Middle East

There is no indication that the Obama administration has even considered this eventuality. Indeed, I have not heard anyone on the left refer to Bernanke or the poison of his policies at any point in the last few months.

Mr. Corbat most recently served as the CEO of Citi Holdings, Citi's portfolio of non-core businesses and assets. During his tenure running Citi Holdings, Mr. Corbat oversaw the divestiture of more than 40 businesses, including the IPO and sale of Citi's remaining stake in Primerica. Mr. Corbat also successfully restructured Citi's consumer finance and retail partner cards businesses and divested more than $500 billion assets, reducing risk on Citi's balance sheet and freeing up capital to invest in Citi's core banking business. Prior to his appointment to lead Citi Holdings, Mr. Corbat was the CEO of Citi's Global Wealth Management unit, which comprised Smith Barney and the Citi Private Bank. Prior to this, he was a Managing Director and Head of the Global Corporate Bank and Global Commercial Bank at Citi, a role in which he led the firm's efforts to provide best-in-class financial services to top-tier multi-national corporations and financial institutions around the world. Previously, Mr. Corbat was Head of Global Emerging Markets in Markets and Banking, responsible for the origination, trading and sales of emerging markets fixed income debt. He joined Salomon Brothers, a Citi legacy firm, in 1983 in the Fixed Income Sales Department in Atlanta and has worked in New York City and London.

Remember when we said the Citi numbers were a miserable joke? Apparently at least two people (not Jim Cramer who absolutely loved Citi's "hairless" result) were aware of this:

• CITIGROUP NAMES MICHAEL CORBAT AS CEO VIKRAM PANDIT STEPS DOWN
• CITIGROUP PRESIDENT-COO JOHN P. HAVENS ALSO RESIGNS
• CITIGROUP NAMES MICHAEL CORBAT AS CEO VIKRAM PANDIT STEPS DOWN
• CITIGROUP BOARD UNANIMOUSLY ELECTED CORBAT TO CEO
• CITIGROUP SAYS HAVENS HAD BEEN PLANNING TO RETIRE AT YEAR END

And so the rat procession out of the titanic begins.

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.

When push comes to shove, China still has the bigger gun over Japan on many other levels, and the U.S. most likely has to at least sit in the bed it’s made so far.

The Wars in the Middle East and North Africa Are NOT Just About Oil ... They're Also About GAS

• Italy rejects need for EU control (FT)
• ‘Worst US quarterly earnings since 2009’ (FT)
• Chinese firm helps Iran spy on citizens (Reuters)
• World Bank cuts East Asia GDP outlook, flags China risks (Reuters)
• Foxconn factory rolls on in spite of strike (China Daily)
• Economic recovery ‘on the ropes’ (FT)
• Japan Tries Cars That Make the Mini Look Maxi (Businessweek)
• Euro Finance Chiefs to Give Positive Greece Statement, Rehn Says (Bloomberg)
• Romney attacks drones policy (FT)
• Euro zone mulls 20 billion euro separate budget (Reuters)
• Hong Kong’s Leung Seeks Turnaround With Economy Focus (Bloomberg)
• RBA Keeps Some Documents Private in Securency Bribe Probe (Bloomberg)
• India Inflation to Remain at 7.5%-8% Till Early 2013 (WSJ)

To grasp what is really occurring here we must look at how authoritarian Middle Eastern regimes (or, indeed, authoritarian regimes in general)  function. Authoritarian regimes  must maintain a cloak of authority. Tyrants do not attempt to look or sound weak; they try to project an aura of invincibility and indefatigability. We saw this during the last Gulf War, where Iraq’s information minister Muhammad Saeed al-Sahhaf — nicknamed Baghdad Bob in the American media — shot off hundreds of absurd statements during the war about how Iraqi troops were crushing the Americans, quite in contrast to the facts on the ground and right up until American tanks were rolling through the streets of Baghdad. Baghdad Bob was not deluded. He was merely playing his role, and trying to project an aura of regime invincibility — providing propaganda for domestic consumption to keep the Iraqi population loyal to Saddam Hussein. It was a dog and pony show.

There is a popular belief in the Middle East that Washington’s foreign policy, particularly as it relates to this precarious region, is largely driven by America’s dependency on, and insatiable appetite for Arab oil.  One can make a good argument for that. Had Syria been a major oil producing country chances are the US would have already dispatched military forces to impose a pax Americana and to put a stop to the horrific fighting that has been slowly, but without any doubt, ripping Syria apart and dismantling the infrastructures that make the Syrian state what it is today. Even if the war was to end today it would take years for Syria to return to its pre-war position from an economic and military perspective.

Just because the middle east did not have enough countries and/or terrorist organizations shooting at random things, in outright attempts of provocation or otherwise, here comes Israel to join the party. From Reuters: "The Israeli air force shot down a drone after it crossed into southern Israel on Saturday, the military said, but it remained unclear where the aircraft came from. "An unmanned aerial vehicle was identified penetrating Israeli air space this morning, and was intercepted by the Israeli Air Force at approximately 10 a.m. (0700 GMT)," the military said in a brief statement. Soldiers were searching the area where the drone was downed - in the northern part of the Negev desert - to locate and identify the drone, the statement said. The Negev desert is near Israel's southern borders with the Gaza Strip, Egypt, Jordan and the occupied West Bank."

In a follow-up to our discussion yesterday - and perhaps a haunting vision of days to come if the tensions that are so rapidly rising in the Middle East actually spill over - is this chart from Bloomberg of the massive spike in California gas prices. How will this impact the California economy? Especially now they can't count on all that Facebook capital gains tax? Think this is only those silly West Coast 'techies' problem? Think again, as news today is discussing the redirection of fuel supplies to the West Coast, which will inevitably mean a rise in broad US fuel costs as the shortage picture equilibrates.

Precious metals have all run up with the recent loose money policies enacted by various governments.  Clearly the market darling of late is silver which is now gaining favour in Asia for its value appeal.  Spot silver traded in New York has risen by 27% since the end of June, while the price of spot gold has increased by a meek 12%. Analysts say future Indian demand is key for silver’s price to climb. Futures contracts for silver at India's largest commodity exchange, the Multi Commodity Exchange, rocketed 30% in September compared with July, while volumes fell by 10% for gold futures contracts over the same period. Indian rupee weakness sent gold prices in rupees to an all time high this year, while silver never exceeded the record it hit last April. Rupee-denominated silver is currently being quoted around 20% below the record. Indian investors have ceased purchasing because the 2 weeks ending Oct. 15th is regarded as inauspicious.  The buying will commence and peak during the week ahead of the Hindu festival of Diwali on November 13th. In China, on the Shanghai Futures Exchange silver futures were up 29% at the end of September verses the end of June, while gold climbed 13%, according to data from the exchange's website.

The news surrounding the Middle East, particularly Iran and Syria, may come and go in waves, but for the most part it is loud political grandstanding, jawboning and largely noise. Or rather, it will be noise until these two catalytic events occur: the third US Aircraft carrier (CVN-74 Stennis) and the second big deck amphibious warfare ship (LHA-5 Peleliu), both dispatched as of several weeks ago with a destination the 5th US Fleet headquartered in Bahrain, reach their target - the Arabian Sea, located by the Straits of Hormuz and right next to Iran. As the following naval update map from Stratfor shows, both are now within a week of reaching their destination: conveniently so with at least two weeks to go until the presidential election. Needless to say, once on location, the naval and airborne support for any offensive operation, especially those launched during new moon cycles, will be simply suffocating.