The media a couple of weeks ago extensively covered the July 18th bomb blast in the Syrian national security headquarters that killed several members of Bashar al-Assad’s inner circle. But the Saudis have managed to very successfully suppress most media coverage of a similar event three days later at their national security headquarters that is believed to have killed Prince Bandar bin Sultan, a son of the late Crown Prince Sultan bin Abdulazziz (who died last October). While the Saudi Ambassador in Washington, D.C. from 1983 to 2005, he became a person of substance in the US capital, & upon his recall in 2005 became Secretary-General of the Saudi National Security Council & just two days before the July 21st blast Director-General of the Saudi Intelligence Agency – the CW is that the July 21st Riyadh bombing was tit-for-tat for him having orchestrated the bombing in Damascus and/or the visit to Riyadh planned for late July by Syrian Brig-Gen. Manaf Tlass, a member of Bashar al-Assad’s inner circle & the Commander of the elite 104 Brigade (that in the past has been commanded by both Bashir-, & before that his late brother Basil-, al Assad), who defected to the rebels on July 6th. But the CW isn’t always right, & often wrong, as likely in this case. For the West’s dilly-dallying in Syria, like the US’ early missteps in Iraq, has given al-Qaeda Islamists an opportunity to infiltrate the opposition & to start roiling the waters for them to fish in. Both the Damascus & Riyadh bombings likely involved long-, & deeply buried-, “moles” willing to martyr themselves for the cause (& the latter just couldn’t have been cobbled together in just three days).
A leader of the “ghuraba’a (i.e. the non-Syrian al-Qaeda sympathizers in the rebel forces) told reporters “ The Free Syrian Army has no rules or religious order. Al-Qaeda has a law that no one, not even the emir, can break … Al-Qaeda’s goal is establishing an Islamic state and not a Syrian state.” – The possibility of a Wahabbi Sunni theocracy resulting from the anti al-Assad uprising is scaring the bejesus out of minority groups in Syria, be they Alawite, Druze, Christian or Turkoman, & even out of many Sunni Syrians. But that what they may get and, if so, would be the pay-off for the lack of Western support for the rebels.
The long effort to drive the price of gold down may be a losing battle. Last week, on three successive days it nosedived at the opening in New York, by roughly US$20, US$25 & US$10 respectively, only to each time picked itself back up off the mat so that by Friday’s close it was just US$10 off from where it had opened Wednesday morning – if the Fed were behind this, which is possible, probable or likely, depending on one’s degree of cynicism, the question arises as to how much of the gold in Fort Knox might remain unencumbered, i.e. how much of it may have been used to ‘short’ the market via the proliferation of engineered “paper gold” products.
Italy’s Prime Minister Mario Monti recently told Der Spiegel, a German newsmagazine with a 1+MM circulation, that “The tensions that have accompanied the eurozone in recent years are already leading to a psychological dissolution of Europe … if this is allowed to continue Then all the foundation of the European project will be destroyed [and] if governments allow themselves to be entirely bound to the decisions of parliaments without their own freedom to act, a break-up of Europe will be a more likely outcome than deeper integration.” This prompted a comment by a key supporter of Chancellor Merkel’s Christian Democratic Party that “Mr. Monti apparently needs a clear announcement that we Germans will not be prepared to eliminate democracy in order to finance Italian debts” – Monti spoke like a true Eurocrat who believes the hoi polloi, & the politicians they elect, don’t know what is good for them & should trust them, the denizens of the EU headquarters in Brussels to decide what is good for them. And he was speaking out of both sides of his mouth; for as he was making these remarks, he was urging the Italian Lower House of Parliament to follow the Senate’s lead in approving 64BN Euro worth of spending cuts.
Sicily is increasingly being called the “Greece of Italy”. It recently needed a 400MM Euro handout from Rome to pay its 144,000 public employees (in a population of 5.1MM), & in the past five years it received 7BN Euros in handouts from Brussels. According to the head of one of its biggest unions “Something has finally snapped here, it is the end of an era. Sicily is on the brink of collapsing, with the risk that we won’t be able to pay salaries or even run ferries from this island” – Sicily’s corrupt & Mafia-dominated society has long frustrated Northern Italians who bristle at the idea that their tax money goes to support a society in which 10x as many people work in the public sector as in their part of the country It is a sign of its useless job creation efforts that there are as many forestry workers in Sicily, which is not all that well forested, as there are in BC, which all but has wall-to-wall forests.
On August 6th S&P announced it was changing its outlook for Greece from “stable” to “negative”, often the precursor to a downgrade. Since it is currently rated CCC (“extremely speculative”), eight steps below investment grade, the next step down, CCC-, is S&P’s ‘speak’ for “Default imminent with little prospect of recovery”.
After it became obvious investors were seeking a ‘safe haven’ in the Swiss franc, the Swiss Central Bank undertook to do whatever it took to keep it from going to levels that would negatively affect the Swiss economy’s global competitiveness. As a result, despite negative interest rates, it has had to buy so much foreign currency from foreign investors that its FX reserves at last report stood at US$384BN, up 65% YoY & an amount equivalent to 60% of its GDP. And it has been diversifying out of the US dollars : in the last year the share of US dollars in its FX reserves have declined from 28% to 22% (although in absolute numbers they still rose from US$66BN to US$85BN).
Informa, a well-regarded commodity cum agricultural consulting firm, said on August 6th that it now expects the 2012 corn crop to be 10.4BN bushels, down 17% from its forecast just one month ago, & its yield/acre is now down to 120 bushels (down 27% from the USDA’s original forecast) – while the recent rain helped soybeans, it was too late for corn (which is said to be ‘past redemption’) – at last report 1,584 US counties, over half their total, are now designated disaster areas, 90% of them due to drought (& among the latter the share of those experiencing “extreme” or “exceptional” drought conditions doubled in recent weeks to 22.3%).
The recent fire at Chevron’s Richmond oil refinery in California, with its 245,000 bbld capacity one of the nation’s largest, could lead to serious gasoline shortages, & price hikes, for California drivers. For vehicles there use a specially configured, State-mandated gasoline; so it won’t be possible to bring in gasoline from elsewhere to make up the shortfall.
For the first time in four years, the Union Pacific railroad is taking lumber-hauling railcars out of storage since shipments of lumber & wood products are up 10% YoY – further evidence that the US housing industry is past hitting bottom (a ‘green shoot’?).
What can happen to aging oil fields is demonstrated by Mexico’s offshore Cantarell field in the Bay of Campeche. Once Pemex’ flagship field, production peaked at 2.1MM bbld. In 2003. By 2006 this had declined to 1.5MM bbld., in early 2009 to 770,000 bbld, last year to 500,000 bbld & last April to barely 400,000 bbld (it produced a heavy crude & the decline in its production is one reason – the other being Venezuelan heavy crude is going to China – why US refineries in the Gulf region are clamouring for the Keystone pipeline (so as to provide them with more cheap heavy crude from the oilsands – the Bakken in North Dakota produces light oil that is no good to them). Fortunately for Pemex the nearby Ku, Maloob & Zaap fields have taken up some of the slack, at last report producing at a 900,000 bbld rate.
Amidst all the hype about shale gas, it is worth noting that BHP, which last year spent US$4.75BN buying its way into Arkansas’ Fayetteville shale gas field, recently announced it was writing down the value thereof on its books by US$2.84BN, i.e. by 60%. And the low price of gas has resulted in the number of rigs drilling for gas in the US being down 43% YoY to 498 (which is significant since shale gas wells tend to have a short productive life so that constant drilling is required to maintain production) while the number of rigs drilling for oil was up 39% to 1,429. And none other than Rex Tillerson, the CEO of Exxon (a company that has ‘bet big’ on shale gas), said earlier this year that at present prices producing gas is not profitable. So those building pipe dreams on continued low natural gas prices may be in for a rude awakening.
Some of you occasionally flag articles in Rolling Stone magazine for me, most recently Bill McKibbin’s Global Warming’s Terrifying Math (http://www.rollingstone.com/politics,news/global-warmings-terrifying-new-math-20120719). Perhaps your curiosity will be triggered by these factoids in its opening two paragraphs :
This was a great two weeks for environmentalists. A week or so ago Richard Muller, the Founder & Scientific Director of the heavily Koch-funded Berkeley Earth Surface Temperature Study (BEST), came out of the closet in a NYT Op-Ed piece, saying he had ceased being a climate change skeptic & now believed that global warming was real, and then went one step further by saying “humans are almost entirely the cause” (bolding his). Then on August 7th, in his opening remarks to the 5th National Clean Energy Summit in Las Vegas, Sen. Harry Reid, the senior Democrat Senator from that state & the Senate Majority Leader, said among others that climate change “deniers still exist, fueled and funded by dirty energy profits. These people aren’t just on the other side of the debate. They’re on the other side of reality.“ On the other hand, in a speech at Dartmouth College on August 2nd, Todd Stern, the Obama Administration’s top climate negotiator, said insisting on a 2°C target in negotiations would lead to “deadlock” & that the US approach in climate change negotiations needed “more flexibility” (which almost immediately led to severe criticism by the EU & many ‘small island nations’, and to his office issuing a “‘clarifying” statement that “Of course the US continues to support this [2C] goal. We have not changed our policy.” (As to the 2°C target, the above-mentioned article from Rolling Stone dwells extensively on that). Be that as it may, it’s amazing the difference a 25-year drought & a collapsing corn crop makes to people’s outlook on climate change!
Nature abhors a vacuum! So predators, like bears, wolves & lynxes, once hunted to extinction, are making a comeback in parts of Germany, Switzerland & Northern Italy where they haven’t been seen for a long time. But the real credit should go to the change in people’s attitudes towards wildlife & the preservation of species.
GLEANINGS II – 474
Thursday August 9th, 2012
IRAN SHOULD BE VERY FEARFUL OVER THE NEXT 12 WEEKS (Haaretz)
This suggests Netanyahu’s decision will be driven by developments in the US election, with an attack being delayed as long as it looks Romney will come out on top (& his decision influenced by US gambling multi-billionaire Sidney Adelson, who has both Netanyahu & Romney in his pocket). And the decision to attack or not could be affected by an emergency elsewhere (i.e. in Syria or Europe), just as in 1956 when the Anglo-French attack on Egypt gave the then Soviet Union license to deal militarily with the Hungarian uprising. Elsewhere in Haaretz a voice of sanity in the wilderness was that of David Grossman, a regular contributor to the paper, a multi prize-winning author & one of Israel’s leading advocates of a two-state solution, asking “Why aren’t ministers & defense officials standing up right now, and saying ‘We will not be a party to this megalomaniacal vision, to this messianic-catastrophic world view’?”
ISRAEL’S FADING DEMOCRACY (NYT, Avraham Burg)
Both of Burg’s parents were Holocaust survivors. He has long been associated with the Labour Party, and was Speaker of the Knesset from 1999 to 2003 & head of the Jewish Agency from 1995 to 1999 (which recovers property lost during the Holocaust & coordinated the move of half a million Jews from the former Soviet Union to Israel). He has been controversial : in 2003 he called for a quick withdrawal from the occupied territories (two years before Sharon orchestrated the withdrawal from Gaza) & wrote in Yedith Ahronoth “Israel, having ceased to care about the children of the Palestinians, should not be surprised when they come washed in hatred and blow themselves up in the centres of Israeli capitalism”, and again in 2009 when, in the Doha debates at Georgetown University he argued the affirmative side of “It is time for the US to get tough with Israel”, drawing 63% audience support.
FOOD CRISIS LOOMS (The Moscow News, Nataha Doff)
For Western Canadian farmers this is a dream come true : a good crop and good prices.
A YEAR LATER, S&P DOWNGRADE OF US LOOKS LIKE A DUD (AP, Paul Wiseman)
This is “the best-looking horse in the glue factory” theory; but he too eventually gets a bullet in the brain. Real demand for UST securities is drying up & the main thing keeping the UST market afloat has been the expansion of the Fed’s balance sheet. The above seems to assume that what happens in the Atlantic region is the only thing that matters – a quaint notion long overcome by events. And it ignores the fact that in financial markets change, more often than not, comes like a thunder clap in a blue sky after which people ask themselves “How come I didn’t see this coming?” – because they didn’t want to (see it).
STANDARD CHARTERED FACES SUSPENSION (Bloomberg, Greg Farrell)
This differs from other recent examples of bank malfeasance in that it didn’t abuse customers or shareholders, in fact quite the contrary. But it has the same root cause : a sense of invulnerability & a philosophy of ‘the end (profit maximization) justifies the means’. But, while none of those who disregarded their fiduciary responsibilities have gone to jail, some Standard Chartered executives could face jail time; for they committed a more heinous crime : they ignored government rules!
WHY OUR BUDGET CANNOT BE BALANCED (The Omega Letter, Ed DeShields)
There have been several such doomsday predictions circulating on the Internet. The numbers are correct (coming, as they are, from page 210 of the President’s 2013 Budget Message to Congress) but the conclusion flawed. Once America’s political leaders accept the nation has a problem & find the intestinal fortitude to tell their fellow Americans that (which may be an easier sell than generally believed because poll after poll shows many of them think America is “on the wrong track”), it becomes a matter of defining the immediate priority. And that it is not balancing the Budget or eliminating the Deficit! Rather, the key problem is that the rate of growth of the debt has been outstripping that of GDP. And addressing that problem is not quite as impossible task as some talking heads would have us believe. For we measure GDP growth in real-, but that of the debt in nominal-, terms. So assuming GDP growth, & inflation-, of 2% each, the first stage target would be to “cap” the deficit at 4% of GDP, i.e. roughly US$600BN, still painful but far more manageable than US$1.3TR. And if the economy were to grow a little faster, & inflation go a little higher, (& the growing cost of the Social programs were constrained – in FY12 it is up 8.6% YoY), it would become easier for the US to dig itself out of the debt swamp that successive Republican Presidents have created (when President Carter took office the debt/GDP ratio was 35.8% & when he stepped down 32.9%; the corresponding figures for Reagan were 32.9% & 52.6%, for Bush 41 52.6% & 68.1%, for Clinton 68.1% & 57.7%, for Bush 43 57.7% & 74.1%. And while for Obama these numbers have been 86.4%, 95.1% & 99.7% on December 31st 2009, 2010 & 2011 respectively, much of the increase in 2009, & at least some of that in 2010, was due to the delayed effect of the flawed response of the Bush 43 Administration to the 2008 financial crisis that Obama would have been wise to disown on the very day he was elected. These numbers raise two interesting issues. One, the cost of servicing the national debt is not all that big a factor in the overall scheme of things and that, while higher interest rates will hurt & the average maturity of the US federal debt, at 5+years, is shorter than that of most other major countries, the Treasury’s efforts of recent years to extend it have bought the US a little more time than it would have had a few years ago. And the other, more interesting, one is that the US government would benefit from higher inflation in two ways (especially if real interest rates stayed in negative territory) : it would reduce the real burden of the debt & it would allow a higher “cap” on the rate of growth thereof.
‘GOLDEN OPPORTUNITY FOR CHINESE LENDERS IN US (China Daily, Ariel Tung)
This will enhance, & accelerate, the growing Chinese presence in the US corporate world & construction industry; thus Chinese money & manpower are key to California’s Rapid Rail plans.
KNIGHT RESCUE SPOTLIGHTS HIGH-SPEED TRADING RISK (G&M, Joanna Slater)
Most computer-driven trading programs exist for purposes other than high-speed trading (which accounts for close to 40% of all trading activity on a number of stock exchanges, incl. the NYSE). But there is no evidence, as the headline suggests, that it was a high-speed trading program that sunk this company. Still, events such as this may cut the use of, & reliance on, such programs.
GROUP SMUGGLED IN IEDs FROM LEBANON (Daily Star)
This cannot help but feed the Netanyahu-inspired paranoia of many Israelis; for if you catch one, you cannot help but wonder how many others there might be out there
RUSSIA MOVES NUCLEAR MISSILES TO CUBA (Intelhub.com, Paul Joseph Watson)
As to the radio-electronic facility at Lourdes, Cuba, in October 2001 President Putin announced its closure as a “gift” to President Bush 43 for his undertaking no US missile defense systems would be deployed in Eastern Europe. But with NATO’s missile defense system about to reach “interim operational capability” in late May, Putin said on May 11th that this promise had been broken & that “I, like a man, have kept my word. What have the Americans done? … It is no secret that in recent years the US has created a buffer zone around Russia involving … not only the countries of Central Europe, but also the Baltic states, Ukraine and the Caucasus.”
NEW BOREI CLASS NUCLEAR MISSILE SUBMARINE TO ENTER SERVICE (Examiner.com)
For the first 15 years after the collapse of the Soviet Union, the Russian armed forces were allowed to deteriorate. But Putin has started to rebuild them as part of his (pipe?) dream of restoring Russia to the former super power status of the Soviet Union, enabled to do so by the cash flow from high oil prices. But while the Russian State Armaments Program for 2007-2015 envisaged the Navy receiving 5 Borei-class submarines, as well dozens more other subs & surface vessels, it looks like it is running behind schedule; for the Yuri Dolgoruki was taken out of drydock in April 2007 & started sea trials in late 2008, and there is no sign as yet of two other Borei-class submarines, the Alexander Nevsky & the Vladimir Monomakh, construction of which was to have been completed in 2009 & 2011 respectively. And even if Russia were to complete its proposed sub-building plan its two dozen or so, its submarine fleet would still only be one-third of that of the US Navy.