Archive for October, 2014

Middle East failed states

Posted: October 14, 2014 in Uncategorized

Notwithstanding the US intervention Islamic State is still gaining ground in Iraq and, unless Iran intervenes on the ground soon we will see a Baghdad battle (and a spike up in oil).

Anbar province to the west is practically fallen and the jihadist arrived at 20 kms from Baghdad Airport (that it was saved by the intervention of a US Cobra Attack helicopter.

A few more car bombs have hit again Baghdad and everyone is expecting a Mumbai style attack.

In Syria Kobane has almost fallen and Syria is now shaping up in three/four failed states.

The American Airpower is designed just to degrade Islamic State. But as they Kill a few dozens Jihadist, hundreds are coming in from all over the world.

In reality only an “unholy” alliance with Iran (so also with Assad and the anti-Israeli Hezbollah) could change the game.

Meanwhile, practically media forgotten, also Lybia and Yemen are again failed states.

Anyone can see a pattern?

Egypt could be next in line….but there the military is brutally efficient and should remain intact.

With all this Middle East turmoil, oil price is very low as Saudis are flooding the market to hit Russian’s revenues on US bid (the price the US has paid is to isolate Iran again).

As usual, very complex and fluid.

Why we, as Western Powers, can never defeat this Islamist threat? A lot of people would say that is impossible to defeat an idea. And they are right.

By the essence of the issue is that the real enemy that allow this threat (cannot do wars without money) are actually the otherwise best ally of the US – Saudi (and Gulf states) and Turkey. And for Western politicians having a distracting (from the economic woes) is not so bad (look at the polls if you doubt it)

Why all this volatility?

To put it simply, with the end of Quantitative Easing it comes closer The Judgement Day: Bankers versus Politicians.

The magic recovery since 2008 has been engineered brilliantly by the various Reserve Banks of World with a splendid and well coordinated tag team between Federal Reserve, European Central bank, Bank of England, Chinese authorities and Bank of Japan.

What has been missing is a beautiful coordinated effort by the politicians. They just benefited from the bankers action. But they just quarrelled and did not anything to improve the situation.

Even leaving the stratospheric performance of S&P 500 alose, do YOU feel at least 20% richer than 2 years ago?

I guess that, unless you won Lotto, the answer is not.

Markets and Economy do not reflect each other because of a temporal issue as the market is continually forecasting.

The various Reserve Banks can only build a bridge to a new future, but the politicians have to build it. And they haven’t.

If there is no intervention the reality will catch up soon with the future

Volatility jumped 40% closing at over 21 this week, in full panic” mode.

Dead Man Switch is  device that allows an action even if a man is dead (like a trigger that you have constantly press otehrwise a bomb goes off.

What they have to do this two things with each other.

Simply the market is very scary. It could be a simple sell off of 10/20% or the start of a 2008 scenario all over again.

There are the signs of both patterns and so there is no way to tell.

The best thing to do is to implement a Dead Man Switch. SO look at  what are you “acceptable losses” (as money or, even better, market level), and act on it.

And remember that no market goes in one direction only. It is possible that after a brutal week like last week, we could have a calm week.

The 28 November the Federal Reserve will probably conclude Quantitative Easing. And it could be probably badly interpreted by the market. It could also say that they will not end QE. And it will be probably badly interpreted by the market either.

Fog of war: MH17 – latest news!

Posted: October 10, 2014 in Uncategorized

Dutch Foreign Minister Tienermann in an interview declared that one of the Australian passengers that died  had donned an oxygen masked.

Then he retrieved it as a slip of tongue (like US Vice President Biden when he said that Turkey turned a blind eye to IS…which is the truth, at least initially,  as confirmed by the Israeli  Mossad in an interview).

You do not have time to wear a mask if a missile hit the plane.

You have time if there was a small bomb, if an air plane was strafing the plane (ops …only Ukrainian had jet fighters).

A bit like “NASA says, Houston we have a problem”.

This was the week in which the FED was coming in all gun blazing to sooth the markets as they did all this year, and they failed. Vix closed at 18.62 (above 17.98/18.5) so the issue can be serious.

I studied a bit the DeMark indicator and this is what happen last time.

20 May 2008 it went off.

The market went down till July. Then went up till mid late September…and then we all know what happened.

I am not saying we are that point (the Fed was not meddling the cards), but I look at patterns. Let’s see.

About the FED. It is between a rock and a hard place.

Quantitative Easing will have to end this month. If it does not it will signal that the issues are bigger than it seems. If it does interest rates will start creep up in the US Bonds….bringing up the US Dollar (other time in similar situation the US Dollar had a swing up for 3 between 20 and 40%- the US economy cannot cope with that).

So the market saviour is trapped (NOT DEAD). And you see the consequences.


Until last year the crisis was keeping everyone occupied and the main fault lines were mainly Greece. Ireland and Portugal (with a bit of Spain and Italy – but not centric to the issue) versus Germany.

And the small countries they knew they had no real chances against Germany.

Now that the main crisis is subsided, the political battle lines shifted to something more hidden from the media, but altogether more serious for Europe as involve the core.

France and Italy are asking less austerity and more pro growth position to Germany.

This is an altogether more complex issue.

Germany’s economy is slowing down as a triple whammy is happening: sanctions against Russia have a strong backlash as 40% of German’s company have deals with Russia. At the same time the slowdown of France and Italy starts to have an effect (France and Italy are two of main export markets for German’s good).

That puts pressure on Germany in economical sense, but at the same time the Euroskeptic parties are growing in power – so it is not easy for them to agree to leave austerity.

Italy is grappled by internal tension. It actually returned for the third time in recession and there is no improvement is sight and is asking for pro- growth measures.

France it is here the scariest as PM Hollande as minimal approval (13%) and already had to tell the Germans that the Budget will not be met (take or leave it). This month there is French Budget issue (the 15 October has to be submitted to the UE and the UE deliberates the 29 October- at this point it looks like the French Budget will not be approved). Anyway the tensions are heavy and Front National (anti Euro) would sweep into power if election would be held).

So this is a much more subtle crisis as the media are not talking much about it, but it is a mine ready to explode.

Italy is known for a lot of talks and no action, France is known for the French Revolution.

So better look more closely to the French.

The sanctions against Russia are starting biting Europe and in particular Germany where 40% of companies have links with Russia. Also there are some other issue French Total decided to go ahead with its Russian oil explorations but de dollarizing the transactions. Also US Exxon had an exception from the US Government.  And European countries are pushing Ukraine to accept conditions as General Winter is coming. A Russian victory

Middle East Update

Posted: October 7, 2014 in Uncategorized

As planned the US air attack did not have a “turn around” effect.

And they were never meant to. They were simply meant to stem the Islamic State to reach the Southern Iraq oil field and upset the oil price. And they did achieve that.

Islamic State simply adapted to the new condition hiding between civilians (and naturally they will provoke civilian deaths that will compromise the US alliance).

Already the US shifted tactics introducing the Apache attack helicopters to make more pinpoint strike (that the Australian Airforce could not drop a bomb in 2 days makes it clear that IS adapted well to the new environment).

So an happy stalemate. Why happy? IS is happy as no one has the force/will to dislodge them. Western Politicians are happy as the new terror allow them to distract the people from the economic issues and keep oil (and inflation) down.

Well the people of Iraq and Syria are not so happy, but unfortunately they were never a priority, just an excuse.

In Syria, as Israeli Defence Force Chief of staff put it, there are now four main region – North towards Turkey Islamic State,  Damascus northward and the sea is Islamic State, Golan Heights held by Free Syrian Rebels factions, South by Al Nusra (Al Qaeda affiliated)and Jabal Druze is held by the Druze.

Israel is just watching and has several red lines which it is taking care of with the only language commonly spoken (rockets and bombings).

Turkey is the big issue here. It is leaving Islamic State take over the Syrian Kurds (for them just another terrorist organization), probably waiting the pretext to go in for a kill once the Kurds have been eliminated.

Vice President Biden was suddenly reprimanded to tell the truth (that Turkey now supports/turn a blind eye to Islamic State).

Turkey MPs have given the go ahead to enter Syria or Iraq (against the will of Syria, iraq and Iran). At the same time NATO said it can intervene to defend Turkey if IS attacks Turkey.

It gives me an headache just to count how many parties are involved.

The US grand coalition for now is holding very happily (Saudi and friends needed to reassert the “best buddies” condition after the new “friendliness” Iran/US)

Markets update

Posted: October 7, 2014 in Uncategorized

This week we will assist to an attempt to stabilize the markets.

The forces involved are every powerful as the FED  is trying with all means to prevent a disaster where it can (SP500 and DJ, Russell 2000 is already in crisis).

It is practically a test of a bottoming process. The Volatility Index could have soon a sharp drop (market rally), but the situation is not well defined

Turkey, a NATO member, authorised protective incursions in Syria and Iraq to protect itself from Islamic State.

Naturally Iran is worried and already announced its unhappiness.

Plus a recent poll says that at least 1.73% Turkish support Islamic State (approximately one million people).

And the battle for Kobani (Kurdish enclave) it is actually defining also the relationship Kurdish- Turks and Kurdish-US (also in Iraq).

As usual, messier by the day