Archive for the ‘Middle East’ Category

Notes From Underground: Putting Qatar On Our Screens, A Potential Disruptive Force

June 5, 2017

Many times I have written that you don’t buy gold/silver on the outbreak of war but merely trade it. Over the last 35 years any GOLD rally on the outbreak of any world conflicts has been a mere short-term trade. Sometimes situations represent potential paradigm shifts which unfold over time. Yesterday’s announcement by Saudi Arabia, Egypt, United Arab Emirates, and Bahrain to sever ties with Qatar may be representative of a significant change in the fabric of Mid-East relations. I stress MAYBE because certain events will have to follow develop signal a seismic shift. THE QUESTION TO CONSIDER: WHY THE SUNNI COALITION CHOSE THIS TIME TO DENOUNCE QATAR?

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Notes From Underground: “A Single Spark Can Start A Prairie Fire” (Mao, 1930)

January 11, 2016

You don’t have to be a weather man to know which way the wind is blowing, or so says Bob Dylan. As long as all things are emanating out of China it may be the time to dust off the sayings of Mao for as the talking heads are reminding us daily: “The East Wind Is Prevailing Over the West” in all things financial. THE PROBLEM FOR ME IS I DON’T ACCEPT THAT VIEW AND AM IN THE CAMP OF FORMER DALLAS FED PRESIDENT RICHARD FISHER that all roads lead to the FED and certainly the European Union for providing the tinder for a financial prairie fire. There has been so much volatility during the first six trading days of the year it is difficult to get a handle on what is  algo-driven non-fundamental and what may be the commencement of a change in previous momentum trades. Today I will go through a list of POTENTIAL SPARKS TO IGNITE THE  FLAMES OF A FINANCIAL FIRE so that we can be aware of what constitutes  a genuine change in momentum:

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Notes From Underground: The Even-More Complex Map of Currencies and Politics

March 29, 2015

On Friday afternoon Chair Janet Yellen delivered a speech at a conference sponsored by the San Francisco Fed, titled “Normalizing Monetary  Policy: Prospects and Perspectives.” Many analysts will delve into the speech to find a possible nugget of “forward guidance” in the predisposition of Chair Yellen’s desire to raise rates. After a second read and reviewing several pages of analysis, I am left with the same outlook of President Harry Truman: Please bring me a one-armed economist. The speech is filled with a back and forth on the desire to raise rates to a level of “NORMALIZTION” but with the headwinds facing the U.S. and global economies caution is to be maintained. The headwinds prevailing in the U.S. and acting as a drag on economic growth are:

  1. Tighter underwriting standards;
  2. Continued household balance sheet reduction;
  3. Contractionary fiscal policy at local, state and federal levels;
  4. Lack of capex for lack of robust demand; and
  5. Recent appreciation of the dollar is likely to weigh on U.S. exports.

Chair Yellen opines that if the FOMC waits too long it could result in higher than targeted inflation levels. The Fed Chair cites the recent experiences of Japan and Sweden as a reason to be cautious “… in removing accommodation until the Committee is more confident that aggregate demand will continue to expand in line with its expectations.” Also, with “… an already large balance sheet. For example, the FOMC might be concerned about potential costs and risks associated with further asset purchases.” It seems it is better to err on the side of what Fed President Dudley has referred to as the economy running “hot,” which is inflation being sustained above the 2 percent level.

In a post-Yellen comment, Rick Santelli noted that during the brief Q&A session the Fed Chair said unequivocally, “Cash is not a very convenient store of value.” Santelli said this is the bogeyman of deflation and Gillian Tett picks up the argument in the weekend Financial Times with a piece, “How Deflation Gave Lower prices A Bad Name.” Readers of Notes from Underground have known that I refer to Ben Bernanke as a ’37er: An economist grounded in the belief that the early moves by the FED and the U.S. Treasury to prematurely tighten fiscal and monetary policy in 1937 led to a stifling of incipient growth and a renewed recession. “Cash is not a very convenient store of value” certainly signals that the Yellen Fed will keep rates as low as possible in order not to abort economic growth.

It has been my argument that the reason GOLD maintains its long-term strength is because of the fear of deflation and the policies employed by central banks to curb the possible threat of falling prices. In a continual effort to combat DEFLATION the world is awash in reserves, which presently support global equity markets. (It appears as if stocks are presently a better store of value than gold.) But as Tett wrote in her piece, falling prices are not always the BOGEYMAN of capitalism. Deflation is only a grave concern when an economy has accumulated for too much debt and then the fear of asset deflation brings about the asset liquidation of the 1930s and all the societal pain.

I believe the Bernanke Fed was correct in employing the first round of QE for it forestalled a massive round of asset liquidation in a very fragile financial environment. It is the continued use of QE that has created potential problems for the FED. Yes, I know as Senator Schumer proclaimed, “You are the only game in town.” I guess after reading the Yellen speech it appears that the Fed will remain data dependent but, more importantly, an aggressive easing of fiscal policy might be the real impetus for the Fed to raise rates. The ’49ers play in San Francisco while the ’37ers  dominate the Washington monetary scene.

***Global Politics — The news from the Middle East last week sent momentary scares into oil, precious metals and stock markets. The military response by the Saudis and a possible Sunni coalition of armed forces to recent events in Yemen was seen as a precursor of a new flash point in the already tense ME. By Friday, the oil markets sold off and the precious metals were in retreat as the conflict in Yemen was seen to be contained. IN MY OPINION THIS MOVE BY THE SAUDIS IS NOT TO BE MINIMIZED. WHY? If you look at a map of Yemen and its relationship to Saudi Arabia, and, of course Iraq, you will notice that both countries border the House of Saud. The Saudi family controls something greater than oil reserves. It controls the Islamic Holy Sites of Mecca and Medina.

The desire by Isis to rebuild the Caliphate necessitates the need to control the pivotal centers of the Muslim religion. While Isis is Sunni  the rebels in Yemen are a sect of SHIA and it is their Iranian support that causes the Saudis and other Arab states to militarily act to counter the perceived threat to the Saudi homeland. I have long believed that Mecca and Medina are the desired targets of any group or nation desiring to control the center of Islam. Those believing that Yemen is only about the control of Mandab Strait or Bab el Mandeb are fooling themselves. Yes, a choke point of oil transport is important. More than 3 million barrels of oil daily flow through the strait as crude moves to the Red Sea and out to the Mediterranean by way of the Suez canal. Yet there are also important elements in play in the struggle between Sunni and Shia.

In Friday’s FT, Richard Haass, President of the Council on Foreign Relations, wrote: “There are other reasons to predict limits to what the Saudis can be expected to do in Yemen. They lack much in the way of capable ground forces. Saudi arabia also has to worry about the home front. It is only a matter of time before it faces direct challenge from groups such as the Islamic State of Iraq and the Levant who will see ousting the government that controls the two holiest cities of Islam as essential to their ambitions.” If you believe the world is getting easier to decipher, think again. You need more than an MBA to know which way money will flow. The world is caught in the imbalances of 2+2=5.

***NOTE: I will be on with Mr. Santelli tomorrow morning at 9:40am Chicago time. I don’t know the topic but as my readers know, we’ll be prepared to go many places.

Notes From Underground: OIL–A CONJECTURE

March 21, 2012

Before I take a few days hiatus (well deserved) and with the world in a more “serene” state, it is a good time to contemplate the recent news out of the GULF REGION. In a story in yesterday’s Financial Times, “Saudis battle to calm oil fears,” it seems that the Saudis have consigned 11 VLCCS to send a total of TWENTY-TWO MILLION BARRELS of crude to the U.S. This is an interesting development as high U.S. gas prices are seen to be an issue in the upcoming presidential election.

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Notes From Underground: A Market Pregnant With Fear Suffers A Contraction From A Confusing Headline

October 25, 2011

The global markets are on tenterhooks waiting for the European leaders to come to some definitive plan of action to secure the European banking sector and provide relief to the problem of sovereign solvency issue of the so-called PIIGS. This problem has plagued the financial landscape since January 2010, when the Chinese SWF failed to buy a Greek 25 billion euro bond offering. When China didn’t fund Greece, the spotlight was directed to the European debt markets and the result has been a steady decay in the value of the sovereign debt of the European peripheries. After previous crisis meetings to stem the debt crisis, the time has come for the EUROCRATS and their political leaders to provide a program that has some genuine credibility.

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Notes From Underground: In the Spring OLD GLOBAL MACRO TRADERS’ THOUGHTS TURN TO GRAIN REPORTS

March 30, 2011

Thursday brings the Department of Agriculture report on the prospective plantings for the new crop year and the quarterly grain storage report. In today’s WSJ, there was a piece titled, “U.S. Ethanol Industry May Pare Fuel-Blending Credit.” The readers of NOTES FROM UNDERGROUND know that the ETHANOL SUBSIDIES AND TARIFFS have been a major point of contention for me as I believe that the ethanol price supports have driven global grain prices higher and made a mockery of U.S. trade policy. The article said, “U.S. farmers are poised to increase plantings to take advantage of corn prices.” This is what I have been arguing: The higher corn prices go, the more land farmers take from growing other grains, thus driving beans and wheat and others higher as well. The ETHANOL LOBBY has argued that corn for ethanol is a benign effect … WRONG.

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Notes From Underground: Merkel set to stand firm in the face of an electoral setback

March 28, 2011

Chancellor Merkel has said that there will be no shake-up in the ruling coalition even as the CDU/FDP suffered at the voting booth as the German electors have grown tired of the vacillating vixen of Berlin. The German chancellor has wavered on EU BAILOUTS, NUCLEAR ENERGY and even deserted her allies in its ill-conceieved intervention in Libya. So a leader who has not stood fast nor firm is telling Germany that after the election defeat she will stand firm. Now we all ought to be nervous. I hope that Germany will be firmer in honoring its committments to the European Financial Stability Facility (EFSF) than Merkel has been to adhering to some form of political principles.

Also, it was interesting that President Obama declared victory in the Libyan campaign and handed over control of the operations to NATO. Is France a member of NATO this week? The U.S. and its allies have entered a dangerous period in its intervention in LIBYA. As I wrote just after the Egyptian rebellion, the real game changer will be Syria. The Assad Regime has severely suppressed the incipient demonstrations as expected. Secretary of State Clinton was asked if the U.S. and its allies would intervene to halt the slaughter of Syrians–as it claimed to be doing in Libya–Madam Secretary stated that Syria was not Libya because Bashar Assad had promised visiting U.S. legislators that he was bent on reform. Therefore, the reform-minded Syrian president is not a candidate for the military reprisals.

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Notes From Underground: How could a citizenry have NO CONFIDENCE in the best-run G-7 nation?

March 21, 2011

There is a story circulating that the Canadian Parliament may have a “NO CONFIDENCE” vote on Prime Minister Stephen Harper’s government. The Conservative Party holds power but it is not a majority government and therefore always susceptible to losing a vote. Tomorrow, Finance Minister Jim Flaherty is to table the new budget. The problem appears to be the opposition to the proposed cuts in the corporate income tax that will cost the government C$6 BILLION in revenue.

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Notes From Underground: Axel is ALARMED and DANGEROUS

February 21, 2011

NOTES FROM UNDERGROUND has been banging on the table for Axel Weber to become the president of the ECB but my desires were dashed as Herr Weber resigned his presidency of the BUNDESBANK last week and announced that he wished not to be considered for the ECB job. Axel broke our hearts as he would have been the strong voice for the BAVARIAN BURGHERS. Alas, Axel did not enjoy being thrown under the bus by Chancellor Merkel to placate the French who were opposed to the ECB being run by a “hard money man.”

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Notes From Underground: There is now a surplus of fertilizer post G-20 meeting

February 20, 2011

The breaking news during the weekend was the growing unrest in Middle Eastern nations as the contagion of TAHRIR SQUARE has created a desire for change in the autocracies dominating many Arab governments. Libya is the newest hotspot and protests against the Qaddafi regime has been met by state violence. Bahrain has also seen increased political unrest as the SHIITE majority is pushing for a greater say in how the small emirate is governed.

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