Archive - Jun 16, 2014

With this unprecedented step, the Fed is sending a very clear message: it may be next year, or next month, or next week, but quite soon you, dear retail bond-fund investor, will be gated and will be unable to pull your money.... So wouldn't you rather just keep said money in the "safety" of stock funds, none of which will ever, ever be gated, pinky swear.... Unless the market crashes one final time of course, at which point the Fed will be on the first flight out to non-extradition countries.

The situation in Iraq is serious, and is probably going to get worse before it gets better. The potential for this recent action to morph into a regional conflict is very high. That means that oil could go a lot higher, and if it does, we can expect the odds of a global economic recession and an attendant financial crisis to go up considerably from here. Before we dive into what's actually happening over there right now, we need to begin with a longer and deeper historical context of the region, which is essential to understanding pretty much everything in the Middle East. The western press likes to report on things as if they suddenly occur for no discernible reason, context-free and unconnected to our actions and activities over there. But the story of the Middle East is a story of intense external meddling -- especially by the US, recently.

With China's shadow banking system's collateral chain's collapsing amid government crackdowns on the ponzi, the 'desperate for liquidity' borrowers have increasingly turned to global capital markets' suckers to fund the next malinvestment. As China's currency becomes more internationalized and yields around the world collapse (thanks to central bank largesse), demand from investors has driven, for the first time ever, the Chinese corporate bond market has overtaken the United States as the world's biggest. As S&P warns, this is raising global credit risk as "as much as 10% of global corporate debt is exposed to the risk of a contraction in China's informal banking sector," or around $4-$5 trillion, "causing overall corporate risk to increase globally," and it's not expected to slow anytime soon. It appears the authorities are starting to recognize the bubble as they plan to 'limit individuals' purchases of risky bonds'.

Psychological Operations (PSYOP) has been alternatively known in the U.S. as Military Information Support Operations (MISO) since 2010. According to the U.S. Department of Defense, psychological warfare is, "The planned use of propaganda and other psychological actions having the primary purpose of influencing the opinions, emotions, attitudes, and behavior of hostile foreign groups in such a way as to support the achievement of national objectives." PSYOPS influence the behavior of governments, groups, organizations and individuals; and can be used during conflict or peacetime. With the world's geopolitics on edge, we thought now would be an appropriate time to look at just what PSYOPS are?

The Fed is now pre-occupied with an unanswerable and fanciful question, according to Jon Hilsenrath’s pre-meeting missive on the Fed’s current monetary policy “debate”. Figuratively estimating the number of angels which can dance on the head of a pin, Fed officials and economists suppose they can specify the the appropriate money market rate down to the decimal place for virtually all time to come... Of course, every one of these three magic numbers are perfectly arbitrary, academic and silly. Due to the structural failures of the US economy owing to decades of destructive Washington policies, the “unemployment rate” today is not remotely comparable to what was being measured in the 1950s and 1960s when today’s Keynesian theology with respect to the Phillips Curve, Okun’s Law and full-employment policy was being formulated.

So much can change over a weekend.

Despite Secretary of State John Kerry predicting today that Sunni militants in Iraq do not have the ability to overrun Baghdad, the Obama administration is willing to talk with Iran over deteriorating security conditions in Iraq and is not ruling out potential U.S.-Iranian military cooperation in stemming the advance of Sunni extremists. Speaking with Yahoo's Katie Kouric, Kerry confidently explained, "I don’t believe that they will in the near term certainly, and I don’t believe they necessarily can at all," overrun Baghdad or other major cities. Having "absolutely, unquestionably" denied that the turmoil in Iraq could have been prevented if US left a residual force, he somewhat shockingly submitted that the US is "open to any constructive process here [with Iran] that can minimize the violence, hold Iraq together, the integrity of the country and eliminate the presence of outside terrorist forces."

"In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” - The Fourth Turning - Strauss & Howe – 1997

So is it Call of Allah Duty, not so modern warfare? Or, to paraphrase John McClane from Die Hard, "now I have a tank. Ho-ho-ho."

The enemy of my enemy is no friend of mine...

UPDATE: Moar 'boots on the ground' - U.S. TO DEPLOY UP TO ABOUT 275 ARMED FORCES PERSONNEL TO IRAQ

If you like your boots on the ground, you can keep them - as long as they are Special Forces boots. Following promises that there would be no American "combat" 'boots on the ground', AP reports that President Obama is considering sending a small number of special forces to help the government in Baghdad. According to the official rules of "boots-on-the-ground"-edness, CIA and Special Forces do not count so 'officially' no promises have been broken. It's not clear how quickly the special forces could arrive in Iraq; or whether they would remain in Baghdad or be sent to the nation's north. With rumors of explosions rocking Baghdad airport, we suspect the former.

While handing out tax-paying citizens' cash to less tax-paying (but still voting) citizens in his latest bailout (of the student loan bubble) may seem to some just big-hearted, the quid pro quo appears to have just been unleashed. In a commencement address yesterday to graduates of UC Irvine, Bloomberg reports that Obama delivered one of his feistiest critiques of lawmakers; calling on Americans coming of age to demand that politicians respond more aggressively to climate change, comparing those skeptical about man-caused alterations to the environment to a belief that the moon is “made of cheese.”

In the rapidly unfolding events and chaos in Iraq, leaders of the semi-autonomous region of Kurdistan have capitalized on the situation to gain further leverage over the central government in Baghdad.

The tangled web of just who is friend and who is foe throughout the Middle East continues but one thing is sure, US politicians won't miss the chance to drum up some fearmongery. Sen. Lindsey Graham said that U.S. officials have warned the next major attack on U.S. soil could emanate from the region, adding "the seeds of 9/11s are being planted all over Iraq and Syria." Media is picking up on the meme fast - "This is a cauldron of future terrorist threats to the west," said CBS analyst and Ret. Gen. Peter Chiarelli, who said that "all Americans should be concerned" by ISIS' quick rise and success in Iraq. It appears simple - the US population must believe that only the US government can prevent the "imminent" threat (that ironically it funded and created). This is a win for both neo-cons (defense spending hoo-rah) and neo-liberals (cover for more boots-on-the-ground broken promises to come). The fearmongery has begun.

According to a new Gallup pole, a record amount of Americans now disapprove of President Obama. Now, this is nothing new. Presidential approval ratings go up and down, and Mr. Obama has had a long-term slide thanks to… oh, we don’t know… a total avalanche of foul-ups ranging from the Obamacare fiasco to the IRS targeting his enemies to the VA scandal to the intelligence community’s surveillance of the press, et cetera ad infinitum. But here’s the interesting thing– this poll about the President’s approval rating. It’s about his image– who he is as a person. Do Americans think he’s a trustworthy person with strong character? Nope. Not even close.