September 14th, 2014
in aa syndication
Age of Wisdom, Age of Foolishness (42)
Age of Wisdom, Age of Foolishness (41) “Axes of Evil” developed the thesis that was termed “Mission Creep” in Age of Wisdom, Age of Foolishness (39) “OECDean’s ’14” ; as the Eurozone moves towards deeper military engagement in Iraq. Prime Minister Hollande was the first “creeper” observed from the European Union. He has now been swiftly joined by David Cameron[i]. Cameron chose to use the threat of Blowback, observed in Age of Wisdom, Age of Foolishness (34) “Blowback”[ii], from radicalised British nationals as his casus belli. Germany observed protocol and hid its global ambitions; by waiting for the EU to deliberate[iii] over how much further to engage with Iraq.
“Spies Like Him.”
Germany could not however totally hide its global superpower ambitions; when it was revealed in Der Spiegel[iv] that its own intelligence services had been spying on Hillary Clinton and Secretary Kerry. The EU underlined the energy security issue behind its current policy initiatives, by linking its deliberations over Iraq with a strong threat of further sanctions against President Putin[v]. Presumably, if Putin pushes back strongly the EU will push further into Iraq and vice versa. The European defence strategists are hedging their bets both ways, by consolidating their defence industries into a system that can roll out the kind of ordnance to be used in either the European or Middle Eastern theatres[vi]. Age of Wisdom, Age of Foolishness (36) “By the Rivers of Babylon”[vii] said that:
“Clearly at some stage, in the very near future, the UN must become involved; to resolve an issue which if left to the militias will result in desertification and famine.”
The UN has now provided the global umbrella to create a “coalition of the willing”; and to cover the potential challenge to the legality of what the said “coalition” does next in Iraq by designating the situation officially a “Level 3 Emergency”[viii].
“Remember people, be careful out there.”
Age of Wisdom, Age of Foolishness (30) “Adullamites”[ix]
Age of Wisdom, Age of Foolishness (30) “Adullamites”[x] analysed President Obama’s West Point speech, setting out the conditions for American military engagement in foreign conflicts. It was said that:
“Going forward, the use of semantics and definitions of unfolding events on the ground in relation to this ‘principle’ will be applied both by the President and the ‘Warmongers’ to second guess each other. At each stage, there will presumably be an escalation in the level of carnage and atrocity, until an unequivocal definition which can be used to justify unilateral force is reached.”
The sliding scale of increased atrocities has been clearly seen, since the time of writing up to the point at which American airstrikes recently were launched. In addition, it was said that:
“In practice, the President has just painted a large target on the backs of all Americans living and working outside the United States.”
Last week ISIS took aim at these targets, when it announced to Americans, that it will “drown you all in blood”[xi]. ISIS has now replaced Al Qaeda as America’s greatest threat.
The first American target to be killed was the journalist James Foley[xii]. The President must now decide if this incident is egregious enough to justify an escalation of American involvement, or if more collateral is required to sell a new more robust engagement policy to the American people. The conditions of the murder of Mr Foley amount to nothing more than blackmail by ISIS. His murder was conditional upon American discontinuing its airstrikes and paying a ransom. Since American policy is not to negotiate with terrorists, the outcome was never in any doubt; neither should be the expected course of American action going forward.
“But in this country it is necessary, now and then, to put one admiral to death in order to inspire the others to fight.” (Candide)
(Age of Wisdom, Age of Foolishness (40) “Candide”)
The invective from Dick Cheney, who has implied the President’s cowardice in the face of the enemy, will now reach new levels of opprobrium.
Hillary Clinton, who was observed to be distancing herself from the President in Age of Wisdom, Age of Foolishness (41) “Axes of Evil”, will no doubt also feel the need to put some more daylight between them in the light of recent events.
“Bada Bing Bada Boom!”
On the subject matter of “Axes of Evil”, a new axis has been added to the bandwagon which had been decelerating of late. North Korea has now moved onto the axis which links Hamas, Hezbollah and Iran. Allegedly Iranian weapons are being supplied to Hamas in Gaza, by Hezbollah, through tunnels engineered by North Korea[xiii]. No doubt this new axis will accelerate the War on Terror and take it into a new dimension.
Several birds can now be killed with the same stone; and the agenda being followed by Israel in Gaza can be directly re-aligned with the “mission creep” in Western capitals. This new dimension was signalled by the end of the ceasefire in Gaza; which saw the killing of the wife and son of Hamas’s military leader Mohammed Deif in a misguided targeted killing attempt on the man himself[xiv].
Prime Minister Netanyahu, wasted little time eulogising the murder of James Foley[xv]; and created the perception of the aligned interest of Israel and America with the new mantra that 'Hamas is Like ISIS, ISIS is Like Hamas'. If one recites this mantra fast enough, it is very easy to find one’s-self saying “ISIS is Hamas”; which presumably is the whole point. Going forward, any unilateral action that Israel takes against Hamas will now be framed as action against ISIS; so that America will find it hard to criticise the overall impact on the Palestinians.
This new dimension presumably overlays the pattern of natural resources beneath the ground; which is the real bottom line in all these geopolitical strategies. Back in January 2013[xvii], the Levant Basin was identified as something worth fighting for. Age of Wisdom, Age of Foolishness (33) “Good Fellas”[xviii] gave an update of how the regional conflict is closely correlated with the major oil and gas reserves.
If you lay a hand on him, you will remember the struggle and never do it again!
Any hope of subduing him is false; the mere sight of him is overpowering.
No-one is fierce enough to rouse him. Who then is able to stand against me?
Who has a claim against me that I must pay? Everything under heaven belongs to me.
[Leviathan, Job 41:]
The new dimension in relations between Egypt and Israel clearly evinces how energy security is driving politics. Israel and Egypt are currently negotiating purchases of Israeli gas from the Leviathan field[xix]. If there was a Two State Solution on the table, the Palestinian Gazans would presumably have to be at the negotiating table with Egypt and Israel. A Single State Solution clearly removes the Palestinian Gazans from the table. The linking of Hamas to ISIS, by Netanyahu’s new mantra[xx], has further removed all Gazan Palestinian claims to offshore hydrocarbons. Having been removed, traditional support for their cause from Egypt is also removed, by nature of Egypt’s reliance on Israeli gas. A new dimension of Israeli – Egyptian relations clearly realigns the interest of both nations in mutual support, by nature of the common issue of energy security. Sales of Leviathan gas to energy-poor Europe, in substitution for sanctioned Russian gas, will be a very interesting new dimension also; which will compromise the position of the EU in support of the Palestinian cause.
Interested parties who had hoped to see America place Iran directly on the new axis of evil with North Korea, Hamas and Hezbollah have however been disappointed. The latest Pentagon assessment, of Iranian intentions and capabilities, has departed from its traditional Hawkish opinion; and acknowledged that Iran has adopted a significantly defensive posture[xxi]. The current axis of evil is therefore only of use in resolving energy security issues, as far as America is concerned. Regional civil wars are therefore unofficially classified as energy resource wars at this stage. The big global conflict, which some had hoped for, to significantly change the political status quo in the region is not on the table as far as this American administration is concerned. Those hoping for the “Big One”, in terms of conflict must therefore place their bets on a new President. Speculators, currently betting on the “Big One” in terms of bear markets should also take note.
“Boots on the Ground in the Wrong Place.”
America also now has a link between events in the Middle East and its intended Pivot to Asia, in the form of North Korea and its nuclear threat. One should expect the old WMD themes to appear in the press in due course. Iran has yet to come in from the cold on its own nuclear programme, so it is logical to assume that this will get folded into the new dimension of global threats. America may by now have the ultimate catalyst, required to unify a nation divided by income inequality; in addition to growing racial tensions as evinced at Ferguson Missouri.
“New Dimensions of an Age-Old Theme.”
Age of Wisdom, Age of Foolishness (25) “Pride and Extreme prejudice”[xxii]
The clearest signal of the new American dimension in geopolitics was given by Secretary Hagel and General Dempsey’s recent assessment of ISIS[xxiii]. ISIS is classified as America’s greatest threat. It is however not such a threat that requires American boots on the ground in Iraq just yet; as General Dempsey believes that it can be contained “for now”.
Instead, ISIS is classified as an “imminent” yet indirect threat to America; but a direct threat to Europe and Britain, by nature of their radicalised Muslim communities. America is therefore giving Britain and Europe the ultimatum to deal with this threat, along the old colonial lines of the Sykes-Picot mandates.
Germany’s imperial ambition is tightly circumscribed and subsumed under the larger European agenda. If Britain and Europe fail to address the issue, the clear threat is that the next US Administration will do so. Presumably America will not export its Shale Oil to its allies, which will incentivize them to take ownership of the Middle East issue in order to address their energy security needs.
Age of Wisdom, Age of Foolishness (41) “Axes of Evil” introduced the emerging global market consensus building up ahead of Jackson Hole. The consensus on European Deflation, was given further support by the latest data. The Germany economy shrank in Q2[xxiv], whilst the rest of the Eurozone flat-lined[xxv]. Based on its latest quarterly Survey of Professional Forecasters[xxvi], the ECB lowered its inflation forecasts. Even more telling was the Bundesbank’s latest monthly report[xxvii]; which accepted that the geopolitical situation was “impeding” further economic growth.
Consensus has lately been created amongst economic commentators[xxviii]; who now feel that the latest iteration of the LTRO, known as the “Targeted” LTRO (TLTRO), aimed at stimulating bank lending is destined to fail. The reason for its failure is the lack of demand for credit, which has recently been exacerbated by the geopolitical headwinds. The corollary of this consensus, is that the ECB must therefore embark on a new phase of QE. The case for Mario Draghi to get more unconventional is now very clear. This case was reinforced by France, which directly blamed the ECB for its recession[xxix]. This direct blame stands in stark contrast to the position that Draghi takes with Germany on the lack of Italian economic reform[xxx]; which directly holds Italian political inertia responsible for the country’s recession.
“… It Is Now”
“They Think It’s All Over….
Age of Wisdom, Age of Foolishness (41) “Axes of Evil”
“It’s a game of two halves.”
Age of Wisdom, Age of Foolishness (40) “Candide”
Danny Blanchflower has become a key player, in the game of consensus building, going into Jackson Hole. He was initially seen in Age of Wisdom, Age of Foolishness (40) “Candide” destroying the groupthink consensus, on rising UK interest rates in response to the tight capacity in the economy. He was then spotted again, recently opining a similar point about the US Economy. In his opinion, US real wages have yet to recover[xxxi] to a level associated with the kind of economic growth that does not need QE.
Clearly Blanchflower has been deliberately positioned by the Bank of England and the Fed to build the consensus that real wages in the US and UK are both stagnant and need to be addressed by policy makers. A permanent increase in the money supply, which is then redistributed to the Middle Class via tax code reform, is a solution to this problem which we believe is on the table in the US. David Cameron has been hinting at tax cuts for some time; so it is logical to assume that the UK will follow the US lead. It is currently fashionable for Anglo-Saxon central banks to recruit non-nationals. Given this trend, it would not be surprising to see Blanchflower becoming a Fed governor once he has done his flying time in academia in the US.
British policy makers have recently been observed U-turning on a sixpence over the need for tightening monetary policy. Mark Carney gave the strongest possible hint, that this U-turn was in motion, when he recently opined that any tightening of monetary policy would be “limited and gradual” in nature[xxxii]. Unfortunately Carney has habit of contradicting himself, which has ruined his credibility and all esteem within which he was held by the markets. His credibility has been totally destroyed, in the most part, by the insinuations by some MP’s that he is in league with Chancellor Osborne not to raise interest rates before the next election[xxxiii].
When put into this context, Carney’s doubletalk can be understood as prevarication and procrastination, to play for time as the election draws near. He will be given the chance to talk unequivocally about his policy and his relationship with the Chancellor, when he undergoes hostile questioning from MP’s in the near future. Having signalled “limited and gradual” tightening of policy, he then contradicted this position by immediately opining that interest rates would have to rise even though real wages were still falling[xxxiv]. Carney’s wobble was amplified by the minutes of the last MPC; which showed the first split decision in the last three years[xxxv].
Based on what Danny Blanchflower has been saying about real wages and spare capacity, Carney’s latest dissonant signal was perverse and even dangerous. The latest benign UK inflation data[xxxvi], released after Carney’s equivocal remarks on interest rates, cast further doubts over his judgement. By talking equivocally about interest rates, Carney has a speech to match either sets of conflicting data.
The problem is however that he must make a decision and then act on it; which he is clearly incapable of doing. The latest inflation data fits the analysis of prices falling more slowly than wages. The UK therefore still has inflation, because prices are still way ahead of wages, even though both are falling. Carney is obviously in the loop with Blanchflower and the Fed, therefore one can only conclude that Helicopter money is imminent; and that the Bank of England will then be tightening to offset its potentially inflationary consequences.
“Playing Soon at Jackson Hole.”
Age of Wisdom, Age of Foolishness (41) “Axes of Evil”
Jeffrey Lacker is starting to feel that his Hawkish rhetoric is on “the wrong side of history”, as suggested in Age of Wisdom, Age of Foolishness (41) “Axes of Evil. His latest speech signalled that he is pulling away from the other Hawks. He chose to move his own position, by opining that the Fed is not behind the curve on inflation. He has therefore distanced himself from the Hawks, who demand an immediate tightening; and anchored himself as a man of reason with room to change his mind, without loss of face, if the data and events make his current position appear untenable[xxxvii].
James Bullard is more of a micromanager, of market expectations, so he chose to get the speculators who now think that rates will remain lower for longer to question their assumptions[xxxviii]. Bullard however changes his mind faster than an algo-trader changes his/her position; so little value can be ascribed to his opinions. Kocherlakota is the antithesis of Bullard; and like a broken clock waits for time to elapse in order for the data to support his position. He has been still sticking to his low inflation call out to 2018[xxxix]. At this point in time therefore, before Jackson Hole, there was no overwhelming consensus in America. Volatility is thus rising to reflect this uneasy status quo.
The net result is that speculators were clambering for Yellen to give them certainty in her talk at Jackson Hole. She did not deliver certainty. This, and geopolitical uncertainty, therefore guarantees the certainty that Yellen will deliver more liquidity for a longer period of time.
Going into Jackson Hole, expectations for clues about a permanent increase in the US and UK money supplies created the squeeze in risk assets; which confounded the traditional macro-investors who were betting on geopolitical instability to cause further weakness in financial markets.
“There Will Be Blood….. (on the streets).”
This conundrum was best summed up by Lord Rothschild, who recently opined that:
“Almost every asset class is highly priced by historical standards at a time when the precarious geo-political situation in the Middle East and Russia could undermine the fragile economic recovery which central bank policy has helped bring about…..We have become uncomfortable in participating in liquidity fuelled markets.”
Back in May 2012, the Rothschilds pooled their resources with the Rockefellers[xl]. The founders of both dynasties were famous for the maxim “buy when there is blood in the streets”. The pooling of resources was therefore expected to capitalize on such a sanguinary opportunity. At that time Senator McCain, a former presidential candidate who was allegedly funded by Lord Rothschild[xli] and who is currently a Patron of the Rothschild think tank the Atlantic Partnership[xlii], was calling for military intervention in Syria.
Clearly the blood on the Syrian streets was expected to present the great buying opportunity back in 2012.
History is now proving to be on McCain’s side. He famously wrote the editorial piece entitled “It’s Time to Use American Airpower in Syria”[xliii], back on March 5th 2012; today he has been vindicated. Two years later, the blood is still flowing in the streets; however this has not been framed in the terms that produce the sell-off buying opportunity. Former Defence Secretary Cohen who was observed making the connection, that Ukrainian instability gave Iran the green light to develop nuclear weapons in Age of Wisdom, Age of Foolishness (24) “The Short Good Friday”[xliv], is the American Co-Chairman of the Atlantic Partnership[xlv]. Clearly today’s great buying opportunity is now being presented; as “mission creep” in Ukraine and Iraq raises the global stakes.
It therefore appears that Lord Rothschild is making the same global macro call again, as he did when he pooled resources with the Rockefellers two years ago. It is interesting to note that Lord Rothschild’s son has an oil exploration and production company named Genel Energy, that is said to have the best assets in the emerging nation of Kurdistan[xlvi]. It is also interesting to note that father and son had a fifty percent interest in Vanco[xlvii]; a Houston based oil exploration and production company, that was the first to obtain a licence to exploit the untapped reserves in the Black Sea offshore Ukraine[xlviii].
Since Russia annexed Crimea and Ukraine is currently experiencing political instability, the ownership and value of Vanco’s assets has been the subject of considerable debate. There is however clearly blood on the streets where both of these oil producing assets are located.
Nathan Meyer Rothschild is famously quoted as saying, “give me control of a nation’s money and I care not who makes its laws”. The current Lord Rothschild is not in control of the Fed’s QE; and would apparently like it to end, in order to buy the dip created by the current geopolitical situation and its absence. The problem is that the central bankers and the speculators are already buying in anticipation of the Fed’s response to the geopolitical situation; ergo “Almost every asset class is highly priced by historical standards at a time when the precarious geo-political situation in the Middle East and Russia could undermine the fragile economic recovery which central bank policy has helped bring about”. Going into Jackson Hole, Janet Yellen seems determined not to cede control of the nation’s money, or to create the dip to be bought. In Age of Wisdom, Age of Foolishness (40) “Candide” , in relation to the consensus that geopolitics should push markets lower, it was suggested that:
“in our opinion value is now being created for the contrarian investor.”
Lord Rothschild would like to create some more value, but Janet Yellen does not want to allow this. The geopolitical sell-off, in early-August, was all she required to land the Helicopter at Jackson Hole. The speculators have already taken back all the value created in the American markets during this geopolitical sell-off.
“Time For ECB Shock and Awe.”
Age of Wisdom, Age of Foolishness (40) “Candide
The only value currently left is in Europe; however this requires Draghi to embark on QE. Given the threats to the German economy, even Jens Weidmann is coming to the conclusion that this risk is worth taking. In Age of Wisdom, Age of Foolishness (40) “Candide”, of European QE it was said that:
‘Having squared this with Germany first, by vocally accepting the need for economic reforms along German lines, the base is already covered for Draghi to perform some European monetary “Shock and Awe” to support the European “boots on the ground”[xlix]. The timing of this “Shock and Awe” will no doubt be at the exact point that the European equity bulls capitulate and turn bearish’.
This capitulation seemed to occur on August 8th, coincident with the news of American airstrikes in Iraq. Even news out of Ukraine, that the fighting was becoming more intense, failed to drive European markets below the bottom put in on August 8th. Draghi’s last presser signalled that the combination of European economic contraction and the geopolitical headwinds were the signals for the ECB to act. ECB QE is now overdue; and will be even more so after Jackson Hole.
The metaphorical blood on the streets, that Lord Rothschild is looking for, is to be found in the Crude Oil markets. On the supply side there is abundant US Shale output; on the demand side there is economic collapse in Europe, exacerbated by perceptions of headwinds from Russia and the Middle East, plus economic contraction in China. This scenario, of slow growth and falling energy inflation, is however unlikely to make central bankers ease off the gas in terms of tightening monetary policy.
Even in America, where the recovery is progressing nicely, the drop in global aggregate demand has put a ceiling over how rapid the pace of economic growth can be. America is now facing the prospect of only having its domestic economy to drive growth, as the rest of the world stalls out. Low oil prices and abundant central bank liquidity therefore put a floor under equity prices. Since there is so much money on the side-lines awaiting the pullback in equity prices; there is yet another floor under the markets. The prospect of no tightening in monetary policy is now looking more like a continued easy monetary policy in America; and monetary easing in the rest of the world. The money on the side-lines will either get pulled or eventually forced back in.
“Hagar is an EM Bear!”
Norway’s sovereign wealth fund also sees blood on the streets, in emerging markets, so it is pulling in its horns exposed to this sector[l]. One suspects that the Norwegians have shed a little blood also over the summer in relation to the oil price. Traditionally, it is believed that what’s bad for oil is good for emerging markets and vice versa. The boom in oil prices with QE allowed the Norwegians to fund an increasing exposure to emerging markets; as a kind of diversification strategy for the day when oil prices fall. In practice, they have found that oil and emerging markets are correlated. The fall in oil prices means the cash for investment isn’t flowing into Norway; but unfortunately neither is the cash from the performance of the emerging market portfolio. The Norwegians failed to understand that the boom in emerging markets was predicated on subsidised energy inputs. As oil prices rose, the cost to the emerging markets of these subsidies eroded their fiscal positions. Going forward after 2008, emerging markets are no longer in a position to subsidise growth in this way. The Norwegian emerging market investing strategy is now under review, as is the corporate governance at the fund. If the BRIC nations come unstuck in their economic war, with the developed nations after the new initiative taken at the Fortaleza Summit, there is another risk to emerging markets.
“Shaken Not Stirred.”
There was some polite but strong readership pushback, against the allegedly “inflammatory” suggestion in Age of Wisdom, Age of Foolishness (41) “Axes of Evil”; that there are some in the corridors of power who refer to the policy makers in the BRIC nations with the “acronym of Wiley Oriental Gentlemen”. A subtle hint was dropped about where to look for an example of this inflammatory behaviour; in the report about the soul-searching in Australia over whether it should join the BRICS or remain proudly Anglo-Saxon.
“Which Sheila Do Ya Wanna Dance With Mate?”
Age of Wisdom, Age of Foolishness (41) “Axes of Evil”
The “Wiley Oriental Gentleman” in question, from China, were specifically referred to as “Mongrels” by Clive Palmer[li] the Antipodean Nigel Farage last week. Allegedly Palmer is aware of some dastardly Chinese plot to gain control of his country’s natural resources. From our perspective, this confirms the whispers heard in the corridors of power; and also the Anglo-Saxon response to the latest challenge from the BRICS.
If this thesis is correct, Canada and parts of the Empire should also develop this peculiar strain of natural resource nationalism in due course. In Age of Wisdom, Age of Foolishness (29) “Don’t Think F-e-e-e-e-l”[lii] Safari Club Chairman and Honorary US Secretary of State William Hague, was seen on safari in the African oil producing nations clustered around Nigeria. Some speculation was ventured about his next career move, after he leaves the Commons in 2015; so it will be interesting to observe any future steps he takes in the countries that once used to be imperially pink.