January 2nd, 2015
in aa syndication

Age of Wisdom, Age of Foolishness (57)

Written by , KeySignals.com

This report contains scenes that some viewers may find disturbing and which are not suitable for those below the age of 18. The content in this article is intended for mature audiences only and contains images of a sexual nature, violence and the use of strong language. Readers’ discretion and a sense of humour are advised.
“You’ve been warned.”

The fat lady was heard singing last week, as the curtain came down on some notable performances in the global-macro theatre of dreams.

Follow up:

“Pull Back the Curtain.”

A “Bamboo Curtain” descended, in addition to the new Iron Curtain that is being erected across Central Europe from the Baltic to the Black Sea.

“Big Country Little Country Diplomacy.”
Age of Wisdom, Age of Foolishness (54) “Taper Tantrum Redux

Seizing his moment, in which President Obama fearful for his life at the hands of the nation’s overzealous police forces has been imprisoned in his bunker by the GOP controlled Congress and now that Chuck Hagel has abandoned ship at the Pentagon, President Xi Jinping chose to signal to the world that Chinese foreign policy doctrine has officially changed[i].

Previously China had been following the passive aggressive “hide your brightness, bide your time” strategy initiated by Deng Xiaoping. According to Xi, China is now following “big country diplomacy with Chinese characteristics”. These “Chinese characteristics” were very much in evidence on the occasion of China’s Constitution Day. Rather than being a celebration of individual rights and the freedoms of the average Chinese citizen, the day was used to highlight selected cases of American degeneracy[ii]; of which there are many in the eyes of the Chinese beholder.

Just in case the average Chinese citizen is unable to discern the obvious signs of American degeneracy, the Chinese authorities have been busily erecting censorship barriers in addition to legal prosecution, for alleged “Un-Chinese” behaviour which has been influenced by American individuality. Having erased degenerate American content, it is then replaced with healthy “Sinocised” content which displays the “Chinese characteristics” of an unmistakably American theme. Orwell would quickly have spotted the totalitarian overtones hiding in plain sight.

“Now You See It.”

“Now You Don’t!”

Adam Minter, who apparently still writes for Bloomberg, also seems to have spotted it; although he may soon be looking for a new Op-ed gig. Unfortunately, Bloomberg has employed some censorship of its own, so its readers will now never know what his opinion was. His piece entitled “Xi's Cultural Revolution Is Doomed to Fail” which appeared on December 3rd,was swiftly removed on the 4th. Fortunately for the readers, some assiduous South Koreans at Koreanherald.com have stored his ethereal opinion on their server[iii].

According to Minter:

Effective immediately, the government has reserved the right to send film and television actors, directors, writers and producers on all-expenses-paid, involuntary, 30-day sabbaticals to rural mining sites, border areas, and other remote locations. The purpose, according to the directive, is to help Chinese artists “form a correct view of art and create more masterpieces.”’

“Creating a Masterpiece.”

In other words the Gulags, which have their own “Chinese characteristics”, are very busy these days. What is allegedly occurring is another Cultural Revolution, designed to meet American fire with fire. Why the piece was removed, is presumably a matter between former Mayor Bloomberg and the Peoples’ Republic of China; where perhaps he had less business on December 4th than he had on December 3rd. Presumably neither the Bloomberg Editor nor Mr Bloomberg will be going on a “30-day all expenses paid sabbatical” to China, in order to perform a fact check for the article!

“Chinese Characteristics.”

Bloomberg’s editorial team however did allow the publication of a report, which informed that China is cracking down on foreign companies evading taxes by moving profits offshore[iv]. No doubt Bloomberg China will now be getting its collar felt by assertive Chinese tax investigators. The initial publication of Minter’s article almost guarantees this official shake-down. Viewed dispassionately however, this new clamp down will have the effect of reducing foreign direct investment in and accelerating capital flight (legitimate and otherwise) away from China.

“Paper Tiger, Bankrupt Dragon.”

One may be forgiven for thinking that the launch of China’s new assertive aggressive strategy, from an economic platform of decelerating growth and an unsustainable debt funded asset bubble, is a bluff that signals reckless desperation rather than rational thought. George W Bush went on a similar offensive, when he first came into office, against a domestic backdrop during a recession which followed the bursting “dot.com Bubble”. In this case, China’s War on Terror is a War on America. The economy Bush created was unsustainable and almost took America; and the global financial system down with it when his bubble finally burst. Xi is launching a similar strategy to try and disguise the bursting of the current Chinese bubble; so that the population can be made to focus on the perceived foreign enemy, rather than the financial enemy within. President Obama has however reduced America’s debt profile and the American economy is now perceived as being the best of a shabby global bunch; so China is taking on America at a time when America is the best prepared of the two for a conflict. In strategic terms therefore, America has actually won the first battle; by nature of the fact that the timing and the rules of engagement are in its favour. The perfidious Albion also appears to be guilty by association in Chinese eyes. A delegation from Her Majesty’s House of Commons was barred from entering her former colonial outpost of Hong Kong last week[v]. Further evidence, that the bubble in China is getting out of control, was provided by the securities regulator last week[vi]; when it opined that the volume of equity transactions was becoming an issue of concern.

“…. No time left.”

The collapse at the top of the Australian batting order began to precipitate the Constitutional Crisis, suggested in Age of Wisdom, Age of Foolishness (55) “Yes Virginia”, last week as the economic slowdown from China rippled across the South Pacific. Abbott is now branded with the same title of “liar”, that he once opined with great venom in the crisis which ended Julia Gillard’s test match career[vii]. Australians just can’t seem to avoid indulging in their favourite pastime of “Sledging”; even when it undermines the political fabric of their country. This predilection for trash-talking has been exploited with great skill by their former Commonwealth masters, who they lovingly refer to as “Poms”.

When the inept opener Kevin Rudd initiated the collapse, he was run out by his own partner Julia Gillard. Rudd’s mistake was to swing at a wayward delivery, in the “Corridor of Uncertainty” outside his off-stump; which was drifting towards China in political terms down at Third Man. Rudd was also guilty of the treasonable offence of being a Republican.

Gillard was then adjudged to be leg-before, for obscuring the Carbon intensive natural resource extraction industry on a very Green wicket of environmental policy. She was replaced at the crease by Abbott, whose mission it was to be night-watchman; and then lead the follow-on, of the natural resource industry, on the sticky wicket of environmental policy the next day. The Deloitte’s performance averages now suggest that Australia is headed to the bottom of the world rankings, as its weakening growth undermines its fiscal debts going forward “as far as the eye can see”[viii].

Australian residential mortgage backed securities would appear to be the next subprime like crisis scheduled to blow up[ix]. The buy-to-let sector is currently in the last stages of the bubble phase. Australian investors believe that the smart move is to buy residential real estate. Their convictions have been reinforced by the fact that the great minds in the financial community are certain that the Australian central bank will continue easing to save the economy[x]. What the smart Australian money has misunderstood is, that a collapse in the property market is exactly one of the conditions precedent required by the central bank in order to keep easing. Presumably what Aussies call a “Raw Prawn” is the kind of individual, who fulfils his own promises whilst shooting himself in the foot simultaneously.

“Sikh and You Shall Find The Far Pavilion You Are Looking For.”

Unfortunately, Abbott also made the classic Australian mistake of playing agricultural cross-bat shots towards China at Third Man. This mistake is egregious, not only because it shows a lack of intellect by not learning from the Rudd dismissal, but also because Abbott is a Rhodes Scholar. It was Cecil Rhodes who created the whole colonial hegemony, associated with the Round Table Movement, which forms the basis of selection policy for the leadership of the current Anglo-Saxon geopolitical team. Abbott was selected to keep Australian natural resources “Imperial Pink”, rather than to sail them off into Chinese waters, during his varsity days at Oxford. Had Abbott signed up for America’s Trans Pacific Partnership (TPP) exclusively, rather than seeking to play America off against China, he would still be not out at the crease.

“Line and Length!”

The next Australian prime minister will be forced to play, on the front foot, with a straight bat; and to bowl some slow carbon rich full-length deliveries to India, in order to square the series for the Commonwealth side against the Chinese Republic tourists. Abbott may become the first political casualty of the strong US Dollar and Oil Price War scenario unfolding in the global economy. Falling commodity prices have enforced the austerity measures, which he “Sledged” Gillard for lying about. What goes around comes around more swiftly when you are out of sync with America; and then try selling Oil to its greatest foe in a currency other than US Dollars.

“There will be blood.”

The fat lady was also singing as the curtain came down on what Goldman used to call “the Great Commodities Super-Cycle”. Last week, OPEC hardened its stance in the war of attrition with the US Shale Oil enemy. The cartel maintained its market share and output levels, at the recent meeting[xi]. This means that the price will now fall to new levels, at which price discovery also reveals which US Shale deposits and drillers are economically viable. The latest spot price, being discovered in the Bakken Shale crude grade, is now sub-$50/ barrel[xii].

In this game however, all is fair in love and war as long the price remains in US Dollars. Mark Carney signalled that central bankers, bored of controlling financial asset prices, have now decided that it will be fun to control oil prices also.Having already controlled the meteoric rise of crude prices, with abundant liquidity, they now wish to make them fall with guidance whilst maintaining excessive amounts of liquidity in the financial system. It seems that they know that QE will be with us forever; but in order to mitigate its inflationary and economic headwind impacts, they would like to drive oil prices into a secular downtrend.


Mark Carney began the debate and the guidance already, when he opined that the vast majority of remaining hydrocarbons must remain locked in the ground to prevent dangerous global warming from ending the world. He followed up last, week with the announcement that the Bank of England will be the new thought leader on the economic impacts of CO2 emissions[xiii]. One senses that a new paradigm is being created by the central bankers; in which the CO2 by-product of economic growth is viewed as the biggest headwind to economic growth itself. Such a tautology is worthy of the Alan Greenspan prize for central banker gobbledygook. More importantly however, it gives central bankers an opportunity to print money with gay abandon, whilst not having to worry about the negative consequences on energy prices and economic growth.

“Off the Bench.”
Age of Wisdom, Age of Foolishness (45) “Worlds In Motion”[xiv].
“Hank Hyperion”
Age of Wisdom, Age of Foolishness (52) “Deathly Hallows”[xv]

Sceptical human readers should remember that another Titan named Hank Paulson, whom we referred to as Hyperion, has also taken up the CO2 burden on mankind, as reported in Age of Wisdom, Age of Foolishness (45) “Worlds In Motion”[xvi]. There is therefore no smoke without fire, figuratively speaking.

“Sounds About Right.”

The simplistic view of the fall in the oil price, which seems to be forming the consenus, is that this is deflationary. Following this line of reasoning, central bankers should therefore be easing to counter the deflationary forces; and thus asset prices should be rising based on this central bank easing. This view is simplistic, because it overlooks the obvious fact that a falling oil price acts as a massive stimulus to the real economy. If only this had occurred sooner, the Fed would not have had to create dangerous unsustainable commodity and asset price bubbles with QE in the first place.

A sensible central banker, who may be considering QE, should therefore allow the fall in the oil price to do his or her stimulating for them; and keep their QE powder dry for a rainy day. A sensible central banker who already has north of $3 Trillion worth of QE in the system, may therefore also be well advised to withdraw it swiftly before it compounds the stimulus from the fall in the oil price.

Assuming the fall in the oil price gets passed on by the oil industry, companies and consumers will therefore have more money to invest and to spend. Should they wish to spend it, the inflationary genie is out of the bottle. It can therefore be seen that, far from being deflationary, the fall in the oil price is actually inflationary if it persists for some time. There is no such thing as a sensible Japanese central banker at this point in time. Since Abe won the latest snap elections, Kuroda will have to slavishly continue with QE. The Yen is therefore a one-way bet; and those who are now talking about 200 to the US Dollar should not be called crazies.

“Happy Days Are Here Again.”

Forex Traders are smiling again[xvii]. The divergent economic performance in the global economy has created divergent economic policies.

“The ‘New Normal’ has Anything But a Normal Distribution.”

Such divergence creates the distribution of probability outcomes that Forex Traders love. This observation should be further qualified, by saying that “Global Macro Forex Traders” are smiling again; Global Macro traders always have something to smile about!

The Eurozone is an almost textbook illustration, of a fundamental divergence theme, that is violently breaking up a rigidly defined anachronism. The latest Italian unemployment figures reached new highs last week, in the longest post-War recession to date[xviii]. German unemployment on the other hand reached new historic lows in the same week’s reporting[xix]. Both countries have the same exchange rate and interest rates however. In order to achieve this capital markets parity, Italy must keep cutting borrowing and spending at the national level. At the private sector level, Italian companies and people also cut borrowing and spending; and try and find opportunities to work and spend abroad.

“Homo Eurozonus.”

The policy makers, elected and otherwise, give the impression that they don’t seem to think that there is anything wrong with this picture. As a signal of this life in denial France, Italy and Belgium once again avoided financial penalties for breaking their deficit limits. Instead they were slapped on the wrist and given an extension to meet the guidelines[xx]. They will soon be forced to confront the truth however; as Germany is showing the early signs of monetary inflation, price inflation and a bubble in asset prices.

When inflation’s on the rise
You must whip it.”
“Age of Wisdom, Age of Foolishness (52) “Deathly Hallows”

Germany therefore needs higher interest rates; which the rest of the Eurozone and especially Mario Draghi thinks that they cannot live with. Higher interest rates and a falling Euro however, maybe just what Eurozone businesses need to stimulate exports and attract capital back for investment.

The battle for Germany is to convince its Eurozone partners that a lower Euro and higher interest rates will Ultimately work. Right now, the nationalist forces within each nation wish to try the same strategy, with their own currency rather than the Euro. Draghi is convinced that monetizing national deficits, in order to inflate the debt burden of the weaker nations out of the way, is the correct solution.

The ECB’s plan to buy national debt, in proportion to the size of the GDP of the economy, will however not inflate away the weaker nations’ debts; because not enough of this debt will get monetized. Instead, Germany, with the biggest GDP and a budget surplus, will be the recipient of further ECB liquidity which it doesn’t need; and which will then push its asset and inflation bubbles to unsustainable levels.

Before this point is reached however, the Germans may have got Draghi and his bond buying plans declared unemployable and illegal respectively. Before the ECB met last week, Weidmann was hard at work framing market perceptions of the meeting and Draghi’s press conference. He chose to criticise the EU for allowing Italy, France and Belgium to get off, with a slight reprimand, for committing the unpardonable sin of missing their fiscal deficit targets again[xxi].

“Europeans Letting It All Hang Out.”

The Franco-German comity was further undermined pre-ECB meeting, at the Franco-German Financial and Economic Council in the old capital of Charlemgane’s empire[xxii]. It is not so much a matter of mutual distrust and suspicion, but more of the fact that Germany and France have two mutually exclusive visions of what Europe should be.

“What’s In a Name?”

Traditionally these differences have involved the shedding of much blood and the wastage of many lives, especially those from countries with no real skin in the game. Last week in Aachen, a civilised veneer thinly covered the hatred and loathing that is re-emerging. Both nations were just about able to agree to implement the EU’s latest deficit neutral investment programme[xxiii]; which is increasingly looking like a default compromise rather than any serious intention to address the growth issue sincerely with any candour. Of this investment plan, the captains of European industry were heard to opine that it will not work[xxiv]; based on reasons ranging from the fact that it is too small to the fact that it is not specific enough and contains no detailed execution plan.

Forex Traders would have an even bigger smile if national currencies made a comeback, to reflect the fundamentals which exist in reality rather than in the minds of the “Eurocracy”. Italian mainstream parties, in addition to the left-field Beppe Grillo’s Five Star, are embracing nostalgic ideas about their cherished perennially falling Lira again[xxv]. The Northern League, which now polls 30% of the vote, wishes not only to secede from Italy but also from the Eurozone altogether.

“A wake-up call.”

Smelling a chance for political reincarnation, even “Don Berlusconi” is testing the idea of a return to government; on the ticket of a “parallel domestic currency” which trades alongside the Euro. After the introduction of said currency, it would fall like a stone and inflation would go back to the way that Italians were used to playing it. “Don Silvio’s” party Forza Italia are a credible second to Renzi’s Social Democrats; so this initiative is something more of a reasonable probability than a remote possibility. It is an offer that Italians can’t refuse. Italian unemployment reached a new high last week[xxvi]; thus swelling the ranks of the votes to abandon the Euro.

“Ciao Bella!”

Italy’s latest manufacturing PMI[xxvii] (above) signals that conditions are rapidly deteriorating to, where they were in 2012, when Greece was the incendiary device that threatened to blow apart the Eurozone.

“Troika Chateau Hemlock, 2014 Vintage.”

This time Greece is sliding, like the poisoned Socrates, back into the arms of the Troika; as Samaras fails to negotiate the country’s exit from the bailout terms[xxviii]. His failure makes his position as prime minister untenable. He is now in a fight with Syriza, who has sworn to reverse all of his austerity measures and force the Troika to write down the whole value of Greece’s debts[xxix].

With the dying Greece already in the arms of the Troika, Italy will be the next incendiary device to go off; which will then set off the crisis that the “Eurocrats” allegedly can’t hear ticking. Draghi effectively lit the fuse at his press conference, when he made it clear that he only needs a majority in favour of QE, rather than unanimity, to unleash it[xxx]. Presumably he spent most of Christmas entertaining the quorum of ECB council members, who he thinks will vote his way, just to ensure this majority. Presumably the Germans, Dutch, Austrians, Swedes, Danes and Finns have been entertaining their EU constitutional lawyers in order to get QE declared illegal. The outcome, from the confluence of these mutually exclusive festive initiatives, should be enough to give the appearance of a Eurozone breaking apart in the New Year.


Sabine Lautenschlaeger has a dagger all of her own; and used it to probe Draghi’s unprotected back pre-ECB meeting, when she opined that quantitative easing is not the right option for the ECB at this present time[xxxi]. Jeroen Dijsselbloem, although not an ECB member, telegraphed how the Dutch ECB vote would go; when he opined that central banks have reached the limits of quantitative easing[xxxii]. Any more QE will, in his opinion, just create further asset bubble instability.

By acknowledging that growth is weak however, he did extend the olive branch to his Southern European partners, with the suggestion that investment is the solution. Before the Southern Europeans get too carried away, they should observe that the Dutch are simply endorsing the default EU investment plan which is stillborn in fiscal deficit stimulus terms.

“Guess Who’s Back?”

Just when Europeans thought it couldn’t get any worse, it did. “Sarko” has returned from exile[xxxiii]. His poll of the vote, with which he regained leadership of the UMP, is much smaller than it used to be. He therefore has a difficult task ahead of him, to heal the divisions within his party and then take it all the way to the Elysee. With nothing to lose therefore, he has everything to gain by taking a gamble (and a position) over the Eurozone. If he gambles big, as Hollande should have done, by announcing that he is running on a Euro-Exit strategy he suddenly becomes a threat rather than the diversion that he currently is.

“The Good Shepherd.”

His brother is an American resident and Co-Managing Director of Carlyle Group Financial Services. His step-father is the shadowy figure Frank Wisner, whose own father ran counter intelligence for the CIA in Central and Eastern Europe; and who was the unofficial Presidential nuncio to the Arab Spring movement. There is therefore substantially more behind “Sarko” than a bunch of disaffected Gaullists.

“Star Spangled Banners.”

The European Union morphed out of a CIA construct, known as the European Coal and Steel Community, which was the European economic bulwark against the Soviet Union during the Cold War. Since the Cold War has now allegedly returned, America is presumably looking to the Europeans to behave accordingly. America has been gradually ceding control back to the Europeans, however it still has skin in the game.

Germany has however not been playing by the collegiate Cold War rules of the game, especially since East Germany was generously returned to the fold. Current German procrastination over QE and fiscal stimulus are further examples of the breakdown in the natural order of things. One suspects that “Sarko” is on a new American mission. Jacob Lew’s harsh criticism[xxxiv] of the Eurozone, for its collegiate economic failings last week, suggest that it’s Cold War game on again.

“When the Germans rain on your parade, it pours.”

Evidently Angela Merkel fears the same thing, because her party has blocked Sarkozy from addressing its annual convention this year[xxxv]. This act of German xenophobia is guaranteed to galvanize “Sarko” on his quest to break the Eurozone, so that he and a few good men can rebuild it. Perhaps this is secretly what the Germans have been preparing for all along.

“Emotional Finance”

Why European equity markets therefore rallied into the ECB meeting is hard to fathom; other than to conclude that this was by design, to make the ensuing sell-off more meaningful for those who ultimately believe that the Europeans will force the Fed to reverse its own policy rather than for the Americans to force the Europeans to do the obverse. The ECB decision to leave rates unchanged, along with Draghi’s vow to revisit the subject of QE in the New Year, was anything but the “do whatever it takes” behaviour which the price action to date has been discounting[xxxvi].

Furthermore, this anti-climax suggests that the divisions within the ECB over the first principles of QE and its legality are egregious. The bulls once again tried to sugar coat Draghi’s press conference, by interpreting the QE delay as a response to the stimulative impact of the recent fall in oil prices.

This was then embellished with the tale that the breathing space, afforded by the weak oil price, will allow the ECB to polish its QE strategy to perfection[xxxvii]. In practice however, Draghi’s strategy is not ECB strategy yet; and it may not even be legal. Any increase in economic activity and consumption, resulting from lower oil prices, will then obviate any need for further QE. Should European producers and retailers then raise their prices, because the lower oil price has increased the latent inflationary capacity in the Eurozone, the Germans will then have their case for no QE and potentially tighter monetary policy.

“Emotional Guidance.”

The real clue as to how the speculators should be thinking was evinced by Bill Dudley and Stanley Fischer. As readers will understand, from Age of Wisdom, Age of Foolishness (53) “Lame Ducks[xxxviii], the Fed is also under the Congressional microscope, after the Midterms. Any deviation from its current dual mandate, may lead to it being given a single inflation mandate, along with greater Congressional oversight of its performance on this objective.

The reader will also understand from Age of Wisdom, Age of Foolishness (54) “Taper Tantrum Redux” that the Fed is now in tightening mode, to conform to the national security interest of a strong US Dollar policy, in order to meet the Chinese threat head on. “Fedspeak” therefore has to abide by these two real behavioural constraints.

Last week, with consummate diplomatic skill, Stanley Fischer opined that he sees no need to adjust the Fed’s inflation target either up or down.  He also said that the fall in oil prices is a stimulus; and that this stimulus will ultimately lead to wages and prices returning to normal[xxxix]. Fischer therefore confirmed the view, that the fall in oil prices is short-term deflationary but long-term inflationary. In his book therefore, the Fed remains in tightening mode. Just to telegraph it for the most slow-witted, Fischer even signalled that the keyword “considerable” is now under review to be dropped from the Fed’s guidance language[xl].

Last week, Bill Dudley clearly signalled that he also views lower oil prices as stimulative[xli]. Fischer and Dudley’s exegesis therefore means that the Fed will not veer from its tightening bias, unless the Eurozone actually ceases to exist because it has been dissolved. 2015 will therefore be the year in which the Eurozone is going to be regularly given the ultimate existential test by the speculators. Lower oil prices will however allow the Eurozone to exist in the broken form that it is; whilst also signalling to the member nations that they might be able to survive with their own currencies outside of it. The impact of lower oil prices will therefore prolong the agony in Europe, until one country blinks and/or makes a mistake which is fatal for the whole. The probability of a mistake coinciding with the Fed’s first tightening move is almost a certainty.

“Political Givers and Takers.”

The leather clad fat lady was also singing last week in Westminster. A Freudian malapropism, in what was supposed to be some Commons ritual blokey witty cross-party banter initiated by David Cameron, has convinced the British people that there is more to the allegations of sexual crimes against humanity in the Houses of Parliament than meets the eye. The Prime Minister apparently doesn’t know his “S+M” from his “M+S”. He was allegedly referring to Chancellor Osborne’s “sexed up” Autumn Statement and its reception by the Opposition. In the days leading up to this live show, Osborne had been flaunting himself and taunting the Opposition with some political foreplay of his own; designed to seduce the electorate and also to destroy the basis of Ed Miliband’s electoral strategy.

“I have climbed to the top of the greasy pole.”
Benjamin Disraeli

Osborne’s pre-show foreplay consisted of a floorshow, which opened with the historically symbolic pay-down of the centurion World War I loan[xlii], followed by the stuffing of more money into the NHS[xliii]. A keen eye would have noticed that the War Loan pay-down was actually a refinancing; by the issuing of a Gilt with a lower coupon to finance the redemption. The can was just kicked down the road.

The “Greasy Election Poll Dancing” then continued in the Commons, with spending on new roads to ease congestion[xliv], a new Garden City at Bicester[xlv] and investment in parts of flooded Somerset[xlvi]. To confirm that he is a “raver” at heart, Osborne even found funding for the latest Conservative homage to the Madchester Scene of their misspent Bullingdon Club youth[xlvii].

“Come Back Margaret, Come back Please….”

By the end of the week, Osborne’s largesse had covered all the revealing areas of vulnerability in the Conservative party’s campaign body. Careful inspection by the Institute of Fiscal Studies (IFS) however, revealed that Osborne had been writing cheques which the government can’t honour. In order to balance the fiscal books, after such largesse, the next government will have to either raise taxes by draconian degrees or cut public spending back to levels that will make Thatcherism look profligate in comparison. The IFS’s money is on the latter[xlviii].

“A Multi-Weave Curtain.”
Age of Wisdom, Age of Foolishness (18) “Beyond the Pale”[xlix]

The Iron Curtain came down once again last week, as President Putin confirmed that the South Stream pipeline project will now be scrapped[l]. Russia is betting that ultimately energy poor Europe will have to come back to the table and accept Russian terms. The new Iron Curtain is therefore partly a Hydrocarbon Curtain.

Interestingly the South Stream pipeline was supposed to run through the Black Sea, which is adjacent to the new Russian recolonized territory of the Crimea. Russia has therefore covered the base and now waits for Europe to make its next move. Europe is however otherwise concerned with internal issues pertaining to its own survival as a coherent political and economic entity.

No wonder “Sarko” and family are back. Given its own history, the Iron Curtain is also of great significance to Israel; therefore it is no surprise to see related political tensions in the Holy Land involving new Israeli parliament elections[li]. This is why KeySignals has always maintained that there is a direct link between what is happening in Ukraine and what is happening in the former British and French Mandates of the Middle East. Further evidence of this linkage was provided last week by Israel, when it suggested that the EU should sponsor and finance the building of a pipeline from Israel to Cyprus[lii].

It should also be remembered that Cyprus is an EU member, with a strong connection to Russia itself. The financial collapse of the Cypriot economy can therefore be understood as the great enabler of this suggested pipeline. If the EU falls for this alternative to the South Stream supply line its position, for support of the “Two State Solution”, will then be effectively compromised and undermined by Israel. In addition, European reliance on energy supplies via the choke point of the Straits of Hormuz will effectively be removed. Every gas cloud has a silver lining.

“No Longer a Pipe Dream.”

The land-based infrastructure for this Cypriot project already exists. Once up and running, Israel and other interested parties may then have more freedom to pursue a harder line with Iran. With this new development in mind, the Kurdish Regional Government (KRG) seems to have come back into the broad church of the Iraqi government. No doubt the recent experience, of Turkey’s regional intentions and capabilities, has convinced the Kurds that it is better the devil they know.

Whatever the case, the KRG has signed up to an agreement, with the Iranian backed government in Baghdad, to jointly export Iraqi and Kurdish crude; and for the central government to provide military and financial support to the Kurds in return for Kurdish oil revenue contributions to the national budget[liii]. This agreement has been met with both Iranian and American blessing; which suggests that, despite the headlines to the contrary, both countries are closer to a nuclear enrichment deal than they are letting on to.

“One Man’s Buffer Zone is Another Man’s Pipe Dream.”

Last week, Iran therefore received silent support from the West, for its bombing campaign against IS in what are termed “buffer zones” in Eastern Iraq[liv]. Closer inspection of the IS footprint on the ground, overlays very strongly with pipeline infrastructure in Iraq. The removal of IS, is therefore also the removal of a significant barrier to the flow of hydrocarbons. The American behaviour towards Turkey is also instructive. Turkey has proposed a no-fly zone in Syria for humanitarian reasons. Such a no fly zone would deprive the Iranian backed Assad regime of air dominance. By not supporting the Turkish no fly zone initiative[lv], America is therefore indirectly supporting the Assad regime and hence Iran also.

“An Alternative Silk Road.”

Russia has now opened up a new front along the melting Arctic border[lvi]. If the central bankers can’t keep the hydrocarbons in the ground, the disappearance of the Arctic will necessitate a new maritime theatre of naval operations. An alternative “Silk Road” to China, which bypasses the Middle East, will thus be created. Some call this the “Last Frontier”. NATO has responded to Russia with the creation of a rapid reaction force[lvii]; thus erecting a barrier on the western side of the Iron Curtain and some no-man’s land in between the two. Ukraine is currently in no-man’s land.

“New Year, New Danger at Madame Tussauds.”

If the geopolitical situation last week could be summed up in a picture, it would be Tony Bliar’s recently sent multi-faith “PC” Christmas card; which eschews Christianity in order not to offend his multidenominational benefactors. Clearly next year can’t be any worse than this one, if anything can be inferred from the Grinch like grimaces on the long-time happily married couple’s faces.


Perhaps their next Christmas card will look more like the one above.

Let’s check the old scoreboard, for the latest reasons to buy US Dollars:

  • Geopolitical tension with China.
  • Geopolitical tension with Russia.
  • Geopolitical tension within the EU.
  • Deteriorating UK fiscal pre-election conditions.
  • Current political uncertainty in Japan; combined with weak Yen political certainty if Abe wins his snap elections.
  • Falling Oil Price is US Dollar positive.
  • Falling Oil Price stimulates US Economy (because Stanley and Bill told us) therefore confirming Fed tightening bias. Rising US interest rates are US Dollar positive.
  • Emerging central banker led secular new Oil Price paradigm.

  1. http://www.bloomberg.com/news/2014-12-01/xi-says-china-will-keep-pushing-to-alter-asia-security-landscape.html
  2. http://www.bloomberg.com/news/2014-12-04/china-shows-shawshank-redemption-to-celebrate-citizens-rights.html
  3. http://www.koreaherald.com/view.php?ud=20141204000832
  4. http://www.bloomberg.com/news/2014-12-01/china-to-monitor-foreign-company-profits-to-prevent-tax-evasion.html
  5. http://www.bbc.co.uk/news/uk-politics-30267026
  6. http://www.bloomberg.com/news/2014-12-05/china-regulator-urges-caution-on-stocks-as-trading-hits-record.html
  7. http://www.bloomberg.com/news/2014-11-28/australia-government-suffering-worst-polls-as-abbott-breaks-vows.html
  8. http://www.bloomberg.com/news/2014-11-30/australia-faces-budget-deficits-as-far-as-eye-can-see-deloitte.html
  9. http://www.bloomberg.com/news/2014-12-01/australian-landlords-take-record-debt-as-rent-yields-fall.html
  10. http://www.bloomberg.com/news/2014-12-02/rba-keeps-record-low-rate-to-boost-economy-as-commodities-tumble.html
  11. http://www.bloomberg.com/news/2014-11-27/oil-in-new-era-as-opec-refuses-to-yield-to-u-s-shale.html
  12. http://www.bloomberg.com/news/2014-12-03/sub-50-oil-surfaces-in-north-dakota-as-regional-discounts-swell.html
  13. http://www.ft.com/intl/cms/s/0/189f21d8-7737-11e4-a082-00144feabdc0.html#axzz3Kesws3Ua
  14. http://econintersect.com/a/blogs/blog1.php/worlds-in-motion
  15. http://econintersect.com/a/blogs/blog1.php/deathly-hallows
  16. http://econintersect.com/a/blogs/blog1.php/worlds-in-motion
  17. http://www.bloomberg.com/news/2014-11-28/the-trader-s-grin-that-tells-you-volatility-is-back-currencies.html
  18. http://www.bloomberg.com/news/2014-11-28/italian-unemployment-rises-to-record-above-economists-estimate.html
  19. http://www.bloomberg.com/news/2014-11-27/german-jobless-rate-at-record-low-as-confidence-improves.html
  20. http://business.asiaone.com/news/eu-gives-france-italy-last-chance-fix-budgets
  21. http://www.nasdaq.com/article/weidmann-criticizes-eu-for-leeway-on-budget-plans-20141202-01126
  22. http://www.bloomberg.com/news/2014-12-02/1-200-years-of-history-can-t-make-germans-trust-hollande.html
  23. http://www.bloomberg.com/news/2014-12-02/french-envoys-press-germany-for-spending-to-aid-europe.html
  24. http://www.ft.com/intl/cms/s/0/1423a226-7bc1-11e4-b6ab-00144feabdc0.html#axzz3L3CQ0Gu0
  25. http://www.nakedcapitalism.com/2014/12/some-mainstream-italian-parties-now-advocating-euro-exit.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29
  26. http://www.bloomberg.com/news/2014-11-28/italian-unemployment-rises-to-record-above-economists-estimate.html
  27. http://www.markit.com/Commentary/Get/01122014-Economics-Italian-manufacturing-in-renewed-downturn?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MarkitPMIsAndEconomicData+%28Markit+PMIs+and+Economic+Data%29
  28. http://www.bloomberg.com/news/2014-11-30/greece-said-to-weigh-imf-role-in-credit-line-in-samaras-reversal.html
  29. http://www.bloomberg.com/news/2014-12-03/samaras-calls-on-greeks-to-resist-syriza-s-siren-song.html
  30. http://in.reuters.com/article/2014/12/05/ecb-rates-idINKCN0JI2D520141205?type=economicNews
  31. http://www.bloomberg.com/news/2014-11-30/german-opposition-at-ecb-hardens-as-lautenschlaeger-rebuffs-qe.html
  32. http://www.bloomberg.com/news/2014-11-29/central-banks-are-reaching-end-of-road-dijsselbloem-says.html
  33. http://www.bloomberg.com/news/2014-11-30/sarkozy-party-leadership-win-sets-stage-for-long-rebuilding-task.html
  34. http://uk.reuters.com/article/2014/12/03/uk-usa-treasury-idUKKCN0JH1R320141203
  35. http://www.bloomberg.com/news/2014-12-04/merkel-officials-said-to-snub-sarkozy-speech-to-cdu-party.html
  36. http://www.nytimes.com/2014/12/05/business/international/ecb-rate-announcement-draghi.html?_r=0
  37. http://www.bloomberg.com/news/2014-12-05/ecb-cools-off-for-seven-weeks-as-draghi-builds-support-for-qe.html
  38. http://econintersect.com/a/blogs/blog1.php/lame-ducks-1
  39. http://www.reuters.com/article/2014/12/01/usa-fed-fischer-idUSL2N0TL1FJ20141201
  40. http://www.bloomberg.com/news/2014-12-03/fed-officials-stress-data-over-dates-as-rate-rise-case-builds.html
  41. http://www.bloomberg.com/news/2014-12-01/fed-s-dudley-says-oil-decline-will-strengthen-economic-recovery.html
  42. http://www.bloomberg.com/news/2014-12-03/osborne-to-finish-paying-off-u-k-s-century-old-wwi-debts.html
  43. http://www.bloomberg.com/news/2014-11-30/osborne-pledges-2-billion-pounds-to-boost-u-k-health-service.html
  44. http://www.ft.com/intl/cms/s/0/c017b850-74ab-11e4-8321-00144feabdc0.html#axzz3Kesws3Ua
  45. http://www.bbc.co.uk/news/uk-england-oxfordshire-30290505
  46. http://www.businessgreen.com/bg/analysis/2384256/autumn-statement-campaigners-warn-gbp23bn-flooding-pledge-will-fail-to-protect-uk-from-climate-change
  47. http://www.manchestereveningnews.co.uk/news/greater-manchester-news/george-osborne-hacienda-raver-its-8229910
  48. http://www.theguardian.com/politics/2014/dec/04/george-osborne-autumn-statement-fiscal-studies-cuts?CMP=EMCNEWEML6619I2
  49. http://econintersect.com/wordpress/?p=47488&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+GlobalEconomicIntersection+%28Global+Economic+Intersection+Analysis+Blog%29
  50. http://online.wsj.com/articles/putin-says-russia-will-abandon-south-stream-pipeline-1417461666
  51. http://www.jpost.com/Israel-News/Politics-And-Diplomacy/Election-definite-after-PM-nixes-last-minute-coalition-fix-383833
  52. http://www.bloomberg.com/news/2014-12-04/israel-pushing-for-eu-to-invest-in-gas-pipeline-through-cyprus.html
  53. http://www.bloomberg.com/news/2014-12-02/iraq-reaches-deal-with-kurdish-region-on-kirkuk-crude-exports.html
  54. http://www.bbc.co.uk/news/world-middle-east-30304723
  55. http://www.bloomberg.com/news/2014-12-02/u-s-rebuffs-turkish-pressure-for-no-fly-zone-along-syria-border.html
  56. http://www.businessinsider.com/russia-established-arctic-military-command-2014-12?nr_email_referer=1&utm_source=Sailthru&utm_medium=email&utm_term=Business%20Insider%20Select&utm_campaign=BI%20Select%20Mondays%202014-12-01&utm_content=BISelect&IR=T
  57. http://www.stripes.com/news/europe/nato-afghanistan-launch-post-combat-mission-1.316851

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