertical, which is not sustainable. On the indicator side we now have exactly the same setup as in early February but just the other way around. Looking at our daily trend work, we highlighted the US market siting in the most aggressively oversold position since its 2008 panic low and it was one of our key arguments for anticipating a significant and longer lasting rally. With last week’s extension our daily trend work has reached its most overbought position since 2009. Together with our weekly momentum reaching overbought extremes we have a relatively high likelihood of seeing the market move into an important medium-term top followed by a significant setback. Even if our big picture market view (US and global equity markets are in a cyclical bear market that we expect to continue into Q1 2017) proves to be too bearish, with such an indicator setup we should see the US market minimum ahead of a multi-week consolidation pattern, where we should see higher volatility and therefore a significant pullback.

 

 

 

Conclusion: The US market is extremely overbought, and from a cyclical standpoint the SPX is trading in the time window of our late March/early April top projection. In this context, we see the US market vulnerable for a significant reversal this week, which we would see as the beginning of a tactical top building process and subsequent correction into deeper/later Q2. On the upside, the SPX has resistance at 2050 and in case of further overshooting we can see 2075/2080. A re-break below 2024 would be initially negative. A break of 2005 would imply that a more important tactical top is forming. From a cyclical aspect we see an initial pullback into first week April where we expect the SPX to test 2000/1970. We reiterate our last week’s call and would use strength to sell instead of chasing the market on the upside.

 

 

Will the Riener-Muller duo make it 4 out of 4 in recent predictions? Keep an eye on the S&P: if we take out the 2034 support level which pushes the market back to red for the year, the answer will be a redounding yes.

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

The horrific events in Brussels are still resonating across Europe today. And, as Bloomberg's Mark Cudmore explains, despite what many analysts are saying, the real impact is likely to be more widespread than the very intense emotional anguish.

Mohamed El-Erian — a regular Bloomberg columnist — has been one of the most high-profile commentators to express the view that the “macroeconomic effects tend to be limited, and they fade,” in reference to acts of terrorism.

Sadly, that may not be the case this time.

While most global markets seemed to be quick to neutralize the price impact yesterday, the whole European Union project is under threat and markets are waking up to that…

This attack will have three geopolitical aftershocks beyond the human tragedy.

It further undermines an already fragile Schengen agreement. Not only does the step-up in border controls have significant financial, bureaucratic, time and efficiency costs, but it erodes one of the fundamental pillars of the EU.

 

Pro-integration establishment politicians will suffer in the polls across Europe. Angela Merkel, who has been so crucial in keeping the EU together over the last decade, may be compromised more than most, as criticism of her open-arms approach to refugees has jumped to the forefront of domestic politics.

 

Finally, this terrible incident marginally increases the probability of Brexit, which in itself would be a major blow to the EU and set a dangerous precedent that greater integration isn’t inevitable.

The Brexit-related reaction has three parts in itself:

there will be an increase in anti-immigration sentiment;

 

it feeds the perception that the U.K. is not necessarily safer within the EU; and

 

it does nothing to counter the circular argument that because the EU is a weakening construct, it’s better to jump early and avoid the rush.

The cost of hedging against sharp swings in sterling surged to its highest ever on Wednesday as investors stepped up to protect themselves from the uncertainty of Britain's upcoming vote on whether to stay in the European Union.

 

The personal and individual scars of previous terrorist attacks remain long after the fading of market and economic impacts. This time, I fear that the geopolitical effects will also persist.

via Zero Hedge http://ift.tt/1pyHj7v Tyler Durden