Middle East

Three weeks ago, before Lieborgate broke and the world finally understood what so many had been warning about for so long, we noted something else: that not only was LIBOR manipulated and fudged daily between 2005 and 2008, but as the chart in the attached post shows, it has been gamed every single day in 2012 as well. More importantly, we noted something else - the transition at the top of the British Bankers Association: the organization responsible for compiling LIBOR submissions from member banks, and reporting what the daily Libor fixing is. Because in the second week of June, the BBA's new head became... the former head of lobbying for none other than Morgan Stanley, Anthony Browne, a firm which itself was just caught red-handed manipulating rating agency "independent ratings" to benefit its bottom line (and which itself miraculous was downgraded by less than what the market expected in order to allow it to avoid several billion in collateral calls). And what did Anthony do at Morgan Stanley until June 12: he was head of Government relations for Morgan Stanley for Europe, Middle East and Africa and was previously an economic and business adviser to London Mayor Boris Johnson.  That's right - "head of government relations" for a rather prominent TBTF bank, being put in charge of daily Libor fixing. But everyone is shocked, shocked, that gambling has been going on here for years.

While conflicts within and with the Middle East region are still among the top global risks, the paradigm has definitively shifted to China and Europe.

Given the rather weak near-term and long-term outlook for US coal demand, it’s not surprising that within such a capital-intensive business, a number of smaller coal producers were hit recently with bankruptcy rumors. Indeed, even large cap names like Arch Coal have seen an escalation of concern over debt levels. Accordingly, many have concluded that coal -- in an era of solar, wind, and natural gas -- has finally displaced itself due to its problematic extraction, distant transportation, and overall costs. Is coal finally going away as an energy source?

Not a chance.

Indeed, everything currently unfolding for coal in the United States is precisely what is not unfolding for coal globally. Prices to import natural gas to most countries via LNG remain sky-high, easily protecting coal’s cost advantage. And the demand for coal in the developing world remains gargantuan. Accordingly, just as with oil, lower US demand simply frees up supply to elsewhere in the world. The global coal juggernaut rolls onward.

Journalism is about asking questions that corporations, governments and establishments don’t want to answer. It’s about reporting the full-story, no matter how many toes you step on. It’s about opening up power to real scrutiny. And that is something that the propagandists in big media are often incapable of — which of course is why big media is slowly dying. We need to know the depth and width of Fast and Furious and the programs which preceded it: how was it authorised, how was it designed, how did it go wrong, who was to blame for it going wrong. We need to know whether or not the widely-spread allegation that the Obama administration has sold guns directly to Los Zetas is true. We need to know whether or not El Chapo and the Sinaloa Cartel are working with the DEA and the Mexican government. (Both of these allegations are widely accepted as fact in Mexico). We need to know why Obama has chosen to continue the failed drug war, even in spite of overwhelming evidence that the illegality of drugs is the very thing that empowers the criminal cartels, and in spite of the fact that Obama is a former drug user.

In an excellent summary of the world's interconnected nature, reliance on everyone else to solve their problems, and Europe's epicentric catastrophe, Nouriel Roubini joined Bloomberg TV's Tom Keene for some serious truthiness and doomsaying. From the 'slowdown/recession becoming a depression' to 1930s CreditAnstalt comparisons and Germany's lack of trust that a few years of abstinence will regain peripheral Europe's virginity, the original Dr. Doom along with Ian 'G-Zero' Bremmer offer much food for thought as to the various scenarios as investors anxiously await an expected central bank response to the 19th failed summit and how "we will be lucky if we end up like Japan" as he concludes: "It’s getting worse, there’s already a sovereign debt crisis, a banking crisis, a balance of payment crisis, an economic crisis and all of those things together are getting worse."

There are now reports that the Reserve Bank of India (RBI) is likely to clamp down on gold bullion coin sales by banks as the rising bullion imports are adding pressure to the current account deficit and weakening the rupee.  

Western central banks and mints will not be clamping down on gold bullion coin sales in the near future as demand for gold and silver bullion coins fell in Q1 2012.

• 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)

One of oil's most important characteristics is its fungibility, which means that a barrel of refined oil from Texas is equivalent to one from Saudi Arabia or Nigeria or anywhere else in the world. The global oil machine is built upon this premise – tankers take oil wherever it is needed, and one country pays almost the same as the next for this valuable commodity. Well, that's true aside from two factors that can render this equivalency void. In fact, crude oil prices range a fair bit according to the quality of the crude and the challenge of moving it from wellhead to refinery. Those factors are currently wreaking havoc on oil prices in North America: a range of oil qualities and a raft of infrastructure issues are creating record price differentials. And with no solution in sight, we think those differentials are here to stay.

In a move not too surprising to those who have followed the Egyptian presidential election, the candidate who is now president of the country one year after its "liberation" is the Muslim Brotherhood-backed Mohammed Mursi (for an extended interview with Mursi delineating his views read this ), who has won with over 13 million, or 51.73% of the votes. This means that at least superficially the Egyptian military is being pulled back from power, and instead the Islamist forces will be in control. How this ultimately impacts the region, and especially Egyptian neighbor Israel, remains to be seen, although a major Islamist power ascending in control of a formerly secular nation will hardly be very beneficial to Israel, especially in the long-run even if the just elected president has pro-western beliefs.

It seems pretty clear that the Syrians know the consequences of their actions. NATO (including deluded US hawks who are happy to ignore the disastrous consequences of the drug war on the US border while talking up more intervention in the middle east) and the NATO-backed Syrian opposition has been looking for any excuse to get stuck into a new interventionist mission. We know that the NATO-backed opposition were prepared to try and get a British journalist killed in a false flag operation in order to trigger a Western intervention. So why did Russia-armed Syria do it? And why (given the age of F-4 aircraft, it could easily have crashed of its own accord giving the Syrians a lot of plausible deniability) are they not at least denying that they shot it down? Is it possible that the wider Eurasian anti-American coalition led by the Russians and the Chinese are confident that NATO will not intervene out of fear of triggering a wider war? After all the Russian naval base has been a great obstacle to NATO intervention. Libya didn’t have any Russian bases, and it took far less internal violence for NATO to intervene there.

Update: they are making it up as they go along:

TURKISH PM SAYS HAS NO FIRM INFORMATION ON ANY APOLOGY FROM SYRIA, WILL MAKE FURTHER STATEMENT AFTER SECURITY MEETING
TURKISH PM SAYS CANNOT SAY WHETHER TURKISH WARPLANE SHOT DOWN OR CRASHED, NO NEWS ON PILOTS - TURKISH TV

Looks like everyone is trying to position appropriately.

Update from Al Jazeera: Turkish PM says cannot say whether Turkish warplane shot down or crashed, no news on pilots.

Just when the geopolitical tensions in the middle east appeared to be abating, and Brent was on a gentle glideslope to whatever price will greenlight the NEW QE now that fears of an Iran war have been very much silenced, things change. Reuters reports that Syria shot down a Turkish warplane on Friday, according to Lebanon's al-Manar television reported, "risking a new crisis between Middle Eastern neighbours already at bitter odds over a 16-month-old revolt against Syrian President Bashar al-Assad." "Syrian security sources confirmed to a Manar correspondent in Damascus that Syrian defence forces shot down the Turkish fighter jet," the Hezbollah-owned channel said." Here is the rub: Turkey is a NATO member, and by definition the alliance will have to come to Turkey's aid if requested. Syria, however is not just any country as has been made quite clear over the past several months of UN impotence: it is a critical staging ground for both Russia (which has a very critical regional naval base in the city of Tartus) and China, and according to the Jerusalem Post, the three countries are in preparation to conduct the "largest ever" war game. As such Syria, already gripped by fierce local fighting, where just like in Egypt and Libya the presence of US-based flipflop on the ground can be smelt from across the Atlantic, is merely a symbol. The real implication is how far can little escalations push until finally the showdown begins, with NATO on one side and Russia and China on the other?

Despite already being engaged in drone wars in Pakistan, Somalia, Yemen, and still occupying Afghanistan, the U.S. is being duped into yet another war based on shaky evidence and at the behest of deep-pocketed special interests.  This is coming even while a secretive cyber war already being waged to damage Iran’s nuclear capability.  According to the Pentagon, “computer sabotage coming from another country can constitute an act of war.”  Not only that, but the draconian sanctions thus far placed on Iran are doing enormous harm to the citizens who hardly have a say in what their government does.  The Belgium-based SWIFT payment system that facilitates most international payments has already denied service to many Iranian banks.  With the imposing of an oil embargo from the European Union just around the corner (July 1^st) that will all but make it impossible for oil tankers to be insured by Lloyd’s of London, an actual naval blockade is being floated by U.S. lawmakers.  Much like the Antebellum South and Japan, Iran too is being pushed into a corner.... Then and now, wealthy special interests are a driving force behind American imperialism.  Lies will be spun till they are seen as facts.  When the truth comes out, the irreparable damage will already be done.  Like anything the state lays its filthy hands on, war is a racket.  The beneficiaries of the ruling class’s gleeful foray into mass murder are few in number.  The masses, still brainwashed into feverish nationalism, end up paying the costs with their pilfered income, eroded liberty, and, ultimately, their own lives.

All you need to read.

• Prepare for Lehmans (sic) re-run, Bank official warns (Telegraph)
• Fed Seen Extending Operation Twist While Avoiding Bond Buying (Bloomberg)
• US Watchdog Hits at ‘Risky’ London (FT)
• G20 Bid to Cut Cost of Euro Borrowing (FT)
• Romney Says Rubio Being Examined as Possible Running Mate (Bloomberg)
• Hollande Says Worth Exploring ESM Bond Buys (Reuters)
• US Upbeat After Eurozone Debt Crisis Talks (FT)
• BOJ Members Say Japan Could Be ‘Adversely Affected’ by Europe (Bloomberg)
• China Steps Said to Grow Bond Market, Add Issuer Scrutiny (Bloomberg)
• How Asia Will Fare if Europe Cracks (WSJ)

Relief in the markets, after the worst case scenario from the Greek elections was averted, proved to be decidedly short-lived. Although the pro-bailout New Democracy party came in first with 129 seats (with an additional 50 seat bonus) the markets still await confirmation of an actual working coalition given a caretaker government has been in place now for approximately two months. A degree of uncertainty in regards to the demands the new coalition will place on negotiating the country's bailout terms has resulted in many investors being unwilling to get their toes wet just yet. Away from the election fever, rising Spanish yields continue to spook the market with the 10yr yield breaching the 7% level, prompting aggressive re-widening of the 10yr government bond yield spreads. The move comes at a crucial time for Spain as they look to come to market tomorrow in 12 and 18 month bills followed by three shorter dated bonds to be tapped this Thursday. Meanwhile, the FX markets have reflected the shift in sentiment with EUR/USD well off its overnight highs and the USD index firmly supported by the prevailing flight to quality bid. However, the biggest currency move of the day came in the early hours after the rupee (INR) weakened substantially following the RBI's decision to leave rates on hold, this coupled with Fitch changing the country's outlook to negative from stable has kept the currency under pressure throughout the day.