Archive for June, 2014

Iraq: intervention!

Posted: June 13, 2014 in Uncategorized
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So ISIS (Al Qaeda Syria) took over half of Iraq! Although it caught many by surprise – it is not really a surprise.

Al Qaeda’s ISIS was quite powerful in Norther Iraq (they are Sunni and North Iraq is Sunni, while Iraq’s Government is Shia…so the Iraq troops they are almost seen as invaders).

Now ISIS will start to lose ground as Iran (yes Iran) has already deployed two battalions of QUDS (special forces of Iran’s Revolutionary Guards) in the South East along with Iraqi arm while the US is still discussing.

In the North the Kurdish forces (probably backed by the Turks) contained the advance reconquering Tikrit.

But Al Qaeda is not stupid…..sacrificed a few extremists to get back in the media headline and seize a considerable amount of cash (over USD400 million) and modern US weaponry.

This is part of the interregional war between Saudi and Iranians. The US will now step up weaponry sales to Iraq and the Syria Free Army.

Happiest man ever will be Putin that got two presents …higher oil price and a distraction from Ukraine (apparently 3 tanks, presumably Russian, entered Ukraine).

Now we need to watch also the oil prices…


Focus back on Iraq

Posted: June 12, 2014 in Uncategorized

Al Qaeda captured Mosul – so what is the matter for us?

The matter is that at this point there will be some kind if covert or not covert US involvement.

In Mosul Al Qaeda captured also US (Iraq lent) Blackrock helicopter and modern US weaponry, 48 Turkish Embassy hostages, over US$400 million and threatening the Iraqis oil sites (and oil prices). Practically they are forming the Arab Caliphate of the wildest dreams.

So there will be intervention in one form or another.


House Majority Leader Eric Cantor will step down 31 July. And there will be a fight to step in his place and most likely will be an extreme right kind of guy.

For the markets is bad news as we will go back to the in fight to the death between Democrats and Republicans and it will be even worse as the moderate Republicans have been utterly defeated….so now they will all flock to the extreme right.

The gridlock in the US Congress will reappear and it will be more severe than before (one of the mantra of Brat is no rising of the debt ceiling for 5 years…or death).

The Immigration reforms planned by President Obama are dead.


For how much I personally can’t understand the Tea Party people, you need to admire the democracy in the US (at least at this level) where an unknown professor with no budget and just $40,000 in the bank (these data are public in the US) and $200,000 campaign budget defeated a multi millionaire “superpower” guy like Cantor with a campaign budget of $5,500,000 millions and backing from Goldman Sachs, Blackrock, Oracle, Verizon.

Brat is anti Wall Street, anti big business. He has support not because is mad, but because this Federal Reserve sponsored recovery made the rich richer and the poor poorer.

In 2013 an Associated Press “real America” survey showed that 80% of American are struggling to make end meets. And that is why the Tea Party is rising again (similar to the Euro Skeptic party, religion apart). Unfortunately all Western countries are actually heading that way (yes also Australia, with rising costs and the new Budget).

We should all respect the US for that. With all its faults.

The House Majority leader Eric Cantor, Republican, has been defeated by the little known Tea Party member David Brat.

This is a big surprise….as 2 days ago David Brat was so unknown that its wikipedia entry was just 2 lines. And the Republican party is reeling from the shock.

I think that the reason for the change is that Eric Cantor was seen to weak against President Obama (specially now with the new US Bill on Immigration) and starting to be part of the establishment.

It is really early news, but this could see the rise (again) of the Democratic-Republican conflict that made so much damage.

There is very little info on David Brat, but he seems a theologist (he even did a Master in Divinity at Princeton) and two published books have titles pretty much on the Christian Orthodox side “God and advanced Mammon” – Mammon being in the New Testament a false deity representing wealth and greed.


Here, we go again…..

US – Russia : Chess game

Posted: June 11, 2014 in Uncategorized

Where we are at now?


Vladimir it is softening the position on Ukraine – its main scope is to neutralize it, not invade it. Neutralize it means not make it to be too Western. Invasion would be the last choice (Russians do not trust people and do remember very well Hitler’s Germany).

It cannot push too much the friendship as the US as the US is much stronger, both economically and as military.

What Putin is trying to do it is actually more on the economic front. So he is trying to de-dollarize the economy, pivot to Asia and trying to diversify the economy as the most profound weakness of Russia is its dependence on oil price (which with Saudi Arabia is practically in the hands of US). Logically they will try to establish alliances with China, Saudi Arabia (scared by re-alignement US-Iran), Cyprus,  Asia and South America. But it does not have the power projection of the USSR. It will continue trying to destabilize the ex Soviet states. The alternative weapon that Russia as it is to start a Great Financial Crisis 3 (there are enough hidden issues that the FSB (Current KGB) could exploit), but it would be really a weapon of mass (including self) distruction

US – US is the one that is acting very aggressively here. It reinforced the presence in the Baltic countries, Poland and specially Romania (important as it counterbalance the Russian fleet in the Black Sea). It is trying to block an Eastern Europe pipeline and creating an oil alliance Turkey, Iraq, Iran, so, with Saudis, as the control on the ultimate weapon against Russia (oil price, same tactic the used to cripple the USSR revenues in the USSR invasion of Afghanistan). The US must show to be prepared to use the oil price card, without really using it as it would create issues for a lot of allies.

Germany is trying to pacify the two belligerents, as it depends from Russian energy and does not be caught in between.

This is actually one of the strategic reasons (as described in a 3 years old blog of mine)  as why US is disengaging from the Middle East – to focus on a containment of Russia (which had the upper hand until 2 years ago).

So now the advantage is squarely in the US field.

But this is also a dangerous game. For China, I think this “bring forward” the confrontation with Russia when it is still weak -as just one logical consequence. When the US will have neutralized the Second Rise of Russia…they will turn on China.

I am sure that it does not keep a genius to see this. In turn the Sino – Russian alliance could really turn into an Eastern Bloc.

Russia – US: financial war

Posted: June 10, 2014 in Uncategorized
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While it seems that Ukraine is going towards a pacific solution (well, so says the media…the reality is a bit different…but the censorship is doing a great job – currently the Ukraine army is bombing the  town of Slavyansk with civil casualties, including children ), the new cold war is proceeding building up ( during the weekend 3 B52 and 2 B2 Stealth Bomber – all with nuclear capacity- have been moved to the UK).

The financial war is already started. The US is targeting every Russian asset via a Special Division of the US Treasury and the Strategic Study Institute (SSI) of the US Army and creating special issues (Eg denying insurance to cargo ships, economic sanctions, limits on VISA/MAstercard)

Russia is pushing ahead with the de-dollarisation of its economy. A Russian Bank, VTB, has already signed an agreement with the Bank of China to pay each otehr in Yuan and Roubles, Gazprom signalled its intention to switch 9 out of 10 transaction to alternative currencies (Yuan, Rouble, Euro). There are talks about settling the dealing with Japan in Yen and HSBC, Deutsche Bank signalled numerous request from large Russian Corporation to set up accounts in Asian currency, mostly Yuan.

SP 500 patience

Posted: June 10, 2014 in Uncategorized

SP 500 keeps doing new max and I keep saying “doom and gloom” things.

In reality it is more that there so many things in this market that do not make any sense …so it is better to stay out of it.

We enjoyed a shadow rally since 2009, why waste everything for a few dollars more.

Even a study from Goldman Sachs says that all institutional buyers “went home”.

So who is buying? Hot Money (millisecond computer traders), the Federal Reserve and company Buy Backs and “private income at any cost chasers”.

Deustche Bank advised its client that we left the complacency stage and entered the euphoria stage.If you do not believe me look at the graph of the volume. There is none!

Capture volumes

Well, this is very good news for one of oldest headache.

In my opinion most of the failings (as Sub Prime, but also the various mortgage brokers) where simply due to the conflict of interest in remunerations that the research houses had in approving the product.

Now the Federal Court in Australia rejected an appeal and now the New South Wales Council can reclaim the lost AUD 30 millions.

What is most interesting is that the IMF is also looking at the case, as a potential guide-case. The worldwide claims can be as high as US$200 billion. That would be an extinction event for the main research houses involved


The European Central Bank moved decreased the interest rates to 0.15% and the deposit rate for banks to -0.1%.

The markets cheered the bold move – but I suspect the real effect will be negligible or even negative.

There was no hint to a European Quantitative Easing.

The same move had been tried in Denmark and Sweden. In Sweden did not have any effect and in Denmark it did succeed in lowering the value of the currency (krone), but also hit the bank profits.

In effect it will not even push the banks to lend, as at -0.1% they are still not compensated for the risk.

How the banks will fare it will have to be seen as there are quite a few variables: the banks  are hit by the -0.1% and the money market trading, but also save on the 3 years  trillions Euro lent by the ECB at the hight of the European Crisis.

All is all, more a psychological effect, than anything of merit…it is like the ECB saying, we have still options!

In reality the ECB has exhausted his card and the hand is squarely in the hand of the politicians (as, even a European Quantitative Easing, it would a political play North Europe vs South Europe – plus the quite interesting question of which bond -Italian, German, Spanish, Greek?).

Hopefully Europe does not end up like Japan with lost decades of growth.

What all this means…a more likely last hurrah of the market, with a burnout in the downside out of nowhere

Now we are in June, with July, one of the most risky period for the market.

From April, in the US, there has been a constant flight to safety by the various managers (they practically moved from small stocks and tech to large SP500).

We are also at the highest level of Buyback ever (beating even the last top…casually 2007) which “fakely” improves the earning per share and also decreases the number of shares available.

This makes the SP500 go higher…but in a risky way

So we have several divergences.

-Higher SP 500 / low volatility and stretched valuations / very far from the moving average 200

-Lower Russell 2000 with high volatility

– Nasdaq very volatile

– Bond indicating a much weaker economy than the SP500 suggests.

In the last 56 years, when this situation happened the SP lost between 12 and 18% between June and July.