Archive for August, 2014

The UK went to all media to advertise a potential terror threat. In the US nothing so open. But I picked up some chatter of alert over the Mexican border in the druglord land near El Paso. The specific were of an Islamic State cell preparing car bombs. But for them it will be hard to repeat a 9/11 as all agencies are scrambled.  Islamic State has to be stopped (for Chevron  oil field in Erbil, not for the Yadizi) , but did not declare war on US until it was attacked.

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Putin: Red Storm Rising

Posted: August 29, 2014 in Uncategorized

The Ukrainian offensive started the 4th July is becoming a massacre.

As I told you quite a few times Russia cannot allow Ukraine to become Westernized as it remembers too well Nazi Germany and a million of Red Army soldiers perished in Ukraine to defend the Motherland.

Putin tried to press for a negotiated settlement, but Ukraine felt strong as it was backed by the US. But Ukraine is much more important to Russia than US.

The Russian counter-offensive is actually joining Crimea with Russia and cutting the supply lines.

This “incursion” (please note that everyone tread carefully on calling it invasion) is very well aimed to the supplies line and moral level.

Then, as any good Russian military know, Putin will let General Winter to do the last bid. The rainy and ice season is fast approaching and without heat and supply Ukraine is finished (also the coal mines are in East Ukraine).

Already there have been over 1,000 prosecution in the Ukraine military for desertion and the Ukrainian Government is fast losing support with various anti Government rallies.

Also the US is treading carefully. Now it is again bogged down in the Middle East and no one want to confront Russia militarily.

Even new sanction could backfine. The last Russian counter sanctions practically sent Europe in deflation and another round of sanction/counter sanction could be sending Europe into recession again.

Plus France has some score to settle with the US.

France and US have always had contentious friendship. Even when NATO was formed the US had practically to beg France to join.

Now France is again drifting away from the US.

The first spat was following the Russian sanction against Europe. They were mainly food-agricultural and France agriculture is Europe’s largest. So the most to suffer for what is essentially an American war.

The second spat was the insanely huge fine (USD9 billion) imposed to BNP Paribas for having dealt with countries on the US banned list.

Now the French Finance Minister is calling to move away “rebalancing” from US Dollar trading as transaction currency to other currencies as Russia is doing.

Plus they keep on wanting to deliver two class Mistral warship to Russia.

On a separate mention, I saw a Swiss interview to Marie Les Pen (Front National, winner of the last European election in France 25% against Centre right 20.6% and the Socialist ruling party 14.1%).

In the interview, asked what she would do as first thing if she won also in the Presidential election in 2017, candidly she answered ” I would order the printers to restart printing French Francs”.

Meanwhile in the markets

Posted: August 26, 2014 in Uncategorized

Fed: Mission Accomplished – S&P500 reaches 2,000 

On lowest volume level and with a lot of retail buys and institutional sales.

For the first time since a long long period a new Gallup poll shows that at the question “if you had $10,000 where would you invest it?” the answer was for 41% Share Market! 

Now, when they will spring the trap on this bubble? October is the end of QE and the potential trap will come from the credit market.

Timing is very difficult, but we have all the actors in place

Retail public complacent

QE ending

Credit Market ready to spring

Meanwhile in Ukraine

Posted: August 26, 2014 in Uncategorized

Funny each time that Ukrainian combat news disappears….the Russian are winning.

As I was saying a few days ago the  Ukrainian advance was stretching too much the lines….and promptly the rebels, helped by the Russian who now kind of care less to be discovered as anyway they are accused, cut the advance and encircled the Ukrainian forces apparently over 2,000 soldiers without supplies.

This move is due this weekend new round of negotiations (Russia wanted a position of strength).

The Ukrainian new elections will be on late October.

Europe start to feel full on the Russian counteraction and there is growing hostility towards the US. The US has practically nothing to lose against Russia, but Europe is heading back in recession (Germany just announced that 50,000 could lose their jobs).

So why heading to recession for a US war strategy? This could help solve the Ukrainian crisis – if Europe start pushing for a situation freeze (so practically a failed state of Ukraine) that is all Putin wants – specially now that winter is coming (and a lot of Ukrainian coal mines are in the north).

The Iraq situation keeps worsening.

From a “Save the  Yadiziz (or save Chevron’s oil  fields to be precise)”, to support the Kurds, currently we are at support the Iraqi Government and save us from Islamic State terror (by the way, until the US intervention Islamic State did not threaten the West).

And there are approximately 1,000 US soldiers on the ground (apparently special forces are not boot on the ground).

Now, as it is true, you will start hear that we cannot defeat Islamic State without going into Syria.

Also because this month, due to the US bombing (which works as advertising for the Islamic State), Islamic State in Syria recruited almost 6,000 new fighters.

Islamic State is far from defeated and they simply changed tactics (did you noticed that all the targeted bombing looked like on stationary vehicles), hiding within the population.

Interestingly they took over the last airport base from the Raqqa province (Syria) and a few in Iraq. They are actually starting to try build an airforce (Russian intelligence sources say that they are in the market trying to buy airplanes, helicopters and drones and try to hire extremist pilots). I would see this very hard – no one has been able to win an air fight with the US – till now.

So the need of boot on the ground (now there is a strange alliance Iranian boot on the ground assisted by US air power).

Syria will present a different set of challenges as Assad is an enemy and Islamic State is an enemy and the are rebels are “friendly”, but in a constant state of flux (practically the day after they can become Islamic State). So the option will be to coordinate with Assad.

Meanwhile Islamic State will attempt to pull off some terrorist attack at least in Europe (specially UK), but if possible in the US via the southern border (as they have been very smart I would not be surprised if they already infiltrated some sleeper cells before – they must have known that the US would have got involved).

By the way the counter terrorism world seems to be focusing on car bomb risks as the latest terror media campaign was focused on DIY car bombs.

Now we hear also that the Qatar aviation struck islamist positions in Libya via Egypt. It really appears to be shaping as the Great Middle Eastern war.

 

I am starting to pick up signs of stress from the US high yield credit market – actually since the start of the year, but since Argentina they have substantially increased and now they are worth talking about.

The Quantitative Easing had, as a side effect, a booming effect on credit markets.

Credit markets are usually “professionals only markets” – in practice it is high yield bond issued by low grade investment entities (junk bond). It can be Argentina, but it can be a non-investment grade company.

Often this bonds have been used to do company buy-back which per converse improve the look (not the substance) of the company (Earning per Share…less shares more earning) and pushed the SP 500 to all times high.

But also in the big end of the market something is not right.

There has been a huge decrease in so called Risk Premia (the yield on European bond fell between 150 and 300 bps)

US T Bond are around 2.4%pa – while in a recovery historically have been around 4%pa.

The last time this situation happened we were in a much more benign situation, but still the yield on US Treasuries increased by 200 points in less than a year.

 

This would have consequences on everything: in Australia at the start of 1994 inflation was approx 2% and by 1996 was 5%.

As share market in 1994 happened…well not much at all. The market lost something, but nothing to talk about.

But everything was smaller and less integrated. Also there were no high tradable exchange traded fund in the US High Yield Bond Market…which is not highly liquid.

Which means that such an unwind of credit market position would have a different effect on stock market than in 1994.

Another issue to take into account when building a portfolio!