Israel

The political press has been abuzz with over the much anticipated signing of the NDAA by Barack Obama on Saturday: this move was not surprising because Obama had already made it clear he would go ahead and enact the law, even though he added some 'stern' language that is supposed to legitimize what some say is a precursor to the establishment of martial law in the US. To wit: "The fact that I support this bill as a whole does not mean I agree with everything in it. In particular, I have signed this bill despite having serious reservations with certain provisions that regulate the detention, interrogation, and prosecution of suspected terrorists." And yet he signed it (full text of Obama's statement on the NDAA, sent while on vacation in Hawaii, can be found here). Perhaps the reason for that unpopular move were some of the more nuanced contents of the Bill, among which is the decision to fully boycott not only Iran, but any bank, including central bank, and other financial institution found to deal with Iran. Which incidentally means most of Russia and China, and probably half of Europe, as all petrodollars generated by the country's petroleum export industry first have to make their way via the international financial community back into the country. The history buffs out there will realize that this form of couched antagonism is nothing short of the US approach to Japan during World War II, which was essentially provoked into attacking Pearl Harbor - read the details of the October 7, 1940 McCollum Memo here, and especially bullet point 10. And unfortunately, it appears that within 24 hours or so, Iran may have already taken the bait. As Reuters and BBC report, Iran has both test-fired a medium-range SAM during the ongoing wargames exercise previously discussed here, as well as made a formal announcement it has made and tested domestically made nuclear fuel rods: precisely the event that the Israel or US-borne Stuxnet was designed to prevent. So as the tennis match of escalation keeps on growing the ball is now once again in the US' court.

Perhaps it is time to point out the "trade of the day", which for some reason has seen no action yet since the Iran news has broken. Presenting the InTrade "USA and/or Israel to execute an overt Air Strike against Iran before midnight ET 30 Jun 2012" contract, which at last trade yesterday (no trades today yet), was seen trading at $24.3, or at about 24.3% implied probability. Following today's news, we would venture to guess that the upside/downside here is attractive to quite attractive.

While we are looking for the full IAEA report blasting Iran and specifically its nuclear program, claiming that Iran carried out work relevant for developing nuclear arms according to a UN report citing 'credible' info, as well as having information of activities in Iran specific to nuclear weapons, we already know what Iran's response is to any potential 'provocations' from Israel. To wit: "We'll show you 'hell'" UPI explains: "Israel will learn the true meaning of "hell" if it decides a military strike against Iran is worth the risk, an Iranian national security official said. Israeli Prime Minister Binyamin Netanyahu is said to have been reviewing strike plans against Iran's nuclear infrastructure as the International Atomic Energy Agency expressed concerns about Tehran's nuclear ambitions. Iranian officials have said any attack on its nuclear infrastructure would be suicidal." And the soundbites keep getting better: "If a military challenge is started against Iran in the region, the Zionist regime will definitely be faced with a hell," Javad Jahangirzadeh, a lawmaker on Iran's national security commission, told the semiofficial Fars News Agency." Israeli Defense Minister Ehud Barak, in a Tuesday interview with Israel Radio, said Israel doesn't want war. If dragged into conflict, he said, the casualties would be low. "Israel is the strongest country in the region and it will stay that way," he added." And while a few weeks or even days ago, the outcome of this event would have been easily predictable, following the just announced "microphone" gaffe involving Sarkozy, Obama and Netanyahu, suddenly the odds are far more interesting. Regardless, at this point, aside from concluding that Keynesians everywhere must be rejoicing at the imminent GDP boost driven by the military-industrial complex, we can also venture to gamble: short glass manufacturers. In a few months there may be a natural glut.

First Fukushima made a repeat appearance last night with news of a repeat fission incident, a topic which has gotten absolutely zero media coverage as discussing beta, let alone gamma decay, is considered uncouth in refined society; now it is time for the fallback geopolitical hotbed to enter the stage. Sky News has reported that Israeli Prime Minister Benjamin Netanyahu is trying to rally support in his cabinet for an attack on Iran, according to government sources. "The country's defence minister Ehud Barak and the foreign minister Avigdor Lieberman are said to be among those backing a pre-emptive strike to neutralise Iran's nuclear ambitions. But a narrow majority of ministers currently oppose the move, which could trigger a wave of regional retaliation. The debate over possible Israeli military action has reached fever pitch in recent days with newspaper leader columns discussing the benefits and dangers of hitting Iran. Mr Lieberman responded to the reports of a push to gain cabinet approval by saying that "Iran poses the most dangerous threat to world order." But he said Israel's military options should not be a matter for public discussion." Which makes one wonder: why is Sky News reporting on this, and why is it a matter for public discussion?

The war watchers (such as Marc Faber and everyone else who knows what follows an episode of epic Keynesian failure) have just lowered DefCon to level 2 after in a very surprising development the US accused Iran of backing a plot to assassinate the Saudi ambassador to the US and to blow up the Saudi and Israel embassies in Washington. "The plot was part of a $1.5m “international murder-for-hire scheme” that was directly linked to Iran’s Islamic Revolutionary Guard Corps, said Eric Holder, attorney-general." Now, any press report that details Eric Holder being active in any capacity is almost certainly a confirmation of a false flag, although we will gladly reserve judgment for now. However, if this is indeed the precursor to war, at least CVN 74 and CVN 77 will be quite busy in the next few months. Also, the price chart of Brent will surely to quite surely point from the lower left to the parabolic up.

As if we didn't have enough to worry about with sovereign shenanigans in Europe, which bridges to build in the US, and a slowing China, Israel's top-brass now fears a winter of radical Islam, an increase in the chance of a multi-front war, and notes Hamas using a new advanced rocket (perhaps this will be the bazooka that Trichet borrows?).

While it is unclear if geopolitical news, or expectations of imminent QE3 is what just drove WTI to $89, the update from AP that Israel has sent two warships to the border with Egypt will likely not help the oil deflation case. From the AP: "The Israeli military says it has sent two more warships to the Red Sea border with Egypt following warnings that militants are planning another attack on southern Israel from Egyptian soil. Earlier this week, Israel's military ordered more troops to the border following intelligence reports of an impending attack. Israel's home front minister said Tuesday that militants from the Gaza-based Islamic Jihad are in Egypt's Sinai peninsula waiting to attack. Gunmen who infiltrated Israel through the porous Egyptian Sinai border killed eight Israelis earlier this month. The attack sparked calls to increase security on both sides of the frontier and created new tensions between Israel and Egypt. No changes in security alignments were observed on the Egyptian side of the border." And as the market now gyrates violently without any clear idea what to do until Thursday's ISM and Friday's NFP either seal the deal for QE3 or not, expect geopolitical headline risk to return with a vengeance.

As if the global liquidity crunch was not bad enough (as we enter a vacation sleepy week, the key report on Monday will be the ECB's bond purchase update for last week - we estimate another E30 billion in secondary market monetizations, in addition to how many banks pulled dollars from the ECB in the 7 day liquidity providing operation on Wednesday as occurred first last week), geopolitical risk is back after headlines from both Libya and Israel indicate that the Levant region is on the verge of systemic instability once again. The first two stories put Israel smack in the middle of the Middle East action. First is Egypt, which earlier "said Saturday it would withdraw its ambassador from Israel, insisting the killing of five Egyptian security personnel while Israeli forces pursued gunmen across the border was a breach of its 1979 peace treaty with the Jewish state." Complicating matters is the announcement out of Iran, via AP, that "two American men arrested more than two years ago while hiking along the Iraq-Iran border have been sentenced to eight years in prison on charges that include espionage, state TV reported Saturday, a sharp blow to hopes their release was imminent. The announcement seemed to send a hard-line message from Iran's judiciary — which answers directly to the ruling clerics — weeks after the country's foreign minister suggested that the trial of Shane Bauer and Josh Fattal could clear the way for their freedom. It also was likely to raise speculation about Iran using the Americans as political bargaining chips and could bring added tensions to Iranian President Mahmoud Ahmadinejad's expected visit to New York next month." The cherry on top is late news out of Libya that the local rebel movement may be making headway (since denied by the government) in taking over Tripoli. Net result will be even more instability in the crude market which has been expected to drop courtesy of the recent spike in deflationary expectations. Alas, when geopolitics enters the equation, the only certain thing is a surge in uncertainty. That this will likely not benefit global equity markets goes without question.

The latest target of Operation Anonymous, which following the dissolution of LulzSec is the last substantial non-amorphous hacker collective left out there, could lead to some substantialgeopolitical fallout. That is because the target of the just announced upcoming DDOS attack is none other than the Israeli Parliament, the Knesset, and while Israel has allegedly been happy to dispense hack attacks in the past, the onslaught on the Iranian nuclear power plant courtesy of the Stuxnet virus coming to mind, we doubt it will as happy to be seen on the receiving end of decentralized computer warfare. Either way, with the world focusing on Greece tomorrow, this development, and specifically what form of retaliation Israel adopts, will be yet another important factor to keep track of over the next 24 hours.

Luckily, the IMF does not bar candidates for being too thin, or too male...

As the Nakba protests continue late in the night across the Middle East, things in Egypt have taken a turn for the worse after Reuters reports that Egyptian police have fired teargas to force back pro-Palestinian demonstrators who had broken through a barricade in front of the Israeli embassy in Cairo, according to witnesses. Additionally, according to the twitter stream, at least one person has been killed during the protest after being shot in the head. Those who wish to follow the latest on the ground updates from Egypt and Israel may do so by searching the #May 15 hash tag. Judging by the early drop in the EURUSD, the sentiment is definitely risk averse.

Just to make the clusterflock complete the following news from BBC Newsfile crosses the tape: "The Ma'an News Agency website in Arabic at 1631 gmt on 7 April posts the following "urgent" caption: "[Ofir] Gendelman [spokesman for the office of Israeli Prime Minister Binyamin Netanyahu] Tells Ma'an: I do not rule out the possibility that Israel will wage war on Gaza tonight." Or, more metaphorically, the proverbial flame in a fireworks store. Surely this last straw will send the S&P limit [up|down] until someone has the brilliant idea that Bernanke can print his way out of that one as well.

• INTERIOR MINISTER ELI ISHAI SAYS SITUATION DETERIORATING
• ISHAI SAYS ISRAEL MAY HAVE TO ACT IF DETERIORATION CONTINUES
• ISHAI LINKS JERUSALEM BOMBING TO ITAMAR STABBING, GAZA VIOLENCE
• ISHAI SPEAKS ON ISRAEL ARMY RADIO

Priced in?

And just as oil was trending lower on the day, we receive our now daily news of Israel conflict escalation, as Reuters reports that tank fire has killed 3 Palestinians in Gaza, wounding another four including children. Bloomberg also chimes in:

• ISRAEL ARMY SAYS FOUR PROJECTILES LAUNCHED FROM GAZA HIT SOUTH
• FOUR PALESTINIANS KILLED BY ISRAELI FIRE IN GAZA, OFFICIAL SAYS

The result is an immediate jump in oil as the market apparently, and contrary to our expectations, has to digest this latest piece of geopolitical news.

Since the apocalypse is obviously priced in the Russell 2000, the market should be able to digest the latest piece roasted glow in the dark swan with barely a hiccup.

• ISRAELI WARPLANES HIT HAMAS MILITARY SITE IN GAZA, XINHUA SAYS
• ISRAELI GAZA ATTACKS INJURE FIVE PEOPLE, AL-ARABIYA REPORTS
• ISRAELI WARPLANES FLYING OVER GAZA, AL-ARABIYA REPORTS

That said, courtesy of the biggest case of headline fatigue in history, at this point absent NASA announcing the imminent destruction of the earth by an asteroid, or a Proxima Centauri supernova (and even that will be bullish as there is precisely 4.2 years of stock market Zimbabwefication before the earth is annihilated), there appears to be nothing that can possibly prevent the Chairsatan from reverse exercising his Russell 2000 put at 36,000.