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Frontrunning: August 20





  • So no great rotation into EM? Capital Flows Back to U.S. as Markets Slump Across Asia (BBG)
  • Muslim Brotherhood leader arrested in Egypt (Reuters)
  • Allies Thwart America in Egypt: Israel, Saudis and U.A.E. Support Military Moves (WSJ)
  • Dear Bloomberg: when you buy the loans of a distressed retailer, you are not betting on a rebound, you are betting on being the fulcrum security in a bankruptcy: Kyle Bass Said to Bet on J.C. Penney Comeback With Loan Purchase (BBG)
  • Bubbles Bloom Anew in Desert as Buyers Wager on Las Vegas (BBG)
  • Britain rejects Spanish request for Gibraltar talks (Reuters)
  • U.K. Mortgage Lending Rises to Highest Since Lehman Collapse (BBG)
  • Pension Funds Dispute Math in Detroit Bankruptcy (WSJ)
  • Christie Says Gayness Inborn as He Signs Therapy Measure (BBG)
 
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Live Webcast: Things In Egypt Are Deteriorating Rapidly And Now The Vice President Resigns





It may be time for John Kerry to emerge from his boat and whisper a soothing word or two:

EGYPT VICE PRESIDENT ELBARADEI ANNOUNCES RESIGNATION: AFP
MURSI BACKERS SHOOT, KILL 4 POLICEMEN IN CAIRO STATION: REUTERS

But fear not: Israel has the Egypt's government's back: recall Israelis, Egyptians Cooperate on Terror. Then again, maybe escalating the region was the point all along.

 
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The Dummy's Guide To The Chairman-Less Jackson Hole Agenda





In the past the Jackson Hole conference very much revolved around the Fed chairman with the opening remarks often the top (and most market-moving) news from the junket. Despite an interesting docket of speakers and presenters from a central banking perspective (as BofAML details below), with no major Fed officials scheduled to speak (and only Kuroda turning up from the rest of the major world central banks), the markets are likely to pay a lot less attention to Jackson Hole than in the past.

 
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Key Events And Issues In The Coming Week





The middle of the month brings a mixture of second-tier macro numbers punctuated by the market-moving (and Taper-cementing) retail sales report. We get IP, CPI and PPI from the US this coming week. In terms of hard activity numbers, US retail sales on Tuesday will be the highlight which as a reminder is, in addition to Jackson Hole, seen as one of two key pre-Taper catalysts to keep an eye on. Outside the US, the key data will be the quarterly publication of German, French and Eurozone GDP, as well as Japanese GDP, which has already been released (weaker real growth, higher inflation). The second week of the month also tends to show the first survey results with the Phily Fed and Empire surveys on Thursday. In Germany the ZEW will come on Tuesday. Finally, from an FX point of view, we will be focused on balance of payments related data, with the trade balance in India and TIC data in the US. After a few very weak TIC releases in recent months we would expect more evidence of weak capital inflows into the US.

 
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What They Really Think: Anti-US Hostility Soaring In Egypt





While we have previously exposed the less than exuberant perspective of many Egyptians towards the US, it now seems the torrent of anti-US hostility has reached such large proportions that the mainstream media is forced to admit report it. As the WSJ reports, a headline in a major Egyptian state newspaper this week referred to the proposed U.S. envoy to Egypt as the "Ambassador of Death." Posters in Cairo's Tahrir Square, a center of pro-government rallies, depict President Barack Obama with a beard and turban, exclaiming his "support for terrorism." The moves, WSJ adds, highlight the depth of public distrust of U.S. policies, and draw from a "reservoir of anti-Americanism and conspiratorial theories". Of course, after yesterday's revelation of the staged Muslim Brotherhood riots, nobody really knows just where US-Egyptian sentiment really lays but it seems fair to say that it is not improving.

 
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Putin Laughs At Saudi Offer To Betray Syria In Exchange For "Huge" Arms Deal





One of the more surprising news to hit the tape yesterday was that Saudi Arabia, exasperated and desperate by Russia's relentless support of the Syrian regime and refusal to abandon the Syrian army thus facilitating the Qatari plan to pass its natgas pipeline to Europe under Syria, had quietly approached Putin with a proposal for a huge arms deal and a pledge to boost Russian influence in the Arab world if only Putin would abandon Syria's Assad. It will hardly come as a surprise to anyone that in the aftermath of yesterday's dilettante mistake by Obama which alienated Putin from the western world (and its subservient states such as Saudi Arabia of course), has just said no. It will certainly come as no surprise because as we explained previously, the biggest loser from Russia abandoning Syria (something we predicted would never happen) would be none other than Russia's most important company - Gazprom - which would lose its energy grip over Europe as Qatar replaced it as a nat gas vendor. What is shocking in all of this is that Saudi Arabia was so stupid and/or naive to believe that Putin would voluntarily cede geopolitical control over the insolvent Eurozone, where he has more influence according to some than even the ECB, or Bernanke. Especially in the winter.

 
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Guest Post: Is Water The New Oil?





The sharpening international geopolitical competition over natural resources has turned some strategic resources into engines of power struggle. Transnational water resources have become an especially active source of competition and conflict, triggering a dam-building race and prompting growing calls for the United Nations to recognize water as a key security concern. With the era of cheap, bountiful water having been replaced by increasing supply and quality constraints, many investors are beginning to view water as the new oil. Political and economic water wars are already being waged in several regions, reflected in dam construction on international rivers and coercive diplomacy or other means to prevent such works. The World Bank estimates that such constraints are costing China 2.3% of GDP. In short, we must focus on addressing our water-supply problems as if our lives depended on it. In fact, they do.

 
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Guest Post: What Does The US Want In Egypt?





What the US wants in Egypt is what it failed to attain in Iraq - stability of the kind that assumes US control over the situation. In Iraq’s case, this meant control over one of the world’s biggest oil resources. In Egypt’s case it means a smooth ride for American foreign investment, a wide reach over one of the busiest shipping zones in the world and an assurance of peace with Israel. But now Washington finds itself in a tricky position. It needs to make sure that any new Egypt is friendly with Israel, but it also needs to make sure that it caters to Saudi Arabia’s vision of a new Egypt. So far, so good--minus the stability factor.

 
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US Escalates: Issues Worldwide Travel Alert Following Embassy Closures





With US leaks about Israeli air strike on Syria, John Kerry stirring the civil war pot in Egypt, and the closure of US embassies across the Muslim world (Iraq, Afghanistan, Qatar, Bahrain, Oman, Kuwait, Bangladesh, Saudi Arabia, Libya, Yemen, UAE, Algeria, Mauritania, Sudan, Israel (Tel Aviv) and Jordan), it appears something is afoot. To add to the intrigue, the US State Department just issued a worldwide travel alert for US citizens.

*STATE DEPARTMENT WORLDWIDE TRAVEL ALERT EXPIRES AUGUST 31, 2013
*STATE DEPT ISSUES WORLDWIDE TRAVEL ALERT FOR U.S. CITIZENS

An Al-Qaeda threat has been posited but with no follow-up but we can't help but fear what we wondered about previously - the need for deficits to re-awaken (via some external event that no-one can 'un-patriotically' demur) providing more room for Bernanke to avoid his need for Taper.

 
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US Embassies Across Muslim World Mysteriously Shutting Down This Weekend





Amid all the high-fives over stocks hitting all-time highs and Edward Snowden's temporary freedom hogging the headlines yesterday, State Department spokesperson Marie Harf quietly pointed out that, due to an "abundance of caution," an unspecified number of US embassies and consulates in the Muslim world will be closed this weekend (and diplomatic facilities maybe longer). House foreign affairs committee chairman Royce suggested this morning that this closure is 'Al-Qaeda-threat-related'; and, as AP reports, the last major warning came last fall when embassies warned American diplomatic facilities across the Muslim world of potential violence around Sept. 11. (and the disaster that was Benghazi). But we can't help but worry about the coincident 'leak' by US officials of Israel's airstrike on Syria (and the potential forced response from Assad this would seem to portend).

 
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Did Larry Summers Just Tap Someone On The Shoulder?





It seems 'someone' doesn't want the world knowing just how much of a 'long shot' Larry Summers is for the great-and-powerful-Oz position of Chairman of the Federal Reserve. As we showed just last week, PaddyPower showed Yellen as a strong 77% probability favorite with Summers lagging notably behind in the pack. Then comes this morning's comment from the second most powerful man in the world:

  • *OBAMA SAYS LARRY SUMMERS BEING UNFAIRLY CRITICIZED: SHERMAN
  • *REID SAYS SUMMERS IS A FRIEND, A `COMPETENT' MAN

And Goldman's Jan Hatzius' warnings that Summers is less 'enthusiastic' on using monetary policy than his competitor Yellen. And now - as the image below shows - PaddyPower has removed its betting on the next Fed head. We just wonder who got the tap on the shoulder?

 
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POT Smoked





Following OAO Uralkali's decision to break up a 'marketing venture' that controlled around 43% of global potash exports, the world's largest producer is breaking the cartel that many US fertilizer companies have enjoyed. This move signals prices will weaken as the Russian company tries to grab market share shifting sales to its own unit. As Goldman notes, such behavior by Belaruskali in a structurally oversupplied potash industry should push for stricter competition for end customers and result in a significant swift decline in pricing to a level of marginal cost production. This slashing of margins has crushed the fertilizer stocks with POT, MOS, and AGU all down significantly in the pre-market."Uralkali’s announcement completely turns the global potash market upside down," noted one analyst. "If previously global potash producers were acting like an oligopoly, working with the rule that benefited higher potash prices over shipped volumes, now the market will be fully competitive." Shock, horror!

 
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"Avalanche Of Abuse" Forces Ex-JPMorganite To Quit Bank Of Israel Candidacy





A month ago we noted the out-squidding of Goldman Sachs as ex-JPMorganite Jacob Frenkel looked set to replace Fischer as the head of the Bank of Israel. Four weeks later and it seems the chairman of the all-important Group-of-30 has had enough, and when it comes to "squidding" into central banks, Goldman truly has no comparable.

  • FRENKEL SAYS HE WITHDRAWS CANDIDACY FOR BANK OF ISRAEL CHIEF
  • FRENKEL SAYS HE SUFFERED `AVALANCHE' OF ABUSE

Poor thing. And this is after his actual 'acceptance' was already agreed.

 
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Key Events And Market Issues In The Coming Week





After a slow start in the week, there is a substantial pick up with announcements from the FOMC, ECB and BOE (as well as monetary policy updates from the RBI, RBA, Israel, and Czech Republic) with the possibility, if not probability, of a Fed update on tapering expectations. On Wednesday we get the much expected wholesale GDP revision which will boost "growth data" all the way back to 1929 and is expected to push current GDP as much as 3% higher, and on Friday is the "most important NFP payroll number" (at least since the last one, and before the next one), where the consensus expects a +183K print, and 7.5% unemployment. All this while earnings season comes to a close.

 
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When Is A Military Coup Not A Military Coup? When The US Says So





First we had Schordinger markets in which value is either zero or whatever the Fed says it is; then we got Schrodinger economies when China was both expanding and contracting at the same time; now we have Schrodinger military coups which are both a coup and not a coup, at least as far as the US is concerned. According to AP: "The Obama administration will tell lawmakers Thursday that it won't declare Egypt's government overthrow a coup, U.S. officials said." So why will the US claim the obvious military overthrow of Morsi and his Muslim Brotherhood was a "democratic" process? Simple: it will allow the United States "to continue providing $1.5 billion in annual military and economic aid to the Arab world's most populous country." And why will the US continue providing Egypt with $1.5 billion in annual military aid? Simple: so Egypt can continue buying more Made In Lockheed Martin F-16 fighter jets to spread the Nobel Peace Prize winner's diplomatic agenda in the middle east. Because one must always think of the children GDP.

 
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