Israel

Too Big Leads To Destruction of the Rule of Law

It has been a tempestuous week where good is bad, worse is better, but European news is to be sold. Here is your one stop summary of all the notable bullish and bearish events in the past seven days.

Two years ago, in January 2010, Zero Hedge wrote "This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied" which became one of our most read stories of the year. The reason? Perhaps something to do with an implicit attempt at capital controls by the government on one of the primary forms of cash aggregation available: $2.7 trillion in US money market funds. The proximal catalyst back then were new proposed regulations seeking to pull one of these three core pillars (these being no volatility, instantaneous liquidity, and redeemability) from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal would give money market fund managers the option to "suspend redemptions to allow for the orderly liquidation of fund assets." In other words: an attempt to prevent money market runs (the same thing that crushed Lehman when the Reserve Fund broke the buck). This idea, which previously had been implicitly backed by the all important Group of 30 which is basically the shadow central planners of the world (don't believe us? check out the roster of current members), did not get too far, and was quickly forgotten. Until today, when the New York Fed decided to bring it back from the dead by publishing "The Minimum Balance At Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market FUnds". Now it is well known that any attempt to prevent a bank runs achieves nothing but merely accelerating just that (as Europe recently learned). But this coming from central planners - who never can accurately predict a rational response - is not surprising. What is surprising is that this proposal is reincarnated now. The question becomes: why now? What does the Fed know about market liquidity conditions that it does not want to share, and more importantly, is the Fed seeing a rapid deterioration in liquidity conditions in the future, that may and/or will prompt retail investors to pull their money in another Lehman-like bank run repeat?

The latest development in yesterday's Bulgarian bus bomb explosion, is the identification of the alleged bomber. According to Times of Israel he is Mehdi Ghezali, "reportedly a Swedish citizen, with Algerian and Finnish origins. He had been held at the US’s Guantanamo Bay detainment camp on Cuba from 2002 to 2004, having previously studied at a Muslim religious school and mosque in Britain, and traveled to Saudi Arabia, Afghanistan, and Pakistan. He was also reportedly among 12 foreigners captured trying to cross into Afghanistan in 2009."

The first on-the-record comments, regarding the bombing in Bulgaria, from Israel's Netanyahu are not the most politically correct. His ire with the world's ignorance of Iran's terrorist-fostering position is very clear as are his threats and promises for retribution. Not good. And sure enough, WTI crude is spiking on this news to $91.75 (18% higher than its EU-Summit lows) back to 2-mointh highs. Via Bloomberg,

• *NETANYAHU THANKS BULGARIA FOR AID TO VICTIMS OF TERROR ATTACK
• *ISRAEL'S NETANYAHU SAYS IRAN, HEZBOLLAH CARRY OUT GLOBAL TERROR
• *NETANYAHU SAYS ATTACKS WERE PLANNED IN INDIA, THAILAND
• *NETANYAHU SAYS HEZBOLLAH ACTED AT BEHEST OF IRAN
• *NETANYAHU SAYS TOO DANGEROUS TO LET IRAN HAVE NUCLEAR ARMS
• *NETANYAHU SAYS ISRAEL WILL PURSUE, PUNISH TERRORISTS WITH FORCE
• *NETANYAHU SAYS WORLD MUST RECOGNIZE IRAN AS TERROR THREAT

Meanwhile, as a reminder, a 4th carrier group is on its way to the Gulf...

The smoke from the exploded bus carrying Israeli tourists was still billowing and yet Israeli PM Netanyahu had already declared that "Iran is responsible for the terror attack in Bulgaria, we will have a strong response against Iranian terror." Perhaps that statement was a little premature: as footage released by Bulgarian police indicates, the suspected suicide bomber is Caucasian, and was in possession of a Michigan driver's license, supposedly a fake one, but why anyone in Bulgaria would be carrying a fake Michigan ID is just a little confusing.

The number of casualties in the Bulgarian bus explosion (reported earlier) is not even known yet, but Israel already knows just who is behind it:

• ISRAELI PRIME MINISTER SAYS SIGNS THAT IRAN BEHIND BURGAS BOMBING -RTRS
• Prime Minister Benjamin Netanyahu: "Iran is responsible for the terror attack in Bulgaria, we will have a strong response against Iranian terror." - Haaretz

Elsewhere:

• CARNEY SAYS OBAMA BRIEFED ON BULGARIA BLAST THAT HIT ISRAELIS
• CARNEY SAYS US NOT IN POSITION TO SAY WHO IS RESPONSIBLE FOR THE BUS ATTACK

And here we were wondering why crude spiked above $90 for the first time in months earlier today.

Update 2: Blame it on Iran: ISRAELI PRIME MINISTER SAYS SIGNS THAT IRAN BEHIND BURGAS BOMBING -RTRS

Update: According to BurgasInfo.com not one but two buses were blown up. Unclear if the second one was also carrying Israeli tourists.

According to Bulgarian press Sega.bg, and confirmed by other wire sources, a bus with 40 Israeli tourists was "blown up" at 5:30 pm local time at the local airport of the seaside town of Bourgas. Sega says that according to BTV "it is an assassination attempt." The bomb was located in the trunk of a white bus with Israel tourists from Israel who were en route to the seaside town of Sunny Beach according to an airport source. The mayor of the city, Dimitar Nikolov confirmed the news according to Sega. Furthermore, according to the airport's website, an Air Via flight from Tel Aviv landed at 4:50 pm local time. The shock wave was so large it also exploded two neighboringing buses located in the arrival area of the airport. The number of casualties is currently unknown, but at least three people are dead according to the local police, with dozens wounded. Sega adds "the flames are huge with three firetrucks on the scene and seven ambulances driving out charred people."

Possibly a matter of weeks...

The last time the US navy sent three aircraft carriers into the Arabian Sea/Persian Gulf was just a few short weeks before WTI broke above $110, and aggressive military tensions, coupled with concerns of an imminent invasion of Iran by Israel and/or 'others', were running  high. Then summer arrived, as did the need to lower the price of gas and crude ahead of a veritable cornucopia of central banks easing into June and July, not to mention the need to keep gas as low as possible into the July 4th holiday. Now that the peak summer months are behind us this is all changing, and 4 months ahead of the presidential election, the need to have the "Wag the Dog" put option to round up the troops, not to mention votes, has arrived, as has the need to return to an outright aggressive military stance where Iran is concerned. Which is why we were not very surprised to learn that that Middle East veteran aircraft carrier, the CVN-74 Stennis, is going right back into Mordor, a few short months after it came back from its long stint in the Fifth Fleet, and will shortly complete the trio of aircraft carriers stationed within miles of Iran.

In an extended interview with Bloomberg TV, Nouriel Roubini lives up to his doom-saying reputation and goes where few have as he opines on Lieborgate that: "bankers are greedy and have been for 1000 years" and "nothing is going to change" unless there are criminal sanctions; to which he follows up - briefly silencing the interviewer, "If some people end up in jail, maybe that will teach a lesson to somebody - or somebody will hang in the streets". The professor goes on to note that the EU "summit was a failure" since markets were expecting much more and warns that without full debt mutualization, debt monetization by the ECB, or a quadrupling of the EFSF/ESM 'bazooka'; Italian and Spanish spreads will continue to blow out day after day - leading to a crisis "not in six months but in two weeks". The only entity capable of stopping this is the ECB which needs to do outright unsterilized monetization in unlimited amounts which is 'politically incorrect' to talk about and claimed to be constitutionally illegal. 2013 will be a very difficult year to find shelter as policy-makers ability to kick-the-can runs out of steam as he sees the possibility of a 'Global Perfect Storm' of a euro-zone collapse, a US double-dip, a China & EM hard-landing, and a war in the Middle East. Dr. Doom is back.

US military "surge" is back in the Persian Gulf + Iran fires medium-range missiles + Turkey scrambles jets for third day in a row = $100+ Brent

After two days of solid gains, European equities continue the upward trend and are seen higher at the North American crossover, with the Basic Materials sector leading the way, followed by financials. The moves in equities follow overnight reports from Chinese press, once again calling for the PBOC to slash their RRR, as well as expectations that this Thursday both the ECB and the BoE will conduct monetary easing, possibly boosting future commodity demand. In the fixed income markets, the European 2s/30s curve continues to see bear-steepening following last night’s announcement from the Dutch Central Bank that has changed Dutch insurers’ Solvency II interest rate curve; modifying the maturities in which the firms must hold assets towards the longer-end. Today also saw official confirmation from the Irish debt agency that they are to return to capital markets with T-bill issuance on July 5th, their first return to the market since 2010. Investor reaction to this news is evident in the shorter-end of the Irish yield curve, where the 2-yr bond yield spread against their German counterpart is firmly indicating the risk of returning to the market; currently wider by around 20bps.

Last week's false flag story of baseless Middle Eastern provocation refuses to go away. Even after, in a shocking turn of events, US intelligence confirmed this weekend that Syria's version of events surrounding the downed Turkish F-4 jet story was the right one all along, pulling the media narrative rug right from under Hillary Clinton's provocative feet (and making others wonder just which country is the only one that stands to benefit of NATO does pull Article 4 or 5 and does invade Syria on now invalidated and false premises), today we read that Turkey continues to try to escalate. From the BBC: "Turkey has scrambled six F-16 fighters jets near its border with Syria after Syrian helicopters came close to the border, the country's army says. A total of six jets were sent to the area in response to three such incidents on Sunday, although there was no border violation, the Reuters news agency quoted the statement saying. On Friday, Turkey said it had begun deploying rocket launchers and anti-aircraft guns along the border in response to the downing of its F-4 Phantom jet." Of course, without an actual confirmed provocation, such as the one Turkey itself pulled against Syria, it is left with the same media rhetoric that continues to expose just one side of the Syrian story - the Western media spun one. "Turkey has strongly criticised Syria's response to the 16-month anti-government uprising, which has seen more than 30,000 Syrian refugees enter Turkey." Fair enough, we do however wonder what Syria would say about Turkey's treatment of Kurdish minorities. Finally, confirmation that just as we first suggested two weeks, this whole incident has been nothing but a provocation stage test to get NATO involved without any of the facts being on the table, comes from no other source than US military intelligence.

• France to Lift Minimum Wage in Bid to Rev Up Economy (WSJ)... weeks after it cut the retirement age
• Merkel Urged to Back Euro Crisis Measures (FT)
• Monti lashes out at Germany ahead of summit (FT)
• Italy Official Seeks Culture Shift in New Law (WSJ)
• Migrant workers and locals clash in China town (BBC)
• Romney Would Get Tough on China (Reuters)
• Bank downgrades trigger billions in collateral calls (IFRE)
• Gold Drops as US Data, China Speculation Temper Europe (Bloomberg)