Archive - Jun 2014

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.

Market extremes generally share a common formula. One part reality is blended with one part misguided perception (typically extrapolating recent trends as if they are driven by some reliable and permanent mechanism), and often one part pure delusion (typically in the form of a colorful hallucination with elves, gnomes and dancing mushrooms all singing in harmony that reliable valuation measures no longer matter). This time is not different.

This entire bailout farce is now beyond simply criminal and purely ridiculous: as of this moment, GM has recalled more than double the number of cars it sold in all of 2013, or, another way of putting it, more than the total number of cars it sold in 2013 AND 2012 combined.

Treasuries oscillated in a 3-4bps range all day to end flatter with 30Y -1.5bps and 2Y +1.5bps as stocks flip-flopped around like Charlie Sheen in a Phat Phong whorehouse. Trannies resumed their post-Iraq drop (-0.3% today) but high-beta honeys sent Russell 2000 up 0.4% with the S&P and Dow unchish. Stocks recoupled with bonds after 2 attempts to spark new all time higherer highs. Ahead of this week's FOMC, the USD weakened as EUR gained and oil, gold, and silver all slipped in a highly correlated manner. VIX rose 0.4 vols to 12.6 - notably decoupling from the S&P as Iraq/Fed uncertainty prompted some hedging. The now ubiquitous buying panic took hold at 330ET and Russell closed at highs of the day.

As a helpful hint for the Federal Reserve - who appear concerned about "financial instability" - we thought the following chart might suggest where to look for 'irrational' investors...

With Iraq having succumbed to sectarian violence worse than anything observed in recent history, which accordint to many was merely exacerbated by US neocon ambitions to feed the ravenous military industrial complex, one can easily discard the opinion of all those on both sides of the argument - first those who said a US intervention was critical, as well as those who demanded a pull out. In fact, the only person who has preserved any credibility, and has not been "surprised" by the recent developments - is the man who said to never get involved in the first place - Ron Paul. But what about those who were tasked with implementing US foreign policy, flawed as it may have been: America's veteran troops.

Back in Feb 2013 we introduced the "Brent Vigilantes" and reminded traders how stock markets (and macro economies) react to shifts in the oil price with the two trading together to a 'tipping point' at which point strocks belief in growth breaks. We further confirmed that this is even more worrisome in the case of an oil price shock which strongly suggests that VIX at 12 is not pricing in the volatility that we have seen in the past when the oil complex starts to shake.

Bad data, don't worry, the central bank's got your back; Good data, don't worry, the central bank promised to stay easier for longer and longer (no matter how good things appear from the data). That's the meme that has driven the short-end of the world's largest bond markets to record lows. And then, just as the world's bond traders think they have the central banks understood, the Bank of England drops a tape-bomb...

For the moment, it is hard to see how anything can be salvaged in Iraq. You can be sure that Obama will be blamed both for pulling out in 2011 and then not going back to war, to protect our two trillion dollar previous investment. We have to imagine that distrust for civilian control of the US military by a corps of rising officers will reach never-before-seen depths. It may not be expressed right away, but the knock-on effects of political breakdown in the Middle East could go long and far in upsetting US politics. The defeat of Eric Cantor is just the beginning of what could be the unraveling of the federal system.

Fresno police have arrested a 64-year-old man suspected of cooking methamphetamine in his apartment at a retirement community. KFSN-TV reports Robert Short was pulled over as part of a routine traffic stop late Saturday and officers found meth in his car. Investigators then went to Short’s apartment in the California League-Fresno Village, where they found a half pound of meth, heroin and materials for a meth lab.