Iraq

Though the Saudi Arabian government publicly declared its tentative support for the widely-praised Iran nuclear deal last month, new reports reveal it is secretly funding propaganda efforts to undermine it. A new group called the American Security Initiative has spent over $6 million on advertisements criticizing the deal — using money supplied by the Saudi monarchy.

What we’ve been experiencing in markets is the plain and simple fear that always accompanies a broken story. The human reaction to a broken story is an emotional response akin to a sudden loss of faith. It’s a muted form of what Stephen King defined as Terror … the sudden realization that the helpful moorings you took for granted are actually not supporting you at all, but are at best absent and at worst have been replaced by invisible forces with ill intent. The antidote to Terror? Call the boogeyman by his proper name. It’s the end of the China growth story, one of the most powerful investment Narratives of the past 20 years. And that’s very painful, as the end of something big and powerful always is.

"It is an old saying in commodities that the best cure for low prices is low prices. Market participants are now asking how much further prices need to fall and how long they need to stay there to bring supply and demand back in to balance and halt the price declines across a broad swathe of different raw materials markets. The fear is that just as the upside of the supercycle brought an unprecedented and long period of historical price highs, the plunge to the downside is shaping up to be equally dramatic and may yet have a way to run."

Over the weeks, months, and years ahead we’ll begin to understand more about the fallout from the death of the petrodollar and nowhere is it likely to be more apparent than in Saudi Arabia where widening fiscal and current account deficits have forced the Saudis to tap the bond market to mitigate the FX drawdown that's fueling speculation about the viability of the dollar peg. As Bloomberg reports, the current situation mirrors a "very scary moment" in Saudi Arabia’s history.

Last week, in the global currency war’s latest escalation, Kazakhstan instituted a free float for the tenge causing the currency to immediately plunge by some 25%. The rationale behind the move was clear enough. What might not be as clear is how recent events in developing economy FX markets stem from a seismic shift we began discussing late last year - namely, the death of the petrodollar system which has served to underwrite decades of dollar dominance and was, until recently, a fixture of the post-war global economic order.

OPEC next gathers December 4 in Vienna, just over a year since Saudi Oil Minister Ali Al-Naimi announced at the previous OPEC winter meeting the Saudi decision to let the oil market determine oil prices rather than to continue Saudi Arabia’s role of guarantor of $100+/bbl oil. Despite the intense financial and economic pain this decision has inflicted on Saudi Arabia, its fellow OPEC members, and other oil producers, the Saudis have given no indication they plan to alter course. Given the Saudi decision’s positive impact on their and their Gulf Arab allies’ relative position within OPEC and its negative impact on OPEC outsiders, it is possible, perhaps even likely, the Saudis will face an OPEC outsider revolt at the December 4 OPEC meeting.. with three possible outcomes - Reconociliation, Separation, or Divorce.

In the Western world insouciance rules governments as well as peoples, and most likely also everywhere else in the world. It remains to be seen whether Russia and China have any clearer grasp of the reality that confronts them.

"When does the statute of limitations on blaming President George W. Bush for the record of the current administration finally expire? Obama [has become] the president who, to use one of Rose’s baseball metaphors, called his shot only to strike out."

Persistently low oil prices have already inflicted economic pain on oil-producing countries. But with crude sticking near six-year lows, the risk of political turmoil is starting to rise. There are several countries in which the risks are the greatest – Algeria, Iraq, Libya, Nigeria, and Venezuela – and, as we noted previously, RBC Capital Markets has labeled them the “Fragile Five.”

At this point, it almost feels like kicking someone while he’s down. Jeb Bush can’t even stand up to Donald Trump, let alone his own growing series of scandals.

But Not There Yet...

As if in complete defiance of the extensive contention at home and abroad, the Pentagon announced plans this week to dramatically ramp up global drone operations over the next four years. Daily drone flights will increase by 50% during this time, and will include lethal air strikes and surveillance missions to deal with the increase in global hot spots and crises.

With China's currency devaluation having shifted to the backburner if only for the time being, all attention was once again on the Chinese stock market roller coaster, which did not disappoint: starting off with yesterday's dramatic 6.2% plunge, the Shanghai Composite crashed in early trading, plunging as much as 5% in early trading and bringing the two-day drop to a correction-inducing 11%, and just 51.2 points away from the July 8 low (when China unleashed the biggest ad hoc market bailout in capital markets history) . And then the cavalry came in, and virtually the entire afternoon session was one big BTFD orgy, leading to a 1.2% gain in the Shanghai Composite closing price, while Shenzhen and ChiNext closed up 2.2% and 2.7%, respectively.

What seems undeniable about the Law of War Manual, is that there are self-contradictions within it. To assert that it "reads like it was written by Hitler's Ministry of War,” is going too far. But, to say that it’s hypocritical (except, perhaps, on torture, where it’s clearly a repudiation of GWB’s practices), seems safely true. Parts of the document are propaganda. The purpose isn’t to fool the public, who won’t read the document. The purpose of the propaganda is to enable future presidents to say, “But if you will look at this part of the Manual, you will see that what we are doing is perfectly legal.” Those mutually contradictory passages are there in order to provide answers which will satisfy both  the ‘hawks’ and  the ‘doves.’

The central bank has injected new capital into the China Development Bank (CDB), which provides medium and long term financing to major national projects, in a bid to reinforce its capital adequacy.