Turkey

With everyone's attention focused on the aftermath of hurricane Sandy, some may have forgotten that the Middle East is the proverbial powder keg, just waiting for an Archduke and a lit match, not necessarily in that order. Moments ago, Israel's military reminded us of just that when it reported that 3 Syrian tanks have entered the Golan Heights DMZ. Because it appears that the absolutely deranged and insane (or at least that's how it will be portrayed) Syrian regime is not satisfied with provoking the humanistic Western media with "offensive" measures taken against both Turkey and Lebanon, it now has decided to enter the lion's mouth, and is begging, just begging, for a UN-endorsed retaliation. How soon until Syria floats a submarine into New York harbor where it explodes but only after leaving a convenient note saying "Death to the Infidels, Love Syria." Or something just as realistic.

What's happening is that Facebook is realizing the advert model of revenue is fatally limited. Adverts just don't generate billions of dollars in profit, even with 1 billion users. So it was inevitable that those using the FB platform to generate revenue in some fashion would be squeezed to "share" their revenues with FB. Previously "free" distribution would no longer be free, and users would face a stark choice: either start paying for distribution or lose 85% of their audience. The response depends on the users' level of dependence. Those who are well and truly hooked on the FB platform can either make ineffectual protests and end up paying to reach their former audience, or they can quit: cold turkey, baby. So FB will eventually have to decide if it can profit with a customer base in which 99% don't pay anything. They could try squeezing users in more "stealth" ways, for example, making the first 10 friends and first 10 posts a week free, and charging for useage above a low threshold. If it follows this revenue model, it will follow MySpace down the path to hosting tens of millions of zombie users. Or FB (and Wall Street) could accept that it is fundamentally a low-profit utility and always will be. It could charge individuals $1 a month--a utility fee, in effect-- $10 a month for groups and small enterprises and $100/month for corporations and large organizations. This model would recognize FB is basically offering server space. If users aren't getting $1 a month in value, then why be users at all? How addicted are we? It's a good question of all social media, especially the (currently) "free" stuff. How many people would click "abandon FB" if that were offered alongside the new "promote" button?

This past Wednesday, nobody reported that a squadron of 8 Israeli F-15 jets dropped 4 two-ton bombs on the giant Yarmouk missile factory on the outskirts of Sudan's capital Khartoum. Which is just as Israel wanted it. Because what otherwise would be a provocative incursion tantamount to war (if only Sudan wasn't a complete basket case of a country), was really nothing short of a dry-run for an Israeli attack on Iran. At least according to the Sunday Times. "A long-range Israeli bombing raid last week that was seen as a dry run for a forthcoming attack on Iran’s nuclear facilities has destroyed an Iranian-run plant making rockets and ballistic missiles in Sudan.... The raid, in which two people died, triggered panic across the city. Witnesses said they heard a series of loud blasts followed by the sound of ammunition exploding. “It was a double impact — the explosion at the factory and then the ammunition flying into the neighbourhood,” said Abd-al Ghadir Mohammed, 31, a resident. "The ground shook. Some homes were badly damaged." And... nobody cares. Here we leave it up to readers to imagine the epic horror, deep revulsion that would greet news that Iran had conducted a pre-emptive strike against Israel by blowing up a missile factory in Turkey, killing two innocent people, just to make sure it can.

Him, with his big foot in his mouth

In recent months there has been a lot of incorrect speculation that because Iran has been shut off from the petrodollar, SWIFT-mediated regime, its economy will implode as the country has no access to the all important greenback and can thus not conduct international trade - the driving factor behind the international sanctions that seek to topple the local government as Iran dies an economic death. And while there have been bouts of substantial inflation, which so far the local government appears to have managed to put a lid on by curbing gray market speculation, Iran continues to more or less operate on its merry ways with international trade most certainly taking place, especially with China, Russia and India as main trading partners. "How is this possible" those who support the Western-led embargo of all Iranian trade will ask? Simple - gold. Because while Iran may have no access to dollars, it has ample access to gold. This in itself is not new - we have reported in the past that Iran has imported substantial amounts of gold from Turkey, despite the Turkish government's stern denials. Today, courtesy of Reuters, we learn precisely what the 21st century equivalent of the Great Silk Road looks like, and just how effective Iran has been as a lab rat in escaping the great petrodollar experiment, from which conventional wisdom tells us there is no escape. Presenting: petrogold.

ExxonMobil, for one, appears to have had enough, announcing recently that it may pull up stakes in Iraq’s south and stick to the Kurdish north, where the business arrangements are more flexible and the security situation more manageable, at least outside of Kirkuk. So is Iraq too risky an investment? It depends how far ahead you want to look. For the next two years, we will probably see more of the political status quo, largely thanks to Iranian intervention, which is the only thing keeping things from falling apart at the seams right now. Further down the road, in the absence of a major increase in foreign investment and socio-economic improvement, we are likely to see the start of a failed state, a renewed civil war as more and more provinces jump on the autonomy bandwagon creating tensions among Sunnis and Shi’ites, and a bloody conflict over Kurdish independence.

Yesterday we made it very clear why with the Turkey provocation avenue to further Middle East escalation rapidly closing, the one pathway left is Lebanon. Sure enough, today the escalation playbook is firmly in play - from Reuters: "Heavy gunfire erupted in central Beirut on Sunday after protesters tried to storm the offices of Prime Minister Najib Mikati, demanding that he quit over the assasination of a top intelligence official. An official said security forces had fired in the air. Witnesses said at least two protesters had fainted, apparently as a result of tear gas fired by security forces after protesters breached an outer barrier around the prime minister's offices. Hundreds of protesters, waving flags from the anti-Syrian opposition Future Movement - a mainly Sunni Muslim party - and Christian Lebanese Forces as well as black Islamist flags, marched on Mikati's offices after the funeral of Wissam al-Hassan."

Yesterday's massive car bomb in Lebanon, which killed and wounded dozens including the country's police intelligence chief and has thus been dubbed as the most "high-profile assassination in seven years", confirmed once again that when it comes to regional powder kegs, the middle east is second to none, and is the 21st century equivalent of Eastern Europe. While nobody has claimed responsibility yet for yesterday's brazen attack (although the "agenda-less" media is once again insinuating it is the doing of Syria's leader Bashar al-Assad) one thing is certain: provocations of this nature will continue indefinitely until they escalate into something much more lethal. The reason: the melting pot melange of different sects in Syria and Lebanon, which co-exist in perfectly mutual hatred despite, or rather because of, the artificial political borders imposed between the two countries provides a terrific backdrop to which merely add a spark and watch everything go up in flames. Which also means that those seeking to provoke further military escalation in the region, now that attempts to stoke a conflict between Syria and Turkey have so far failed, will likely look to Lebanon as a new conduit for escalation. . Because remember: as David Rosenberg pointed out yesterday, in a time of record partiasniship, political bickering and lack of consensus, "it may end up taking some sort of a crisis, in the end, to galvanize the two parties to work towards a resolution to the fiscal morass." And that is precisely what the endgame here is: the intention to unify a hopelessly split congress (and senate) behind the patriotic banner of war. It is only a matter of time (but certainly in time to address the Fiscal Cliff).

First, last Wednesday, Turkey intercepted a Syrian civilian jet suspected of carrying Russian weapons to Syria, forcing it to land in Turkey. The jet subsequently continued on its trip following stern denials from both Damascus and Moscow, and after Turkey found no evidence of its claim. Then yesterday, Syria promptly retaliated against this overt and unjustified aggression by banning all Turkish aircraft from crossing its airspace. Now, moments ago, Turkey retaliated to an act of retaliation against its own initial provocation, by barring all Syrian flights above its own airspace, and in the process preventing virtually all local airborne traffic from taking place. In other words: more mindless escalation which usually ends in a very unfortunate way.

Everyone is aware of a multitude of problems that besets our world, however the nature of these problems and why they exist is distorted by the media and by governments all over the world. Our leaders, corporate heads, military top-brass etc. all have a fairly good idea of what is really happening, they just don’t want us – the ignorant masses known as the general public to know what they know. The multiple crises on this planet are caused by our insane mode of living – one that seems to be dominated by economics. Our way of life (unfortunately now for most of the world) depends on an ever-expanding economic system, for if it is not expanding it is contracting. This system was all well and good while there was plenty of capacity for continued expansion, but unfortunately for all of us the limits of expansion are not far off.

As the day approaches when Israel may decide to launch a preemptive strike against Iran in order to cripple its nuclear infrastructure, Israeli policymakers and their allies abroad would carefully assess how the Lebanese-based group Hezbollah would react. With the debacle of the 2006 war against the Lebanese group still fresh in Israeli minds, the possibility that the "Party of God" Shi’a organization would renew hostilities against the Jewish state through cross-border raids, terrorism, or rocket attacks against its cities, will have to be part of Israel’s calculations for any “day after” scenario.  The challenges posed by the Iranian nuclear program are numerous, with many of the different nodes being interrelated. The problem is made all the more intractable by an increasingly volatile region that is sharply divided along sectarian lines. Hezbollah is but one of the many players involved, but should it choose to do so, it has the capacity to inflict great harm on Israel.

For the first time since July, Turkey scrambled two F-16 fighter jets to the Syrian border following a Syrian military helicopter bombed the border town of Azmarin. The WSJ reports that the two fighters flew along the border shortly after 2pm local time following heavy fighting between rebels and Syrian government forces. Booming explosions and the rattle of machine guns around Azmarin could be heard Friday morning from the small Turkish border town of Hacipasa. One eyewitness said the Syrian attack helicopter retreated when the Turkish jets flew along the border. Turkey's move on Friday to scramble jets close to the fighting inside Syria comes amid a sharp escalation of tensions along the shared 565-mile frontier.

• Global easing deluge resumes: Bank of Korea Slashes Policy Rate (WSJ)
• And Brazil: Brazil cuts Selic rate to new record low of 7.25 pct (Reuters)
• With Tapes, Authorities Build Criminal Cases Over JPMorgan Loss (NYT) Just don't hold your breath
• IMF snub reveals China’s political priorities (FT)
• Add a dash of trade wars: Revised Duties Imposed by U.S. on Chinese Solar Equipment (Bloomberg)
• IMF calls for action as euro zone crisis festers (Reuters)
• Dubai Losing Billions as Insecure Expats Send Money Abroad (BBG)
• Softbank in Advanced Talks to Acquire Sprint Nextel (WSJ)
• Lagarde calls for brake on austerity (FT)
• EU lambasts Turkey over freedoms (FT)
• Race Tightens in Two States (WSJ)

Turkey has confirmed that it is deploying at least 25 additional F-16 fighter jets at its Diyarbakir air base close to the border with Syria. Al Jazeera reports that Erdogan, Turkey's PM, noted that he does not want war but needs to prepare for anything and at the same time NATO's secretary general has "all necessary plans in place to protect and defend Turkey if necessary."

"The recovery continues but it has weakened" is how the IMF sums up their 250-page compendium of rather sullen reading for most hope-and-dreamers. The esteemed establishment led by the tall, dark, and handsome know-nothing Lagarde (as evidenced by her stroppiness after being asked a question she didn't like in the Eurogroup PR) has cut global growth expectations for advanced economics from 2.0% to only 1.5%. Quite sadly, they see two forces pulling growth down in advanced economies: fiscal consolidation and a still-weak financial system; and only one main force pulling growth up is accommodative monetary policy. Central banks continue not only to maintain very low policy rates, but also to experiment with programs aimed at decreasing rates in particular markets, at helping particular categories of borrowers, or at helping financial intermediation in general. A general feeling of uncertainty weighs on global sentiment. Of note: the IMF finds that "Risks for a Serious Global Slowdown Are Alarmingly High...The probability of global growth falling below 2 percent in 2013––which would be consistent with recession in advanced economies and a serious slowdown in emerging market and developing economies––has risen to about 17 percent, up from about 4 percent in April 2012 and 10 percent (for the one-year-ahead forecast) during the very uncertain setting of the September 2011 WEO. For 2013, the GPM estimates suggest that recession probabilities are about 15 percent in the United States, above 25 percent in Japan, and above 80 percent in the euro area." And yet probably the most defining line of the entire report (that we have found so far) is the following: "Central bank capital is, in many ways, an arbitrary number." And there you have it, straight from the IMF.