Archive - Aug 2014

Sorry Ukraine, but when Europe has to choose between you and Russian gas, the gas wins every time.

While Einstein defined insanity as repeating the same behavior and expecting different results, it appears President Obama's administration defines that action as US foreign policy. Just as they did in Syria (where the US 'trained' moderate Al Qaeda terrorists, instead of "sending troops" - ensuring no 'boots on the ground' blowback), AP reports that the US is sending arms to the Kurds as their new proxy mercenary force in Northern Iraq. We are sure the result will be different this time?

Tragically, the inability of our institutions to impart the skills required by the emerging economy hobble not just the unemployed but employers.

• Maliki digs in as U.S. pushes for new Iraq government (Reuters)
• Ukraine's forces say close to taking rebel-held Donetsk (Reuters)
• Anger Over Michael Brown Shooting Leads to Looting (WSJ)
• German Economy Backbone Bending From Lost Russia Sales (BBG)
• Kinder Morgan to Consolidate Empire (WSJ)
• Early Failure to Detect Gaza Tunnel Network Triggers Recriminations in Israel (WSJ)
• You’ll never guess how much BuzzFeed raised from Horowitz (FT)
• The dumb money is now chasing Chinese oligarchs: Norway’s Wealth Fund Buys $576 Million of Mayfair Area (BBG)
• Clinical trial to start soon on GSK Ebola vaccine (Reuters)
• No drone skeet shooting any time soon (WSJ)

One notices how the United States never has to go in with the military and bail out the Scandinavian countries? At some point the Iraqi people will have to take responsibility for how they want to live and deal with the consequences of these choices.

Since there is nothing on today's data docket, it will be all about, you guessed it, geopolitical risks, where "consensus" is best summarized by these two Bloomberg headlines:

• Stay USD Long as Geopolitical Risks Loom
• USD is mixed and world stock markets rise as concerns over geopolitical risks ease

That pretty much covers it, although in addition to the Ukraine civil war one can now add an Iraq coup to the list of geopolitical fiascoes instigated by US foreign policy.

Just days after the US launched a campaign that implicitly aides the current regime headed by the supposedly outgoing PM, al-Maliki, it appears that latest US intervention has already led to "unexpected" consequences, this time with the prime minister appearing to have just staged a coup overthrowing Iraq's president President Fouad Massoum moments ago.

This week, President Barack Obama announced that he was authorizing American airstrikes in Iraq. He described his intervention as a “humanitarian effort to help save thousands of Iraqi civilians who are trapped on a mountain” and as an effort “to protect our American personnel.” One word that he didn’t mention is “oil,” but it lies near the center of American motives for intervention.

When it comes to ancient wonders of the world, there is the tower of Babel, and to a lesser extent, the leaning tower of Pisa. Sadly, modern wonders leave something to be desired: case in point, this 30 metres high garbage mountain at the crossroad of Huanghe avenue and Zhufeng street of Shijiazhuang, central China's Hebei province. The garbage mountain has been piled up as high as a 9-story Building in the last 30 years. The local village committee now is dealing with these wastes: best of luck. And to think all it took were several trillion in non-performing loans...

A month ago we explained that 11.7% of the world's population was at war and mapped out the key global geopolitical hotspots. However, while Israel, Palestine, Ukraine, and Iraq monopolize the headlines nowadays, they are not the only groups currently at war. Serious armed conflicts are happening all over the world - we just don't hear about them. Here's our complete list of the wars happening right now...

Please do not worry...

Our impression is that today’s near-absence of risk premiums is both unintentional and poorly appreciated. We shudder at how much risk is being delivered – knowingly or not – to investors who plan to retire even a year from now. Barron’s published an article on target-term funds last month with this gem (italics mine): “JPMorgan's 2015 target-term fund has a 42% equity allocation, below that of its peers. Its fund holds emerging-market equity and debt, junk bonds, and commodities.” We don't believe that risk has been permanently removed from risky assets. The belief that it has is itself the greatest risk that investors face here.

With Ukraine shelling having killed 52 civilians in the city of Horlikva (Donetsk region) over the last two weeks alone, Russia is growing increasingly vocal of the need for a humanitarian cease-fire (notably with Germany also "concerned about the humanitarian situation" in Ukraine). However, as AP reports, fighting raged once again today as Ukrainian forces killed 1 and injured 10 in Donetsk, ignoring calls for a cease-fire. Andriy Lysenko, a spokesman for Ukraine's National Security and Defense Council, said the only way for the rebels in Donetsk to save their lives would be to "lay down their arms and give up." Meanwhile, just as we warned, the mainstream media is starting to pick up on the 'other' border dispute that Russia is involved in as Putin mediates talks between Armenia and Azerbaijan.

“Train wreck is a pretty good term to describe what is coming.  But this train wreck isn’t simply going to hit a wall out of the blue. Actually, it has been forming and accumulating and expanding for many years now, and yet it has simply been ignored, particularly by the financial markets which have ridden this bubble to these extreme and historic heights. The only issue is, when does it hit the wall?  The answer to that question is it’s not very far down the road, and I can promise you that is when all hell is going to break loose.”