Saudi Arabia

Iran has been pushed into a corner and is fighting for its life.  The safest weapon in its arsenal is an economic strategy; and it is the one point where the United States is vulnerable. It is no secret that many governments object to the sanctions and are willing to deal outside of normal channels for a reduced price.  If the Iranians should use the new private traders to dump a few million barrels of oil onto the market at a sharply discounted price, they just might encourage one of these governments to openly defy the United States for a bargain. As a persecuted minority, the Shia have learned that the weaker in a conflict must employ cunning rather than muscle. It is the inherent weakness of the alliance that is Iran’s strength.  The unwillingness of Washington to pressure supposed allies and the simple fact that there are buyers willing to defy the sanctions secretly reveals the cracks in the system.

American Officials Admit that the U.S. Is a Huge Sponsor of Terrorism

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."

Just because there is already an overflow of confidence in the financial system, here comes the Senate's Permanent Subcommittee On Investigations with a 340 page report detailing how HSBC "exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls." Of course, since HSBC is one of the world's largest banks, what it did was not in any way unique, and it is quite fair to say that every other bank has the same loose anti-money "laundering" provisions. What HSBC was likely most at fault for was not providing sufficient hush money to the appropriate powers in the highest US legislative administration. But at least tomorrow we will have yet another dog and pony show, accusing that HSBC did what the NAR does every single day. Because let's not forget that the National Association of Realtors lobbied for and received a waiver for anti-money laundering provision regulations: after all how else will US real estate remain at its current elevated levels if not for the drug, blood, and fraud money from various Russian, Chinese, and petrodollar kingpins, mafia bosses and otherwise rich people who need to launder their money in the US, in the process keeping Manhattan real estate in the stratosphere? But one can't possibly pursue the real truth if it just may impair the fair value of that backbone of honest, hard-working US society: still massively overpriced housing in a world in which those who need mortgages will never get them.

Those trigger happy US sailors are causing some diplomatic headaches again for Hillary Clinton who this time has no Syrian anti-aircraft missiles to blame, by firing on a friendly ship, killing one and injuring three, off the coast of Dubai. Per the AP: "A U.S. Consulate official in Dubai says an American vessel has fired on a boat off the coast of the United Arab Emirates, killing one person and injuring three. The official gave no further details, but it appears the boat could have been mistaken as a threat in Gulf waters not far from Iran's maritime boundaries. An Emirati rescue official confirmed the casualty toll. The officials spoke on condition of anonymity because of the sensitivity of the incident between the two allies. The U.S. Navy's 5th Fleet, which is based in Bahrain, said it was investigating the Monday shooting. The U.S. Embassy in Abu Dhabi had no immediate comment." So far so bad, but where it gets even worse is that over the weekend, Russia finally decided to make its own voice heard in the middle east, and after over a year of the west condemning Syrian "eradication" of its own insurgents and keeping Russia on the defensive, Russia has decided to shine a light on none other than America's favorite regional ally: Saudi Arabia, which as we reported recently, has once again taken to quelling religious protests in Qatif and other eastern cities. Apparently Russia has had enough of this one-sided reporting of regional "insurgencies."

• Looks like the troops won't be steamrolled: JPMorgan Blaming Marks On Traders Baffles Ex-Employees (Bloomberg)
• The Goldman "Huddle" goes to Blackrock - Surveys Give Big Investors an Early View From Analysts (NYT)
• At least housing has bottomed: London House Prices Plunge As Supply Rise Adds To Lull (Bloomberg)
• Christine Lagarde and Nicolas Sarkozy embroiled in new corruption inquiry (Telegraph)- at least that fraud they created: Others helped them create it.
• Heat Leaves Ranchers a Stark Option: Sell (NYT)
• Merkel Gives No Ground on Demands for Oversight in Debt Crisis (Bloomberg)
• The euro skeptics have the best lines again (FT)
• Wen Says China’s Economic Recovery yet to Show Momentum (Bloomberg)
• Europe’s Banks Face Tougher Demands (FT)
• Madrid Region To Sell 100 Office Buildings Amid Austerity (Bloomberg)
• China eases taxes for foreign companies (FT)

Malaysia's state-owned oil and gas company just made a multibillion-dollar bet that Canada will choose to export its shale gas riches. Even though the odds of securing permission to export liquefied natural gas (LNG) from the Canadian west coast are still pretty poor, the costs of such an endeavor immense, and the timeline in question very long, Petronas is putting $5.5 billion on the table – far more than it has ever spent on an acquisition before – to secure a large foothold in the British Columbia shale gas scene.

It's yet another sign that things are getting serious in the global race for resources.

UPDATE: Disturbing video of the bloody reality on Saudi streets tonight

Remember Qatif - the "weakest" Saudi authoritarian link, whose daily protests, many of them violent, threatened to topple the government last spring when soaring global food inflation set the MENA region on fire and led to the overthrow of numerous regimes in the Mediterranean rim? It's back, only this time not based on food price concerns, but inflamed religious tensions, arising from the arrest, and shooting, of a senior religious opposition figure, Shia cleric Ayatollah Al-Neme. As of minutes ago, Redha Al-boori reports on Twitter, that there have been at least two casuualties as a result of confrontation between Saudi forces using live ammo and protesting Shiites.

What few media pundits seem to grasp is that when our trade deficits transfer hundreds of billions of dollars to other nations, those dollars have to end up in dollar-denominated assets like bonds, stocks or real estate. Many people have missed the difference between dollars used to settle accounts and dollars held as a result of trade deficits. Many of those emotionally wedded to the belief that the U.S. dollar is doomed gleefully grabbed onto the news that China and Japan will swap currencies directly (yen and yuan) rather than intermediate the trade with U.S. dollars. This was mistakenly seen as a nail in the coffin of the USD. If I am in Japan and I have yuan due to trade with China, and I want to exchange those yuan for yen, I only need USD for about 10 seconds to intermediate the exchange. Cutting out the USD simply cut the exchange costs and lowered the daily trading volume of the USD. This reduction in the transactions needed to exchange yuan for yen did nothing to change the dollars held by China or Japan as a result of their trade surpluses with the U.S. This also didn't lower the amount of assets or credit (debt) denominated in USD. In other words, the effect on the value of the dollar is trivial. No matter how many exchanges the USD sitting in overseas accounts are pushed through, they still end up in dollar-denominated assets somewhere.

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.

All you need to read.

Coming into the weekend, most were focusing on key events coming out of Greece and France, possibly Egypt, but nobody expected that Saudi Arabia would be thrown into the fray. That just happened, however, following news that Saudi Arabia's Crown Prince Nayef bin Abdulaziz al-Saud has died in Geneva, according to Saudi state television, citing a royal court statement. The news has sent Saudi shares sliding, because now 89-year-old King Abdullah must nominate a new heir for the second time in nine months. And the last thing the middle-east region needs, not to mention the world's biggest oil producer, needs is more geopolitical uncertainty.

All you can read.

The announcement by the UK Treasury and BoE to take co-ordinated steps to boost credit and with the central bank re-activating its emergency liquidity facility has resulted in a sharp move higher in UK fixed income futures. GBP swaps are now pricing in a cut of 25bps in the base rate by the end of this year and following on from Goldman Sachs, analysts at Barclays and BNP Paribas are now calling for an increase in QE next month. The new measures have seen the likes of Lloyds Banking Group (+4.3%) and RBS (+7.0%) outperform the more moderate gains observed in their European counterparts. Meanwhile in Europe the focus remains on the possibility of co-ordinated action from the major central banks. However, it would seem more realistic that any new measures will likely come after the Greek election results are known and once ministers have conducted their G20 meetings. Given that there is an EU level conference call this afternoon scheduled for 1500BST the likelihood of rumours seem high but as the wires have indicated already these conversations are purely based upon co-ordination ahead of the meeting which is usual practice. The yields in Spain and Italy have been a lot calmer so far with the 10yr in Spain at 6.88%, off the uncomfortable test of 7% seen yesterday.

"The most important election this weekend may have nothing to do with the Eurozone - at least directly. The election in Egypt may change the face of the Middle East. The implications to Israel, Iran and Saudi Arabia are enormous. Will the most populous Arab nation become a theocracy? This will be some weekend."