Middle East

Iranian clerics' attempts to curb speculation in the Rial and stabilize the currency appear to have backfired as the un-official (real) Rial rate traded as low as 34,250 Rial to the USD this morning - a massive 20% plunge. Demand for gold is surging (as Tehran exchange volume is up almost 18% today) as the population appears to be readying itself for hyperinflationary death - as we wrote yesterday, it really is no fun in Iran. The following tables/links will allow the real-time monitoring of that market's collapse - since Bloomberg's official rates are entirely useless. Instead of allaying fears about the availability of dollars, the centre seems to have intensified the race for hard currency as "The government's initiative ... brought to the surface a tremendous lack of confidence in its ability to manage the currency,"

After dropping to its 200 DMA, and threatening to breach its recent support level of 1.2800, the EURUSD has seen the usual powerlift over the past 4 hours, on two key events out of Europe: Eurozone unemployment, which came at a record 11.4%, up from 11.3% (which just happened to be revised to 11.4%) but because it was in line with expectations of the ongoing recession, all was forgiven. The other event was Eurozone manfucaturing PMI, which rose by the smallest amount possible from the 46.0 in August to 46.1, on expectations of an unchanged print. That 0.1% "beat" is what has so far set off a near 100 pip rush higher in the EURUSD, which has ignored the Chinese weakness overnight (the SHCOMP is closed for the Chinese Golden Week), as well as the UK PMI which did not share in the European "improvement" and tumbled from 49.5 to 48.4 on expectations of a 49.0 print (so much for that latest BOE easing), and instead is transfixed by headlines proclaiming the strongest PMI in 6 months. What also is being ignored is the components in the Eurozone PMI, with the leading New Order index falling to 43.5 from 43.7. But the data being ignored the hardest is the French PMI which tumbled to 42.7, the lowest print in 41 months, of which as MarkIt's chief economist Chris Williamson said "France is perhaps the new worry, with its PMI slumping to the lowest for three-and-a-half years." Coming at a 3+ year low when France desperately needs its new wealth redistribution budget to be credible, is not the best possible outcome. Bottom line: Europe is in a recession, but maybe not outright depression just yet, so the thinking is - buy the EUR, strengthen the currency, make German exports weaker, and make sure the recession becomes a full on depression. Or something like that.

Here’s some context behind the claims that Iran will imminently possess a nuclear weapon.

Israel Versus Iran: What’s REALLY Going On …

Iran is not blameless, and continues to provoke Israel through its support for Hamas and Hezbollah and through eliminationist rhetoric. But given the level of provocation from the Israeli and American side, it is astonishing that Iran remains free of nuclear weapons. Yet it is a fact that Iran is not armed with nuclear weapons, and it remains a fact that Iran has not attacked nor occupied any foreign lands since World War 2. Iran is not an expansionistic country. As neocon provocateur Patrick Clawson essentially admitted in advocating for a false flag attack to get America to war, Iran is not likely to attack either the United States or Israel. So when it comes to drawing red lines, we in the West would do well to draw a red line around our behaviour — because right now, we in the West are the ones who are stirring up trouble by threatening to strike first.

The US takes... and China makes. With the Western world doing all it can to cripple the Iranian regime with embargo after embargo, desperate to provoke the country into an offensive move that would be promptly retaliated as a move of "liberation", Iran, which in a few short months has achieved just what all the Western central banks have been desperate to do and see its currency collapse to record lows, continues to find eager allies in the unlikeliest of places. Namely China, which today delivered the first of 12 crudesupertankers to Iran " giving Tehran extra capacity to transport its oil to Asia as it struggles against Western sanctions, but it is unclear if the ship has the permits necessary to call at global ports." What is most amusing is the glaring override of the western isolation of Iran by China, which together with India and Russia, have now become critical trading and strategic partners of Iran, a consideration which any offensive moves by Israel or the US will most likely need to factor in.

Desperate North Korea has exported more than 2 tons to gold hungry China over the past year to earn US $100 million. Even in tough times during the Kim Il-sung and Kim Jong-il regimes, North Korea refused to let go of its precious gold reserves. Chosun media reports that “a mysterious agency known as Room 39, which manages Kim Jong-un's money, and the People's Armed Forces are spearheading exports of gold, said an informed source in China. "They are selling not only gold that was produced since December last year, when Kim Jong-un came to power, but also gold from the country's reserves and bought from its people." This is a sign of the desperation of the North Korean regime and also signals China’s intent to vastly increase the People’s Bank of China’s gold reserves.

There has been a lot of ink spilled about how the stock market performs during Presidential election years generally leaning to why investors should be fully invested to the hilt.  The current election year, with just three months remaining, has certainly played out to historical norms with the markets advancing on expectations of continued government interventions even as economic and fundamentals deteriorate.  To wit Bespoke Investment Group wrote back in July: "We have highlighted the similarities between this year and prior Presidential Election years numerous times. Most recently, in early July we noted the fact that based on the historical pattern, the S&P 500 could see a modest pullback in mid-July coinciding with the kick-off of earnings season. Sure enough, the market saw some choppiness about a week and a half ago and subsequently rebounded in the middle of last week. Holding to the historical pattern, that rebound came right at the same time that the market historically sees its summer low.  If the pattern continues, the S&P 500 could be set up for a nice rally to end the Summer. Will it hold? Only time will tell, but if the historical pattern has worked so far, what's to stop it from continuing?"

They All Share One Thing ...

The first concern of the Emir of Qatar is the prosperity and security of the tiny kingdom.  To achieve that, he knows no limits. Stuck between Iran and Saudi Arabia is Qatar with the third largest natural gas deposit in the world.  The gas gives the nearly quarter of a million Qatari citizens the highest per capita income on the planet and provides 70 percent of government revenue.  How does an extremely wealthy midget with two potentially dangerous neighbors keep them from making an unwelcomed visit?  Naturally, you have someone bigger and tougher to protect you. Of course, nothing is free.  The price has been to allow the United States to have two military bases in a strategic location.  According to Wikileak diplomatic cables, the Qataris are even paying sixty percent of the costs. Having tanks and bunker busting bombs nearby will discourage military aggression, but it does nothing to curb the social tumult that has been bubbling for decades in the Middle Eastern societies.  Eighty-four years ago, the Moslem Brotherhood arose in Egypt because of the presence of foreign domination by Great Britain and the discontent of millions of the teaming masses yearning to be free.  Eighty-four years later, the teaming masses are still yearning. 

Liquidity, Fund Flows and Technicals matter now. Fundamentals, Dow Theory and the real economy, not so much. 

Ahmadinejad may well be playing the same long game as Osama bin Laden:

We are continuing this policy in bleeding America to the point of bankruptcy.

Osama bin Laden

And they may succeed (although those who believe that war is a stimulus that can end a depression will surely disagree — as Antal Fekete has noted, Western governments may look to a new hot war in the middle east as an opportunity to exit an economic depression that they cannot control).  But for Ahmadinejad and Iran, it may come at a huge, huge cost — a long painful invasion, ending in death in the street or on the gallows. Neoconservatism — and Obama and Romney are both to lesser and greater degrees neoconservatives — is a violent utopian ideology that seeks to force the entire world — by whatever means and at any cost — to conform to American foreign policy imperatives. As America should have learned a long time ago — and as Ahmadinejad may well soon learn — needlessly pissing off violent utopian ideologues creates blowback.

If you answer 'yes' to more than five of the questions below, you might be a conspiracy theorist.  You also may be on the government’s terror watch list.  Be very alarmed and report it to the authorities immediately should you discover your neighbors engaged in such uncivilized thought.

Large, centrally-directed systems are inherently fragile. Think of the human body; a spontaneous, unexpected blow to the head can kill an otherwise healthy creature; all the healthy cells and tissue in the legs, arms, torso and so forth killed through dependency on the brain’s functionality. Interdependent systems are only ever as strong as their weakest critical link, and very often a critical link can fail through nothing more than bad luck. Yet the human body does not exist in isolation. Humans as a species are a decentralised network. Each individual may be in himself or herself a fragile, interdependent system, but the wider network of humanity is a robust independent system. One group of humans may die in an avalanche or drown at sea, but their death does not affect the survival of the wider population. The human genome has survived plagues, volcanoes, hurricanes, asteroid impacts and so on through its decentralisation.

It seems you can't turn your back on the Middle East for more than a few minutes without something going bump in the desert. Sure enough, a few shorts hours after we reported that the leader of Iran's Revolutionary Guards is certain war with Israel is coming, here comes Iran again with the stunning admission that none other than German industrial conglomerate, and occasional maker of nuclear power plants, Siemens was reponsible for "implanting tiny explosives inside equipment the Islamic Republic purchased for its disputed nuclear program. Prominent lawmaker Alaeddin Boroujerdi said Iranian security experts discovered the explosives and removed them before detonation, adding that authorities believe the booby-trapped equipment was sold to derail uranium enrichment efforts. "The equipment was supposed to explode after being put to work, in order to dismantle all our systems," he said. "But the wisdom of our experts thwarted the enemy conspiracy." Expert wisdom aside, what is stunning is not the ongoing attempts by everyone and the kitchen sink to terminally corrupt the Iranian nuclear power plant: after Stuxnet one would expect nothing less than every form of conventional and "new normal" espionage thrown into the pot to cripple the only peaceful argument Iran would have for demanding nuclear power, which by implication would mean that all ongoing nuclear pursuits are geared solely toward aggressive, military goals, of the type that demand immediate military retaliation by the democratic superpowers. No, what is stunning is the implicit admission that Germany's, and Europe's, largest electrical engineering company, has been not only quietly transacting with none other than world peace (as portrayed by the MSM) enemy #1, Iran, but instrumental in its nuclear program.