Month: August 2014

While bonds and stocks shrug off the volatility in FX markets, it appears the crude oil complex is suffering. Despite Putin’s discussion of “countermeasures”, crude oil prices have tumbled back under $97 to fresh 6-month lows. Brent Crude is notably not selling off (yet) as the spread pushed back above $8.

 

It appears the USD plunge and oil drop are related…

 

Brent-WTI back over $8…

 

 

Charts: Bloomberg

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While Jack lew promised the economic impact on the US economy of Russian sanctions would be minimal, the facts suggest the opposite. Admittedly, Russia is not the US’ largest trade partner but escalating sanctions have resulted in a 34% collapse in US exports to Russia – the largest absolute drop since 2010. Imports (from Russia) also fell (for the 3rd month in a row) but while the US is suffering ‘costs’ it is clear Russia is hurting more (for now – as Putin is set to unleash his countermeasures). Since sanctions began Russian stocks are up 9.5% and the S&P up 4.5% but the spread has collapsed in recent weeks.

 

Costs?

 

Costs? 3rd time the charm?

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1y6jzVC Tyler Durden

The Keynesian economists managing or advising the world’s Central Banks have always averred that they could pull us out of the weakest recovery in the post-WWII era if they were allowed to have their way.

 

Their “way” involves rampant debt monetization, also called Quantitative Easing or QE. Indeed, the primary argument from the Keynesians as to why QE has thus far failed to generate a rip-roaring recovery is that none of the QE programs in place were large enough.

 

Japan is where the Keynesian economic model rubber hit the road. In April 2013, the Bank of Japan announced a staggering $1.4 trillion QE program.

 

In today’s world of Central Banking madness, $1.4 trillion no longer sounds like an insane amount. So let me put this number into perspective…

 

$1.4 trillion is…

 

1)   The equivalent of 24% of Japan’s total annual economic output.

2)   Enough to fly every human being in Japan to California for a 2-week vacation.

3)   The equivalent of writing a check for $11,200 to every man, woman, and child in Japan.

 

Moreover, with $1.4 trillion, you could…

 

1)   Buy Australia’s entire economy for a year.

2)   Fund NASA for the next 82 years.

3)   Treat every person on the planet to a $200 five star-dinner at one of New York’s top restaurants.

 

For the US to engage in an equivalent amount of QE, it would have to announce a $3.7 trillion QE program. If Europe engaged in a QE program of this magnitude, it could buy back ALL of Spain and Greece’s debt outstanding.

 

Suffice to say, Japan’s QE was large enough that no one, not even the most stark raving mad Keynesian on the planet, could argue that it wasn’t big enough. Which is why the results are extremely disconcerting for Central Bankers at large.

 

Consider:

 

1)   The Yen lose an astounding 22% of its purchasing power.

2)   Japanese exports, denominated in units… haven’t changed.

3)   Over 77% of Japanese citizens not feeling as though Japan’s economy is improving.

4)   Japan’s Misery index rising to a 33 year high.

5)   The number of Japanese Households on welfare hitting a new record high in May 2014.

 

In simple terms, Abenomics has failed to revitalize Japan. Just as importantly, this failure is being noticed by the press (articles regarding the failure of Abenomics have emerged in Forbes, the Financial Times, and CNBC) and is costing Abe his popularity (his ratings have fallen from 75% at re-election to roughly 50% now).

 

Thus, the Bank of Japan’s massive QE campaign has revealed:

 

1)   That QE does not generate economic growth

2)   There will be political consequences for its failure

 

Now, Central Bankers will never openly admit that they or their policies have failed. But it is not coincidental that the Fed is actively tapering while Japan proves the Keynesian dream is in fact a nightmare. It is also not coincidental that the ECB’s balance sheet has shrunken over the same time period.

 

In simple terms, Japan has proven than QE and money printing do not result in economic growth. Heck, they don’t even boost exports: when you account for Yen depreciation, Japan’s exports are unchanged during Abenomics.

 

Now it’s just a matter of time before the markets figure out that Central bankers are out of ideas…

 

This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://ift.tt/170oFLH.

 

This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

 

Best Regards

 

Phoenix Capital Research

 

 

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Submitted by Pater Tenebrarum via Acting-Man blog,

Destroying Iraq's Cultural Heritage

The fundamentalist retro-gang that has conquered Northern Iraq has decided it needs to go Taliban on cultural monuments it disapproves of. One of the most recent outrages was the destruction of the tomb of Yunus, better known in the West as the prophet Jonah (yes, the biblical one who spent some time in the belly of a whale). Jonah is one of the prophets revered by both Christians and Muslims, so the motivation is not entirely clear. However, this is by far not the only ancient religious site ISIS has destroyed in the vicinity of Mosul. Reportedly the group has by now destroyed some 30 ancient shrines, churches, mosques and Hussainiyas in the area of Mosul alone. Oddly, this included at least four Sunni mosques, so there appears to be a certain degree of arbitrariness to these actions. Yazidi monuments are of course also on the list of things ISIS destroys whenever an occasion presents itself.

In short, the group is not only killing people that don't conform to its harsh version of Islam, it is also trying to erase all traces of their history and culture. It cares not one whit how old or unique these buildings and monuments are. For instance, the mosque of Yunus was built on an archeological site the oldest parts of which date back to the 8^th century BC. In short, there are buildings in Iraq that have survived 2,800 years of upheaval and strife, but they haven't survived the coming of ISIS. Apparently ISIS considers all the shrines and mosques it destroys “places of apostasy”. In the course of its rampage it has also burned the books of the Diyala province's library, so reading is apparently a no-no for ISIS as well.

It should be noted that this rabid interpretation of Sunni Islam is quite a retrogression from Islam as it was originally practiced in the centuries after its founding. The schism between Shi'ites and Sunnites of course goes back almost to the beginning of the Muslim religion. However, although the Muslim rulers of old were expansionist and not at all averse to warfare, were actually relatively tolerant of members of other religions living on their lands.

A tiny part of the traditions established at the time are even preserved by ISIS in a way. It reportedly gives Christians living in the areas of Iraq and Syria it controls the choice between conversion, paying the jizya tax, or death. The payment of this special tax was historically actually not regarded as an injustice, but was rather seen as an attempt to balance the Muslim zakat tax and so to speak create a level playing field. Of course for ISIS it is just another source of revenue.

It is quite ironic that one of the main financial backers of ISIS is finally getting worried a bit in light of all these events:

“Saudi Arabia is seeking help from Pakistan and Egypt to protect its borders and religious sites from attacks by the Islamic State (IS), formerly known as the Islamic State of Iraq and Greater Syria (ISIS), the International Business Times reported.

 

"The kingdom is calling in favors from Egypt and Pakistan. No one is certain what ISIS has planned, but it's clear a group like this will target Mecca if it can. We expect them to run out of steam, but no one is taking any chances," the International Business Times wrote Sunday citing an adviser to the Saudi government. The jihadist group started a large-scale offensive against Iraq’s Shiite government led by Nouri Maliki in June, aiming to seize Baghdad.

 

Militants have destroyed several prominent religious sites in the Iraqi city of Mosul, some 400 kilometers (nearly 250 miles) north of Baghdad, over the past weeks. The group defended their actions by saying, "The demolition of structures erected above graves is a matter of great religious clarity," according to Agence France-Presse.'

 

Among the levelled sites were some of the main mosques, the Nabi Yunus shrine (Tomb of Jonah) and a shrine to The Prophet Seth. Eleven sites of Christian worship have been destroyed, including the Chaldean archdiocese, as well as the Diyala Province Library, where approximately 1,500 books were burnt.

(emphasis added)

We would add to this that there is no proof that the Saudi government has done anything beyond tolerating that rich private Saudi citizens supported ISIS with donations, but let us apply some logical thinking here. This is an army that has grown from an “estimated 2,000 fighters” to “no-one knows how many fighters” practically overnight. As we have pointed out previously, it has quite a lot of sophisticated equipment at its disposal as well. Not only military equipment, but also things like construction machinery. It runs its own oil and gas fields and even has a kind of propaganda ministry capable of regularly putting out slickly produced recruitment videos. When it was recently reported that the group has taken over the Mosul dam, it was revealed that there are also numerous engineers in its ranks who have previously helped with employing water as a weapon to help its war effort (see also below).

So this is clearly not a fly-by-night operation at all, quite the contrary (for some additional background on this, here is a list of our previous articles on ISIS, or IS as it is now calling itself since it has proclaimed its caliphate, in chronological order:  “ISIS Attempts to Establish Islamist Caliphate” , “The Cheerful, Yet Lethal Prophet”, "Iraq Continues to Unravel” and "Islamic Caliphate Proclaimed”).

What can one conclude from this fact? That some unknown djihadist with the nom-de-guerre Abu Bakr al-Baghdadi managed to actually create a huge, well-trained and well-equipped army plus an apparatus that has many characteristics of a State, or better said, a well-run vertically integrated military-industrial-religious conglomerate, out of thin air? And every single intelligence agency in the world just happened to 'miss' that this was happening? Doesn't sound very credible, does it?

It seems far more likely that ISIS did in fact receive state support, quite possibly from more than just one state. Probably it was intended as a counterweight to Shi'ite (or Allawite), influence in Iraq and Syria, mainly in order to thwart Iran, resp. lessen its regional influence. Presumably, this abomination has eventually developed a dynamic of its own and has ultimately gotten out of control, big time.

 

The prophet Yunus Mosque before it was blown up by ISIS. Henceforth, it will forever remain a post card.

(Photo via beirut-today.com / Author unknown)

 

Water as a Weapon

Using water as a weapon in Iraq is not exactly a new idea. Saddam reportedly already considered flooding a large area of Iraq by blasting the Mosul dam so as to entrap the US army, but evidently reconsidered this course (too much damage would have been wrought). What he definitely did do was to divert water from the Southern Iraqi marshes, where Euphrates and Tigris meet – the largest area of natural wetlands in the Middle East. This was done to drive out the so-called Marsh Arabs, nomadic Shi'ites who have lived in the area for centuries. He actually managed to almost completely dry out this unique habitat, poisoning the soil over a vast area, as salts would no longer be washed out. In an astonishing demonstration of nature's persistence, the marshes have almost completely recovered since Saddam's exitus.

Anyway, Saddam was no doubt a fount of rationality and reserved politeness compared to ISIS. Hence recent news that the group had captured the huge Mosul dam was greeted with some trepidation – especially as the dam is already considered an accident waiting to happen, due to long neglected maintenance.

In the meantime it has emerged that Kurdish Peshmerga have apparently managed to hold or retake the Mosul dam, although these reports emanating from the fog of an ongoing war are probably not very reliable. After all, the ISIS takeover of the dam was originally reported by Kurdish forces as well, which incidentally lost three cities and an oil field to ISIS over the very same weekend. One thing is certain, if the ISIS leadership were to prove crazy enough to use the dam to create an artificial flood, it would be a gigantic catastrophe.

 

An aerial view of the Mosul dam

(Photo © Ali Haidar Khan)

 

A close up picture of the Mosul dam installations made by the US army corps of engineers in 2006. At the time it was already noted that the rickety structure was in urgent need of renovation. It may not even require sabotage by ISIS for a catastrophic breakdown of the dam to happen.

(Photo © Reuters)

Whether or not ISIS actually controls the dam, it definitely does control large parts of the upper reaches of both Euphrates and Tigris in Northern Iraq. With that it has already control over several major dams, and is presumably in a position to make life difficult for those living downstream. In fact, the New Scientist reported in mid June already that ISIS had apparently captured the Mosul dam (that is the one at “risk of collapse” in the excerpt below):

“Iraq is ancient Mesopotamia, the once-fertile floodplain of the Tigris and Euphrates that cradled the first human civilization. The rivers remain crucial to the farming on which most Iraqis depend, according to a report by the International Centre for Agricultural Research on the Dry Areas, which was once based in Aleppo, Syria, but has now decamped to Amman in Jordan to avoid fighting.

 

ISIS now controls several major dams on the rivers, for instance at Haditha and Samarra. It also holds one 30 kilometers north of Mosul that was built on fragile rock and poses a risk of collapse. It holds at least 8 billion cubic meters of water. In 2003, there were fears Iraqi troops might destroy the dam to wipe out invading forces. US military engineers calculated that the resulting wave would obliterate Mosul and even hit Baghdad.

 

ISIS has already used water as a weapon, in a smaller way. In late April ISIS stopped flow through the relatively small Nuaimiyah dam on the Euphrates in Fallujah, reportedly with the aim of depriving Baghdad and southern Iraq of water. It could also have been to block military approaches to the town.

 

Instead, the river backed up and poured into an irrigation canal, flooding the town of Abu Ghraib and dozens of surrounding villages over 200 square kilometers. Five people died, and 20,000 to 40,000 families fled to Baghdad. 

(emphasis added)

 

Dams allegedly controlled by ISIS as of mid June.

(Map via plattformbelomonte.blogspot.co.at)

 

As can be seen above, ISIS definitely doesn't shy away from using water as a weapon when it feels that occasion demands it.

 

ISIS Conquers its First Slice of Lebanon

In order to blackmail Lebanon's government into releasing one of its leaders who was recently captured, ISIS recently expanded its conquest into Lebanon as well, capturing the fairly large city of Arsal, in a Sunni majority region near the Syrian border. Arsal houses 40,000 regular residents and 120,000 Syrian refugees, so it is not just some hick town. According to the Wire:

“Militants associated with the Islamic State of Iraq and Syria (ISIS) captured the Lebanese city of Arsal in fighting that began on Friday and continued Monday.

 

According to The Telegraph, a Syrian rebel group set up check-points in the border city but have not yet declared the area as part of the caliphate. In addition to 40,000 residents, there are roughly 120,000 refugees living in Arsal.

 

The conflict broke out after the Lebanese Army arrested Abu Ahmad al-Jumaa, a former commander in the Free Syrian Army who later declared allegiance to ISIS. Officials said they arrested Jumaa because he planned to attack an army outpost.

 

Since the Syrian Uprising began in 2011, an estimated one million refugees have crossed the nearly 250 mile border from Syria into Lebanon, a number expected to hit 1.5 million by the end of 2014 The United Nation's Refugee Agency predicts.

 

The Sunni insurgents said they will leave Arsal if the government releases Jumaa, something Lebanese Prime Minister Tammam Slama flatly rejected on Monday. 

(emphasis added)

National borders haven't stopped ISIS before, and evidently the border between Syria and Lebanon isn't regarded as anything special by it either.  Moreover, this incursion potentially promises a to give it a chance to tussle with Hezbollah, the Shi'ite political party and militant group that predominates in Lebanon. Since its members are apostates in ISIS' book, it probably relishes the opportunity.

 

The Lebanese city of Arsal has been captured by ISIS as well now, so to speak in passing.

(Map via gotnewswire.com)

 

Amazingly, this happened practically concurrently with ISIS' forays into Kurdish held territory, which shows what enormous reach the organization actually has by now. It seems pretty clear that its membership is far larger than the estimated 2000 fighters that were attributed to it as recently as in April or May.

 

Conclusion:

Luckily, there is absolutely nothing to worry about. Not only do the Saudis believe that “ISIS will run out of steam” just before it gets to Mecca (see above), but more importantly, “the US State Department also issued a statement that it was “actively monitoring” the Iraqi situation” (apparently it neglected to “actively monitor” the Lebanese situation though).

What could possibly go wrong?

 

Addendum:  Even More War, Just Around the Corner …

Just in case you thought there wasn't enough bloodshed and war in the world just yet, another old conflict has just broken into the open again, namely the never-ending battle between Azerbaijan and Armenia over the Nagorno-Karabakh enclave.

“Azerbaijan and Armenia on Monday both reported more losses in a sharp escalation of fighting over the South Caucasus region Nagorno-Karabakh, with 18 soldiers now confirmed dead.” 

What the hell is going on we wonder? Is it something in the air? Note that all of this is happening with stock markets still fairly close to their recent all time highs. If the markets decline from here, it will signal a worsening social mood, which as a rule tends to invite even more war.

via Zero Hedge http://ift.tt/1y6jsJx Tyler Durden

… Is that Gartman, after flipflopping to bullish yesterday just in time for the plunge, is again bearish.

We have reduced our position in the market in the only account we manage directly… our own retirement funds… to a long position in aluminium still hedged with out-of-the-money puts and some remaining derivative positions. The “news” out of Russia yesterday was sufficient to keep us on the sidelines on balance, wanting to be bullish but unwilling to commit funds when the news is this “un-or-im” balanced, for discretion is always being the far better part of trading valour.

Expect stocks to turn green any second.

Then again, since Gartman is always bullish and bearish at the same time to protect virtual investors from virtual losses incurred with virtual money, it is a little more complicated than that…

We stand by the statement made late last week and earlier this that support in the futures should be strong at or near the 1865-1875 level and we shall turn rather more openly bullish of shares when that level is put to test, perhaps as early as today but more likely sometime later this week. If that support is broken, then the real, very long term support shall not be evident until the S&P were to trade down to 1750.

Uh, ok.

via Zero Hedge http://ift.tt/1tXroz2 Tyler Durden

Just in case the legacy of Abenomics wasn’t clear enough (it should have been after we reported that its legacy is “Japan’s Greatest “Misery” In 33 Years“), here is another confirmation that in the New Normal, only bad things happen when you forget to BTFD.

From Japan Times:

The number of households on welfare in Japan hit a record high of 1,603,093 in May, up 2,852 from the previous month, the Health, Labor and Welfare Ministry said on Wednesday. The rise came as a growing number of single-person elderly households, or people aged 65 or older who are living alone, became recipients, ministry officials said.

 

According to the ministry’s May survey, 751,363 families, or 47.1 percent of the total recipient households, comprised only the elderly or the elderly plus unmarried members younger than 18.

 

Elderly households on welfare increased, but fewer families without fathers or with sick or disabled members received benefits, the officials said.

Of course, if you ask any Keynesian, record households on welfare is nothing more than pent up record trillionaires (if only in devalued currency terms, but who cares about specifics).

via Zero Hedge http://ift.tt/1nsL7hZ Tyler Durden

No headlines on the tape for now but suddenly the world wants out of Dollars… (world’s FX traders searching for Sikorski and Putin’s “sell” button)… It appears led by major JPY buying as someone just puked a huge carry trade (25,000 JPY futures contracts or around $3 billion notional).

USD flash crashes…

 

Led by heavy volume in JPY (JPY buying or carry unwinds)

 

Heavy volume in futures…(25,000 JPY futures contracts or around $3 billion notional in the surge)

 

With USDJPY’s biggest drop in 4 months…

 

Whocouldanode: 50 minutes ago…

FX vol is coming http://ift.tt/1vbkQ1r

— zerohedge (@zerohedge) August 6, 2014

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