Archive - Sep 2013 - Story

There are some in Congress who may be fooled by a few YouTube videos, but the international community, especially the part of it that may soon be on the receiving end of a few hundred of Raytheon's finest, is proving far less gullible.

Current US Treasury issuance is relatively low due to sequestration and (at least temporarily) less US warmongering in the Middle East. That's about to change, of course, now that the US is getting ready to launch a Cruise missile attack on Syria (we’re already been arming and financing the opposition rebels, including groups directly linked to al-Qaeda for several years now). Bernanke and the Fed doves would like nothing better than another “controlled” war in the Mideast, because with war comes massive debt issuance, and with massive debt issuance comes the transmission mechanism (QE) for monetizing that debt and mainlining it onto the Wall Street banks' broken balance sheets. And yes, they’re still broken, and Ben is still bailing them out at the expense of the American middle class. Make no mistake, Jamie Dimon, Lloyd Blankfein, and every other complicit banker on the Street has no problem with this, or any other, war, regardless of whether such a conflict would destabilize the entire region and would almost assuredly pull Russia and China into the fray. The more the merrier, just keep letting that free QE monopoly money roll in from the 4X weekly Federal Reserve Permanent Open Market Operations (POMO’s).  And with the significant financing needs for a large war effort in the Middle East, say good-bye to “Taper.”

There was much discussion of Friday's "disappointing" non-farm payrolls goal-seeked, seasonally adjusted, X-13-ARIMA conceived jobs "number."The conclusion was that it showed an economy which one year after the start of QEternity was growing nowhere near where the Fed has projected and hoped it would be at this time. But in addition to the BLS jobs number, there was another just as important number that was released on Friday: the monthly foodstamp (SNAP) participation update. There was no discussion of this particular number and for good reason. If the NFP number was at least meant to show some economic stability, if subpar, the monthly foodstamp update shows month after month that the greatest depression is nowhere near ending. To wit: in June, the number of households receiving foodstamps rose to 23.117 million, an increase of 45.9k in one month, and also a new record high. As for the average monthly benefit per household: $274.55, just off record lows.

One of the most underreported sentiment shifts of the past week was JPM's announcement late on Friday, that the firm quietly went long commodities - specifically base metals and copper (in addition to energy) - and the firm also closed it "sell" (i.e., underweight) in precious metals. This is not surprising: we had noted the ongoing purchasing of gold by JPM over the past two month (in part to restore its depleted gold vault inventory) when the yellow metal not only stabilized but promptly entered a bull market, returning 20% in a short period of time. And as gold was rising, JPM was advising its clients to sell. It seems JPM now has more than enough gold stashed away, and as the September shock is set to unwind, even JPM may be seeking the safety of gold, and the usual other hard asset suspects, if and when events escalate out of control, resulting in another "risk off" phase.

Earlier today, Charlie Rose who traveled to Damascus previously, interviewed Syria's president al-Assad at the presidential palace. The interview will air in its entirety on PBS's "Charlie Rose" show on Monday night just as Obama's full media campaign to push for a Syrian war is peaking. In the interview, previewed by Rose on CBS's "Face The Nation" on Sunday morning, Assad denied that he had anything to do with the chemical weapons attack that took place on August 21, 2013 and that there was no evidence that he had "used chemical weapons against my own people". Rose also said the Syrian president would not confirm or deny that the regime has chemical weapons. When asked if Assad though there would be an attack, the president told him "I don't know."

Perhaps the 77 year-old republican senator should stick to online poker. Because if the war hawk was in charge of US foreign policy, World War III would be a distant memory. Courtesy of The Burning Platform, the chart below lists of countries where John McCain has not called for military intervention. It is, in a word, large.

Two months ago, when we reported that the NSA has successfully inserted illegal access protocols into the Android OS, thus granting it back door access into nearly three quarters of all cell phones, the news was met with skepticism and resistance: how could an open-sourced architecture be so frail and open to penetration was the most common complaint. We wonder if today's news, broken by Germany's Spiegel, according to which the NSA can spy not only on Android smartphones but tap user data on all iPhone and BlackBerry devices "including contact lists, SMS traffic, notes and location information about where a user has been", will be met with the same skepticism or if the realization that every form of privacy is now gone, has finally dawned on the population. Spiegel reports, citing"internal NSA documents that the NSA has the capability of tapping user data from the iPhone, devices using Android as well as BlackBerry, a system previously believed to be highly secure. The documents also indicate that the NSA has set up specific working groups to deal with each operating system, with the goal of gaining secret access to the data held on the phones." While at this point it should come as no surprise that the NSA pervasively spies on Americans without a warrant or clearance, and has access to every device permitting electronic communication, the bigger question is: if everything is being spied on, what is left? Is carrierpigeons.com about to IPO?

Having recently acquired important stakes or out-right ownership of major Canadian energy firms, Chinese companies are now continuing their penetration of Canada's energy sector by targeting the juniors. In particular, the Saskatchewan-based producer Novus Energy announced this week its agreement to be acquired for $320 million by Yanchang Petroleum International Ltd. Novus is a junior oil and gas company that targets light oil resource plays in Western Canada. Its assets are concentrated in the Viking Formation, a lithological unit in central and eastern Alberta and adjacent west-central Saskatchewan, as well as in southeastern and east-central Saskatchewan. The Viking Formation is well delineated with low-risk reserves including large amounts of "original-oil-in-place". The company plans to employ improved horizontal drilling and multi-stage hydraulic fracturing in order to increase recovery and diminish development costs. The deal follows by five months the visit by Canadian Trade Minister Ed Fast to Beijing, where he officially confirmed that Ottawa would welcome further continued investment from Chinese energy companies, even after the US$15.1 billion acquisition of the oil-sands operator Nexen.

A week ago we discussed the claims that the UK government showed "breath-taking laxity" in allowing the sales of chemicals capable of being used to make nerve agents such as Sarin to Syria. It may come as a surprise to no one but last night the UK government admitted for the first time that  - under a clear breach of international protocol - it issued five export licenses to two companies between July 2004 and May 2010. As The Daily Mail uncovered, these sales were made at a time when Assad was strongly suspected to be stockpiling the chemical weapons that are now at the hub of an international crisis. As one leading MP noted, "the government has some very serious questions to answer." The UK firms delivered sodium fluoride to a Syrian cosmetics company for what they claim were legitimate purposes; but intelligence experts believe President Assad’s regime uses such companies to divert chemicals into its weapons program. Last night the Department for Business, Innovation and Skills refused to answer questions regarding how much sodium fluoride was bought and sold – or which companies were involved, but as former foreign secretary Malcolm Rifkind exclaimed, "in the case of these licenses being awarded to sell sodium fluoride to Syria it sounds as if some serious errors were made."

Dominance means leaders and employees alike lose the ability to experience risk. Lost amidst the week's geopolitical and propaganda dramas was a signal event in the long history of dominance leading directly to collapse: Microsoft bought Nokia's mobile phone business for $7.2 billion (5.44 euros). Considering that this business was valued at 260 billion euros ($340 billion) not that long ago, that is a rather precipitous decline from tech-dominance grace. Dominance in any space breeds complacency and enables the luxuries of political squabbling, sclerosis and loss of focus. Competence becomes incompetence, and the infrastructure that fosters creativity and flexibility- that is, a keen appreciation of risk and spontaneity- is slowly dismantled. That applies not just to corporations but to governments, nations and empires.

The conflict in Syria is very complex, given the country’s diverse ethnic mix and the influence of foreign powers. This implies a high risk of a further dramatic escalation of the conflict, with negative spillovers into the broader region. Short term, UBS notes that the response of the Assad regime to a potential military strike will be crucial, while a key question for the medium term will be whether state structures can be preserved in Syria, so that contagious chaos can be avoided. UBS sees the impact on the international economy comes mainly via risk appetite and oil prices. Should the conflict be contained, the global economic fallout should be limited. However, the worst-case scenario of a regional spread of hostilities, involving Iran, Israel or the GCC, would be a lot more damaging.

110,000 current and soon to be eligible retirees working for IBM woke up to an unpleasant surprise this morning, when the WSJ reported that as a result of soaring healthcare costs, the tech bellwether giant will be terminating its company-sponsored health plan and instead giving (soon to be former) beneficiaries a lump sum payment to buy coverage on a health-exchange: a move which the WSJ characterized as indicating that employers are unlikely to keep providing the once-common benefits as medical costs continue to rise. The reason why all IBM retirees will have to find alternative, third-party, retirement coverage upon hitting the Medicare eligible age of 65 is that "IBM said the growing cost of care makes its current plan unsustainable without big premium increases." And to avoid those premium increases, the costs will find a clearing price either in a private exchange (supposedly competitive, realistically monopolistic), or will end up commingled with other public healthcare funding. End result: IBM benefits, everyone else loses.

The Labor Force Participation Rate - in English, the percent of the population that is either in a job or looking for a job - fell yesterday to fresh 35 year lows. This is not a new trend, in fact since the end of 1999 (the dot-com bust) it has trended lower from well over 67% to the current 63.2%; which means the current unemployment rate would be almost 11% if the labor force was constant from when Obama took office. There appear to be at least four reasons (excuses) put forth for this dismal 'structural' trend but chief among them - and propagandized by most in the mainstream (given its lack of 'blame') - is the so-called 'aging of America' or demographics. There is only one problem with that 'myth'; it's entirely inconsistent with other Western economies who are experiencing exactly the same demographic shift. The collapse in the US labor force is, in fact, due to excess credit having fueled artificial growth for 3 decades; and now a government throwing free money at the population in the form of disability insurance (which has surged) and student loans (which are exponentially exploded). So who (or what) is to blame for the US' collapsing workforce? Simple, the unintended consequences of government interference.

Despite Mariano Rajoy's solemn promises that awarding the 2020 Olympics to Madrid would boost the Spanish GDP by 1.8% and lead to the creation of anywhere between 168,000 and a few hundred million new jobs (the latter number is a joke but since it comes from Rajoy, both are equally credible), the Olympic committee cut the Spanish contender before the final, which pitted Tokyo vs Istanbul. And when the final votes were tallied it was not even a contest: with 60 to 36 votes, the 2020 Olympics Games will be held in Tokyo: the city that was supposed to host the event in 1940 but due to the break out of World War II the event was delayed until 1964 (when it was almost cancelled again, permanently, following a modest escalation in nuclear deterrence between the US and USSR surrounding Cuba). Let's hope history does not rhyme.

Yesterday we implied a difficult question when we illustrated the huge size of US Treasury bond holdings that China and Russia have between them - accounting for 25% of all foreign held debt - implicitly funding US standards of living (along with the Federal Reserve). The difficult question is "Can the U.S. really afford to greatly anger the rest of the world when they are the ones that are paying our bills?" What is going to happen if China, Russia and many other large nations stop buying our debt and start rapidly dumping U.S. debt that they already own? If the United States is not very careful, it is going to pay a tremendous economic price for taking military action in Syria.