Iran

As Benjamin Netanyahu visits Moscow to discuss the possibility that Russian arms delivered to Syria could end up being funneled to Hezbollah, the action on the ground heats up with the Russian embassy in Damscus coming under mortar fire. The Kremlin has condemned the attack as "criminal" and is now calling for "action." 

Two weeks ago, when no one was talking about the possibility of a government shutdown, we warned it was coming. Today, as Politico reports, with very little time left to reach a deal, budget experts project a 75% chance of a shutdown. No matter how immaterial in terms of their economic impacts, government shutdowns create uncertainty and thus influence Fed decisions and as SocGen notes, with the odds of an October liftoff low, a government shutdown could lower them further. Although funding issues should be resolved by the December FOMC meeting, there is a small chance that the fiscal standoff extends into the end of the year (i.e. due to a temporary continuing resolution), creating another deterrent for the Fed.

The Saudis must alter course, seek a consensus on prices and volumes with their fellow OPEC members, coordinate with Russia, and reduce output from 2015’s average (approx. 10.5 mmbbl/d) to signal their commitment. Why? Crude prices staying lower for longer will rapidly devastate the Saudi economy.

A problem can turn into an opportunity if tackled with a clear mind and a kind heart; seldom can it be solved with fear; and never, ever with hate.

With both Russia and Iran seemingly prepared to do what's necessary to ensure Bashar al-Assad isn't toppled in Syria, John Kerry admits that the US strategy of brining about regime change in Damascus is now in serious jeopardy. Speaking from London on Saturday, Kerry attempted to hang on to the “Assad must go” narrative, but in what might fairly be described as the most conciliatory language yet, Washington’s top diplomat essentially admitted that the timetable for Assad’s exit is now completely indeterminate. Meanwhile, Moscow and Tehran are set to hash out Syria's future seemingly without any input from the Americans.

Winston Churchill famously said in 1939: “I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma; but perhaps there is a key. That key is Russian national interest." In making ISIS, not Assad, public enemy No. 1, Putin has it right. It is we Americans who are the mystery inside an enigma now.

Foreign Minister Walid al-Moualem says Syria may officially request the support of Russian combat troops in the fight to take back the country, a move that would pave the way for the Kremlin to overtly declare that Russia has joined the war in support of Bashar al-Assad. Meanwhile, Israeli Prime Minister Benjamin Netanyahu will meet with Putin on Monday to discuss concerns that Russia's involvement could end up strengthening the military capabilities of Hezbollah. Lurking in the background: the man one CIA officer once called "the most powerful operative in the Middle East today"...

News That Matters

• Contrarian CEOs tell the Fed: Go ahead, raise my rates (Reuters)
• Goldman Warns Markets Unprepared for Fed as Treasuries Seesaw (BBG)
• Investors Look Beyond Fed Meeting, See Low Rates (WSJ)
• Volatility seen lingering no matter what the Fed does (Reuters)
• What Rising Interest Rates Would Mean for You (BBG)
• China Stocks Jump in Last Hour of Trading on State Support Signs (BBG)
• No Escape for China Hedge Funds Overwhelmed by Stocks Crash (BBG)
• Hedge Fund Bridgewater Defends Its ‘Risk-Parity’ Strategy (WSJ)

America Wanted War … Not a Negotiated Peace

The party is over for tight oil. Despite brash statements by U.S. producers and misleading analysis by Raymond James, low oil prices are killing tight oil companies. Reports this week from IEA and EIA paint a bleak picture for oil prices as the world production surplus continues. EIA said that U.S. production will fall by 1 million barrels per day over the next year and that, “expected crude oil production declines from May 2015 through mid-2016 are largely attributable to unattractive economic returns.” IEA made the point more strongly. “..the latest price rout could stop US growth in its tracks.”

Having traded above $46 on Friday, WTI Crude is back to a $43 handle as it appears Iran's price cut, as we detailed here, sparked demand from China and India driving up Iran exports to 1 million barrels per day.

News That Matters

While we await for thr Russian secret service to leak photos of Iran's Revolutionary Guard in Syria, thereby stirring the pot on the latest and greatest proxy war in the middle east, one which would promptly disintegrate any last remaining shred of "victory" from Obama's alleged coup in restoring relations with an Iran, which couldn't even wait for the signing of the "Nuclear" deal before turning its back on Obama and siding with Putin in Syria, we were particularly amused to learn that just yesterday Iran announced it has discovered an unexpectedly high reserve of uranium and will soon begin extracting the radioactive element at a new mine.