While the US is debating which set of Al Qaeda "rebels" in Syria is the best local partner for the State Department to provide military support to, once Qatar's demands for a trans-Syria pipeline return some time in 2014, Vladimir Putin - fresh from his diplomatic oup in the Ukraine - is reinforcing his other major victory in 2013: the preservation of the Assad state, this time however with more than words. As Reuters reports, Russia has sent 25 armored trucks and 50 other vehicles to Syria to help transport toxins that are to be destroyed under an international agreement to rid the nation of its chemical arsenal, Defense Minister Sergei Shoigu said on Monday. Or in other words, Russia just sent Syria more than 75 military vehicles.
The notion that individual conviction and bravery is a #MassiveFail when compared to a machine gun nest seems obvious and trite to us today. Strangely enough, though, when it comes to prevalent notions of market behavior it feels like we’re still in 1936. What I mean is that there is still a dominant belief in individual decision-making as the most effective route to successful investing, that if we could just learn a little bit more about Company X or Sector Y we will win the day. Is your individual knowledge and conviction level in Company X important for investing success? Absolutely, in exactly the same way that physical and psychological bravery is important for war-fighting success. Still more important, though, is the strength and cohesion of the groups that share your investment philosophy. Not your specific investment opinions, any more than one soldier has the same amount and type of instantiated bravery as another soldier in his unit, but the coherence of investment goals and operational practices across your fellow market participants in a particular market segment.
Global monetary conditions remain easy and despite the Fed's decision to taper, peak monetary accommodation is not here yet.
While a military campaign against Syria (and Iran) on the usual grounds has been postponed indefinitely, two nations in the Middle East have been seething: Saudi Arabia and, of course, Israel. Yet while Saudi Arabia rarely if ever gets its own hands dirty, instead executing its geopolitcal strategy through puppet states in need of its oil, Israel has never had a problem with engaging in offensive wars. And now that the threat of an imminent war, one which would have been largely carried out on the back of the US military, is gone Israel is preparing to do just that. According to UPI, "Israeli generals are preparing for a decisive -- and probably brief -- war against Hezbollah, one of Israel's most implacable foes, with plans to smash the Iranian-backed Lebanese movement's military power, a study says. The Israelis' primary objective will be to eradicate Hezbollah's reputedly massive arsenal of missiles and rockets "for years to come," the report by the Begin-Sadat Center for Strategic Studies in Tel Aviv said."
US equity markets were the first to move yesterday on the news of the tapering which is a loosening and not a tightening move by the Fed. Overnight and today has seen stocks stabilize as the rest of the world wakes up to what this slowing of flow actually means... From EM FX to precious metals to colossal flattening in the US Treasury term structure, things are making major moves...
All I can say with certainty is that stocks are in a dangerous position. They’ve been in one for a while now and the higher they go the more dangerous it becomes.
It’s like a futuristic film with hoards of evil masses of people, poverty-stricken, living off the land, while the rich and wealthy continue to lord it, served to their hearts content and just raking it in, while the others hardly get enough to eat and drink.
Could we have another bullish year in 2014? It is certainly possible as long as the Federal Reserve remains engaged in their ongoing balance sheet expansions. But maybe the ongoing inflation of assets, without the underlying improvement in organic, sustainable, economic growth, will eventually lead to the next market bubble and bust. Of course, for anyone that has payed attention, such an outcome would be of little surprise. The important point is that, as an investor, you need to pay attention to the ever decreasing reward/risk ratio of chasing the financial markets. The "low hanging fruit" has long been harvested and the risk currently far outweighs the potential reward of being aggressively invested. Of course, it is not popular, or fun, to rain on the bullish parade. However, while they will likely appear to be correct in the short term; the long term outcome will most likely be far less pleasant.
As a general rule, extreme economic decline is almost always followed by extreme international conflict. Sometimes, these disasters can be attributed to the human survival imperative and the desire to accumulate resources during crisis. But most often, war amid fiscal distress is usually a means for the political and financial elite to distract the masses away from their empty wallets and empty stomachs. War galvanizes societies, usually under false pretenses. We're not talking about superficial “police actions” or absurd crusades to “spread democracy” to Third World enclaves that don’t want it. No, we're talking about REAL war: war that threatens the fabric of a culture, war that tumbles violently across people’s doorsteps. The reality of near-total annihilation is what oligarchs use to avoid blame for economic distress while molding nations and populations. Because of the very predictable correlation between financial catastrophe and military conflagration, it makes quite a bit of sense for Americans today to be concerned.
"Twas the Friday before the Friday before Christmas..." and as the year end rapidly approaches the mainstream consensus is that 2014 will be another bouyant year for the stock market despite the impact of a potential Federal Reserve tapering. The optimistic view is an easy one. While it isn't popular, or fun, to look at the non-bullish view it is nonetheless important to consider the risks that could potentially lead to a larger than expected loss of investment capital. There is one simple truth about financial markets and investing: what goes up must come down. It is the downside risk that is most damaging to long term investment returns. Therefore, this week's "Things To Ponder" is a sampling of views and thoughts on what to watch out for as we enter the new year.
It has been another session of overnight weakness, in which, to quote Deutsche Bank, "something has changed" as ES algos no longer track every tick of the EURJPY (or other JPY pair variants). Usually in such transition periods where the robots are not sure how to trade risk based on highly leveraged inputs, things go bump in the night, and they did just that with the E-Mini trading just off its overnight lows, despite a notable rise in the EURJPY from yesterday's close. Keep a close eye on the now traditional pre-market ramp in the EURJPY - if unaccompanied by an increase in the E-mini, it may be time to quietly exit stage left.
Since the bank that decides what happens at the NY Fed, and by implication, at the broader Federal Reserve system, is none other than Goldman Sachs, it would be informative to read what none other than Goldman thinks of Ben Bernanke's thesis advisor Stanley Fischer, formerly head of the Bank of Israel, as the next vice chairman - as he is now actively rumored to become shortly. Conveniently, here is just such a Q&A from Goldman's Jan Hatzius - the man who feeds Bill Dudley all his economic and monetary insights over lobster sandwiches at the Pound and Pence.
"You can’t expect the Fed to spell out what it’s going to do. Why? Because it doesn’t know." - Stanley Fischer
The US data flow is relatively light which is typical of a post-payrolls week but it’s worth noting wholesale inventories on Tuesday and retail sales on Thursday. Importantly US House and senate negotiators are supposed to come to an agreement on a budget before the December 13th deadline. A lot of optimism has been expressed thus far from members of congress, and there are reports that a budget deal will be unveiled this week.