investorpolitico

Everybody is asking why the Russian air campaign against IS seems to work while the US, with over 25,000 sorties, doesn’t.

The reality is in the motivations.

Russia wants to defeat IS as it is important that Assad remains in power as it is one of the few friends in the Middle East (with Iran and soon Iraq). Even if Assad is evil.

The US aim to contain IS (not destroy it) as it does not want Assad to retake control nor the moderate rebels to win (which will surely rebrand themselves as Al Qaeda as soon  as they win).

Both Russia and US can use the IS scarecrow to keep us in fear and, in a weird Keynesian way, boost the economy and employment ( weapon manufacturing) and refining weaponry.

For a few is quite a win win scenario _ realpolitik at its best (worst).

The market is still in a state of flux and definitely with a lot of risk.

The bear market rally seems withering hqving just lost 2000, even if not properly.

The most interesting thing is the VIX (fear index) calmed down, but the skew increase (translation. ..the fear in general decreased (less put option), but the skew indicates people buying put far off…practically protecting themselves from a crash..but not from small movement….the market will be fine unless there is a crash with target SP500 1870/1630!

On the 16 Sept blog I wrote that China was changing its behaviour about its citizen syphoning amount abroad. And I told you we will see the reality of Chinese real estate investment.
Today all the news are about a slowdown in Australian real estate and why it is happening.

I wrote about it a month ago (u can go and look for it). Westpac is so worried about that it rose tye interest rate as they do NOT want more market shares.

By the way, unless China changes idea, this is a new pattern for Australian real estate.

Again…the truth is out there. But if you seek it…be prepared for the answer.

Last week massive rally (specially on resources/energy) has been due to unwinding of massive short positions induced partially from te Fed.

Again nothing has changed and until SP500 .2130this technically is a bear market rally.

What could spook the market?

The 4 largest issues

China, if the bear rally falters (the A shares have an ultimate target of 2400/2600).

Volkswagen if the ECB and the European Investment Bank find that they have to retrieve their bond purchase/investment loan due to the non compliancy of vw behaviour.

US  corporate profit falling (Alcoa, the first to release, released estimates and missed…-6.81%)

A Nato/Russia clash over Syria probably due to an accidental shoot out.

Believe what you want.

USA and allies say that Russian cruise missiles crashed in Iran citing secret sources

Non Western press and Russia deny it and Iran says it does not find any relicts (it could be false as they are Russia  friends).

US is a year that hits IS and there had been IS casualties but no panick. Russia hits IS and others (u to chose if you can find a good terrorist…the US found the hard way as their US trained rebels defected immediately) and Turkey is alarmed as already 3000 terrorist fled Syria.

The fog of war.

The market after the full on drops and amazing recoveries is in some kind of a lull. This is a typical pattern that should last until the end of next week and will tempt you to take positions.

In reality nothing has changed. The pattern is still bearish/hold.

Russia, overnight, launched 26 cruise missile from the Caspian Sea.

This is a clear message “We are back”. Only the US used these kind of weapons before.

It just just keep escalating. In early 2016 the Russian airforce will acquire the new PAF 50 5th generation stealth fighter (similar if not better of the F22 Raptor).

Straight from the annuals of the Cold War

As it happens in any war, before settlement, there will an invrease in violence.

Probably we will see a Assad assault backed by Russian and Ira/Iraq  against a rebel army backed by the US, Jordan and the Gulf States. Turkey and factions within Saudis will be do double gaming (supporting rebels and IS).

Also there will be a rebel counter offensive.

IS will be always dangerous but for the first time it is really under pressure.

Israel will keep taking care of the more critical (to Israel) bits.

The big issue is that it looks like a lot of monkeys with big sticks in avery confined space. I saw a radar map of North Syria…really US and Russian fighter jets fly at about 25 km of distance from each other. The chance of errors are quite unique. Also in front of Lebanon there are quite a few warships from all sides (including China). Quite a lot of firepower. Better they coordinate well!

Again the media cannot see the real picture.
With the entry of Russia in the Middle East we have a real world war by proxy.

Directly involved

Allies: USA, Turkey, Gulf States, Israel

Neutral pro Allies: Nato, Egypt (but it has double standard allied in Yemen and on Russia side in Syria

Russia side: Syria Assad Gov, Iraq, Iran, Yemen (Hothi)

Neutral pro Russia: China, Egypt (in Syria).

Islamic State (the excuse): desertic part of Syria/Iraq and part of Lybia and Somalia.

So now you know why Putin does not just hit Islamic State. And if you ever listened to his interviews he always said that his scope is to sustain Assad as the alternative is a non Government state as Lybia or Afghanistan.

Mega rally…is the crash finished?

Very hard to tell, but my data suggested this could be a rally that would test your nerves and make you want jump in.

In reality until now it is technically a bear market rally-so very dangerous. There are a lot of institutional money coming in…but how much can it last?

Still October will be the Bear killer. Probably not yet.