Don’t Think, F-e-e-e-el

Age of Wisdom, Age of Foolishness (29)

Written by Adam Whitehead, KeySignals.com

“Don’t think. FEEEEEEEEL! It’s like a finger pointing at the moon.
Do not concentrate on the finger or you will miss all of the heavenly glory!
Never take your eyes off your opponent… even when you’re bowing!”
                                                   – Bruce Lee: Enter the Dragon.

Age of Wisdom, Age of Foolishness (18) “Beyond the Pale”^[i] set the datum, for the current period of geopolitical instability, at the infamous “Twitterpic” of Prime Minister Netanyahu and Chancellor Merkel. Observers concentrated on the “finger” and not the “heavenly glory” that it was pointing at. The “heavenly glory” has since become evident in the declaration of the “Single Jewish State”^[ii] and the related events^[iii] unfolding in Ukraine. Before combat begins, Prime Minister Netanyahu bows gracefully to his opponents. The bow disorientates his opponents; and appears to also disconnect him from the cause of the current geopolitical crisis which he will eventually be compelled to become involved in. This used to be known as plausible denial.

“Bloomberg Enters the Dragon”
Netanyahu Says Obama Got Syria Right

Using the agency of a well-choreographed/edited Bloomberg Q&A^[iv], with a tame neophyte reporter, Netanyahu praised Obama for making the “right” choice on Syrian chemical weapons and not crossing the “red line”. Napoleon advised to never interrupt an opponent who is making a mistake. “Napoleonyahu” then listed his credentials for trying sincerely to make a “Two State Solution” work, before being forced to go down the “Single State” route because of Palestinian duplicity with the creation of “Hamastan”.  On Iran, he clearly sets out his position:

‘The Americans say, “We will not let Iran have nuclear weapons.”We say we should not let Iran have the capability to produce nuclear weapons’. [our emphasis]

There are only five words in difference between the American and Israeli position on Iran. Presumably the “have the capability to produce” insertion will appear on the teleprompter of the American 2016 Presidential hopefuls in due course. The subtle difference in the semantics (but clear difference in political implications) is already vague enough, in the minds of the average war weary austerity fatigued American, for this clever bit of casuistry to be achieved with minimal effort. Observers who look at the “finger” will have missed the “heavenly glory”, in which the world’s great powers have been put back on a “Cold War” escalation schedule; which runs confluent with the Israeli agenda. Any connection between the ultimate outcome and Prime Minister Netanyahu’s recent actions, has been neatly disclaimed in the public domain, for the official record by Bloomberg.

“The Horror”

Age of Wisdom, Age of Foolishness (22) “Jeux Sans Frontieres”^[v] introduced the unfolding global conflict in relation to Africa. It was a gloomy prognosis for all those Emerging Market investors, looking for Alpha on the next Frontier bull market. This ugly prognosis was confirmed by the case of the “Two Hundred” in Age of Wisdom, Age of Foolishness (28) “The Numbers Game”. Last week, “Safari Club” Chairman William Hague formalised the involvement of Africa in the larger global crisis at a summit in Paris, ostensibly convened to coordinate resistance to Boko Haram^[vi]. The countries of Chad, Niger and Cameroon now find that they have been pulled into the heart of darkness emanating from Nigeria.

David Cameron originally opined that the scale of the geographical problem, in relation to search and rescue of the “Two Hundred”, was something “the size of Wales”. The Paris summit has now increased the scale and scope to that of a continent. The dust has also been blown off the mandate of the African Development Bank (AfDB), in light of the new political developments on the ground; and also as a tool to combat the pervasive Chinese influence in the continent. The capital and the profile of the AfDB will now be raised, in order for it to support the new mission on the continent^[vii].

It is just as well that the AfDB is raising its profile, because private lenders are starting to scale back, having seen the growing winds of war rather than of change blowing through the continent^[viii]. These winds blow a heavy risk premium, which makes the price of natural resource assets egregiously cheap. Occasionally these winds may temporarily halt production of said assets; which brings another income stream for related Private Military Contractors (PMC’s) to go in and blow away the threats.

“The Winds of Change Blowing on Two Continents”

By strange coincidence the former head of Academi f.k.a Xe, which was visible through the Ukrainian fog of war in Age of Wisdom, Age of Foolishness (28) “The # Numbers Game”, is a good example of how profitable these mutually sustaining winds of change can be. Eric Prince is now the head of Frontier Resources, a company which has the mission to seek out the conflict risk premium in natural resource assets. Recently the headwind of change in South Sudan temporarily halted development of its oil producing assets^[ix]. This headwind has however provided a tailwind for the likes of Academi to earn income by restoring order. These African winds of change are win-win.

“ A Farce for Impeachment”

The campaign to impeach Hillary Clinton, identified in Age of Wisdom, Age of Foolishness (27) “Phase Two”^[x], gathered momentum last week. It was observed that:

“It’s a dirty business and it is going to get a lot dirtier. The dirt on Hillary Clinton will be piling up thick and fast in John Boehner’s new ‘Select Committee’ on the Benghazi Attack of 2012^[xi]. This was not Clinton’s finest hour; and there are some within the GOP who intend to make the mud stick in an impeachable way.”

The line of attack is now being directed at Clinton’s less than finest hour in the Behghazi Attack of 2012. Dick Cheney joined the impeachment bandwagon^[xii]; and ominously opined that –

“It’s a major issue…. I don’t think we’ve heard the last of it yet.”

The name Clinton is again destined to be associated with impeachment in the eyes of voters. Cheney also used this opportunity to beat the war drum; and to berate President Obama for cowardice in the face of America’s enemies in Syria and Ukraine.

“Déjà vu all over again”
Hit the road Barack August 20th 2012

Professor Niall Ferguson has also started to turn up the invective again. Ferguson’s previous geopolitical outburst^[xiii] in 2012, crudely caricatured the President as the cool, blind and drug-addicted Ray Charles. Ferguson’s criticism was timed and structured to undermine President Obama’s re-election. The caricature was represented under the strapline “End the Syria Slaughter Now!”

Ferguson was an adviser to Senator McCain’s presidential challenge; and McCain’s presidential challenge was supported by Rothschilds^[xiv], the family whom Ferguson “biographed”^[xv].  In 2011 the family set up the Atlantic Partnership^[xvi] think tank, as an umbrella organisation which supported McCain and his political ideology. Senator McCain is a Patron^[xvii] of the Atlantic Partnership; and Ferguson is a Panelist^[xviii] as is George Osborne.

Former Defence Secretary Cohen, whom we met in Age of Wisdom, Age of Foolishness (24) “The Short Good Friday”^[xix] opining that Iran had been given the green light to develop nuclear weapons by the double dealing in Ukraine, is a Chairman^[xx] of the Atlantic Partnership. It is ironic, but perhaps not a coincidence, that Ferguson’s original critique was headlined on the front page by a Syrian crisis strapline. At the time Ferguson said:

“For me the president’s greatest failure has been not to think through the implications of these challenges to American power…… Believing it was his role to repudiate neoconservatism, Obama completely missed the revolutionary wave of Middle Eastern democracy—precisely the wave the neocons had hoped to trigger with the overthrow of Saddam Hussein in Iraq….”

“Read ‘em and weep”

His latest attack was made at an investor conference held by Altegris^[xxi]. Tailoring his message to suit his audience, he opined that the American “Geopolitical Taper” is the greatest Black Swan event facing global markets^[xxii]. According to his thesis, as America pulls back from being the “Global Cop”, the world will go into a state of violent chaos. Ferguson uses 2014 as the datum, to go back in time to 1914 when Great Britain “Geopolitically Tapered” and then global chaos reigned for the rest of the century. Specifically, he then lists the current policy failures. Of the unfolding African crisis he says:

“Tweeting a hashtag by the first lady from the White House: Is that our response to this threat?”

In relation to Ukraine, he alleges that the U.S. has “many, many military options short of war.” It would be interesting to know what exactly they are; and which, if any of these “many, many military options” won’t lead to a war if Russia responds to them in the wrong way. He concludes with his own bombshell that conflict between Japan and China is the greatest risk in Asia, if America does not get more deeply involved.

“Fellow Travellers”

The behaviour of Japan, in seeking closer ties with new Indian Prime Minister Modi, suggests that Ferguson is onto something. The intense nationalism of Modi and Abe have been noted by many observers; and the two have been closely compared to each other^[xxiii].  India and Japan are traditional historic enemies of China; so the latest alliance will be a cause for concern in China.

Ferguson does not elaborate in detail about the desired policy response from America; however it must by default be the antithesis of the “Geopolitical Taper”; which must therefore be a “Geopolitical Stimulus”. Going forward, it will be instructive to observe the positioning of the Atlantic Partnership and its members in the 2016 US Presidential campaign. Presumably, the investment community will be fully invested in a “Geopolitical Stimulus” long only portfolio; and will also be supporting Presidential candidates who reward this investment portfolio with their campaign contributions.

The “Geopolitical Stimulus” is already leaving a footprint in the Senate. Republicans and their energy industry sponsors have already begun rolling back the subsidies for clean energy^[xxiv]. The economic stimulus must therefore be coming in the form of exploration and defence of hydrocarbons.

The “Geopolitical Stimulus” footprint at the Fed is indelible. Having shouted down her critics who see inflation^[xxv] and banishing Jeremy Stein^[xxvi], who showed her where it’s hiding, Yellen has now embarked on her next objective; which is to move the goalposts on unemployment. She intends to broaden the definition of unemployment to include the underprivileged and disadvantaged^[xxvii] members of society, who thus far have not participated in job creation. Indeed, such marginal individuals never traditionally find employment until the economy is booming; and labour shortages allow more skilled workers to find their metier and salary expectations, vacating the poorly paid jobs for the disadvantaged. Such conditions occurred at the height of the last Credit Bubble, so presumably this is where Yellen will now take the economy on her watch.

“Mind the Gap Janet!”

A red light, which Yellen will no doubt drive through, is already flashing on the employment creation dashboard. Americans with “some” education are starting to see more job openings; and their wages are rising^[xxviii], even though these pay rises still trail far behind the price rises of goods and services. This is the cohort that is currently occupying the jobs niche that Yellen’s disadvantaged will move into when the next boom occurs.

Russia has chosen to focus on the shenanigans in Ukraine as the American “Geopolitical Stimulus” rather than America’s alleged “Geopolitical Taper”. Prime Minister Medvedev sees this “Geopolitical Stimulus” stimulating a new Cold War^[xxix]. The Western media is starting to find out that all is not as it seems in Ukraine also. Paris Match reported that an ultra-nationalist group named Pravy Sektor (“Right Sector”) was responsible for the deaths of pro-Russian separatists in Krasnoarmeysk^[xxx].

“The Farce is With Him”

On a more humorous note, in a parody of the external forces involved in Ukraine, the Internet Party has chosen to field “Darth Vader”^[xxxi] in the upcoming Presidential elections. The Sith Lord has all the political attributes required to make a great Ukrainian head of state. Clearly, members of the Internet Party understand that the people of Ukraine are galactic pawns in the hands of darker external forces.

China, despite President’s Xi’s denials that this latest regional proposal is not a Cold War anachronism, is promoting an exclusive Asian Security Forum which will exclude America^[xxxii]. Immediately after this Cold War denial, Russia and China vetoed the UN proposal to refer Syrian cases to the war crimes tribunal, in a move that was a pure throwback to the Cold War^[xxxiii]. Their pretext was that this vote was just code for regime change, as was seen in Iraq. To be fair, they have a point.

The glue which binds President Xi’s proposed forum together is economic; and is underpinned by the vast hydrocarbon reserves in Eurasia. Russia and China have got this forum off on a firm footing, by finally agreeing on a $400 Billion gas supply deal^[xxxiv]. Presumably Eurasian Oil and Gas will be priced in something other than US Dollars, so that US Dollar hegemony is also excluded and eventually challenged.

Western interest in Eurasia is predicated on energy, concealed beneath the headline of combating terrorist threats. Faced with this challenge to the US Dollar and American interest in Eurasia, one finds it hard to believe that there will be any deal between P5+1 Iran; and that conflicts in this region will also begin to flare up as we approach the American Presidential elections. Russia and China presumably want Iran in the Asian Security Forum tent, the American Neocons want war with Iran; and Israel would like it excluded from the P5 + 1 Nuclear Agreement tent. With such a powerful confluence of contrary interests, a failure between P5 +1 and Iran has to be the highest probability outcome.

“Pass Go, Collect Some More QE”

The latest roll of the dice in economic rent seeking behaviour by American CEO’s, identified in Age of Wisdom, Age of Foolishness (26) “Milking It For All It’s Worth”^[xxxv],  was made by AT&T; with its bid to acquire a stake in the lucrative pay TV sector, through its proposed acquisition of DirecTV^[xxxvi]. The deal is split between $28.50 in cash and the equivalent of $66.50 in stock; showing that AT&T is trying to capitalise on the inflated value of its shares as acquisition currency, rather than having to come up with more cash.

[Verizon + Dish]? = [Comcast + Time Warner] = [AT&T + DirecTV]

In the rush^[xxxvii] to bulk up on economic rent from subscribers, Verizon and Dish standing alone come up short; which suggests that if they are not talking about merging already they shortly will be. Warren Buffett’s recent acquisition of a stake in Verizon^[xxxviii] not only suggests that he sees economic rent potential, but also M&A activity. At his last shareholder meeting, he opined^[xxxix] the merits of acquisitions, as a way for his own scale of investing activities to grow significantly.

“PIIGS Get Slaughtered”
“Bulls Make Money, Bears Make Money and ‘PIIGS’ Get Slaughtered”

Age of Wisdom, Age of Foolishness (28) “The Numbers Game”, suggested that the PIIGS would now start to use their improving credit ratings and exits from bailout programmes as leverage with Germany and the EU. Spain is now pushing this envelope to the limit, by trying to use its primary surplus as a source of funds to boost bank capital adequacy^[xl].

As political pressure mounts against the austerity, which created the primary surpluses that has provided the bargaining chip^[xli], the weaker economies seem to think that they can negotiate from a position of financial strength. Smart investors have decided that this situation is absurd and have started to exit risk in the peripheral nations, well in advance of the European elections and Zelig’s massively telegraphed underwhelming upcoming ECB policy change.

It has been better to travel than it is to now arrive. Germany however is faced with weakening growth and tightness in energy supplies from Russia; so it has little choice other than to let its neighbours off the hook, as long as they don’t ask for German taxpayers’ money or legally appear to be monetising national deficits. Ultimately, Zelig will have to overwhelm both his German and Peripheral audience; which will pay-off handsomely for those with stronger hands than the current travellers who are getting off the European gravy train. The Bundesbank is clearly perturbed at the outcome in which Zelig finally delivers. Its latest communique warned of the inherent risks in European peripheral markets^[xlii], despite the veneer of low interest rates created by the ECB. Jens Weidmann endorsed these worries^[xliii], when he recently tried to scale back market expectations for a significant act by the ECB in Zelig’s telegraphed June meeting signal.

References

1. Beyond the Pale
2. Netanyahu pushes to define Israel as nation state of Jewish people only
3. Phase Two
4. Netanyahu Says Obama Got Syria Right
5. Jeux Sans Frontieres
6. Paris summit to boost search for Nigerian schoolgirls held by Boko Haram
7. African Development Bank Raises Funding as China Boosts Role
8. African Conflict Threatening to Curb Investment, Lenders Say
9. South Sudan Chaos Halts Ex-Blackwater CEO’s Refinery Plan
10. Phase Two
11. Behind the Benghazi select committee
12. Clinton Bears Responsibility Over Benghazi, Cheney Says
13. Niall Ferguson on Why Barack Obama Needs to Go
14. McCain accused of accepting improper donations from Rothschilds
15. The House of Rothschild: Volume 1: Money’s Prophets: 1798-1848
16. Atlantic Partnership
17. AP People – Atlantic Partnership
18. AP Panelists – Atlantic Partnership
19. The Short Good Friday
20. AP People – Atlantic Partnership
21. Niall Ferguson: The Black Swan Investors Should Fear
22. Niall Ferguson: The Black Swan Investors Should Fear
23. Is Modi India’s Shinzo Abe?
24. Senate Blocks $85 Billion Tax Cut Bill Because It Would Have Helped Wind Energy
25. Yellen Wage Signals Showing Slack May Be Missing Cost Speedup
26. Fed Stein: Reserves Not Inflation Threat If Hike Rates Enough
27. Yellen Adds Disadvantaged to Full-Employment Definition
28. Lower-Rung U.S. Workers Get Leg Up in Bankers’ View: Economy
29. New Cold War May Emerge in Ukraine Crisis, Medvedev Says
30. Revelations on the Krasnoarmeysk killing
31. The Farce Is With Darth Vader in Ukraine
32. China’s Xi Calls for Asia Security Framework at Summit
33. Russia and China veto UN move to refer Syria to international criminal court
34. Russia, China Sign $400 Billion Gas Deal After Decade of Talks
35. Milking It For All It’s Worth
36. AT&T Joins U.S. TV Revamp With $48.5 Billion DirecTV Deal
37. How The TV Industry Is Going To Change If Two Mega-Mergers Go Through
38. Buffett’s Berkshire Discloses $528.7 Million Verizon Bet
39. Buffett Phase Two Means Seeking Deals More Enduring Than Stocks
40. EU Said to Question Spain’s Tax Plan to Bolster Banking Capital
41. “Bulls Make Money, Bears Make Money and ‘PIIGS’ Get Slaughtered”
42. Bundesbank Warns Market Calm Hides Risks in Yield Search
43. Weidmann says not clear yet whether ECB will act in June -paper