Thursday, June 26, 2014

Today's Links

1--When QE ends, stocks will fall, marketanthropology

...we believe current market conditions will at the very least place a governor on the impetus for rising long-term yields despite the fact that inflation is starting to pulse strongly through the system. ...

In an effort to keep interest rates low during and directly following WWII and avoid another chapter of the near-view Great Depression, the Fed purchased all available short-term US Treasuries and virtually all long-term US Treasuries from the market starting in April of 1942. When all was said and done, the US had a debt to GDP ratio that was almost 20% larger than where it currently resides today.

In Milton Friedman and Anna Schwartz's A Monetary History of the United States 1867-1960, the market climate in the 40's is described as being so sensitive and suspect of the Fed and Treasury's very visible hand, that the entire equity market rally (150+%) from the April 1942 low through the cyclical high in 1946 was viewed with great skepticism and likely to end with another pronounced economic contraction. The fresh scars of the Great Depression provided abundant fear for market participants of a possible revival of kindred economic instabilities, despite the countervailing strength of the equity markets that continued to rally more than 20% even through the recession in 1945. 

What happened in 1946 when the Fed and Treasury stepped away from their extraordinary support of the Treasury markets? Similar to the air pockets experienced with the Fed pauses in QE I and QE II, the equity markets swiftly revalued expectations. From our perspective a similar fate awaits the current equity market rally, which in turn should continue to support the Treasury market - despite rising inflation expectations and the calls by many that the Fed will begin raising rates as early as next year. 

2--ISIS Iraq Offensive: Can the Empire Reassert Control of the Jihadists?, Black Agenda Report

The jihadists cannot be controlled by their imperial enablers – as the U.S. ambassador to Libya learned, in his last moments – not reliably, in the short term, and not at all in the long term. The contradictions of the relationship are now acute, the unraveling has begun, and the U.S. has no substitute for the services the jihadists provided to Empire.

So, yes, the ISIS-led offensive in Iraq is a horrific crisis for the peoples of the region, another descent into Hell. But it is also a crisis for U.S. imperialism, whose options diminish by the day.

3---Turkmenistan, Afghanistan, Pakistan, India gas pipeline (TAPI): - afghan news

Turkmenistan is one of the rich Central Asian States in terms of natural gas reservoirs. In 1989, Turkmenistan offered extension of its natural gas to the Asia market via Afghanistan, Pakistan and subsequently to India. The Unocal cooperation situated in California, working in extraction of oil and gas in other parts of the world also hinted at investment in the project. Back in 1991- 1994 during the Taliban regime, the company invested $1million for conducting the survey but it could not get the support for the project from then harliners’ regime. Those sorts of development led the TAPI project to hit a snag. - ...

The project was further strengthened after the signing of a landmark agreement by the four countries back in 2010.
The agreement said around 33 billion metric tons of gas would be extended to the members’ states annually out of which Afghanistan would get 16% share while Pakistan and India 42% respectively.
It was also decided to invite brilliant companies to initiate work on the much-delayed pipeline and to complete within three years but things could not be taken forward as per agreed plans.
In recent days, officials concerned from Afghanistan, Turkmenistan, Pakistan and India met in Ashgabat, the capital of Turkmenistan, to discuss the launch of the pipeline in the 2014 and complete it by the end of 2016....

4--The Pipeline That Could Keep the Peace in Afghanistan, WSJ

The White House should understand that if TAPI isn't built, neither U.S. nor U.N. sanctions will prevent Pakistan from building a pipeline from Iran. This supposedly "shovel ready" project will enrich Tehran and greatly enhance Iran's voice in Afghanistan and the region. If Washington drops the ball on TAPI, China, India or Russia will be tempted to take it up. That will generate tensions among these often competing nuclear powers and leave the U.S. on the sidelines. Russia has already begun pressing India to make it a partner in TAPI.
Strong U.S. support for TAPI is essential. President Obama's meeting this week with Pakistani Prime Minister Nawaz Sharif is a good place to begin. Other opportunities must be seized or created to move TAPI swiftly forward. Only in this way will peace and prosperity come to a region too long embroiled in conflict
One of the most ambitious and frustrating geopolitical projects on the planet is now within reach—if the U.S. leads in its development. The project is TAPI, a proposed gas pipeline from Turkmenistan through Afghanistan, Pakistan and India. The stakes are high. When U.S. forces withdraw from Afghanistan in 2014, the pipeline and the cooperation needed to maintain it may be the best hope for regional stability.

The future success of Afghanistan, and relations among Pakistan, Afghanistan, India and the U.S., are just the beginning of potential benefits. Without the pipeline, Iran will be able to manipulate its neighbors more. America's ability to balance the growing influence of China and Russia in Central Asia and Afghanistan, and U.S. credibility throughout the region, also may depend on TAPI's completion....

Here's where the U.S. comes in. In recent years, both Chevron and Exxon-Mobil have expressed interest in TAPI. But there is a sticking point. Turkmenistan says it won't sign an agreement on TAPI until the U.S. government indicates that it is firmly behind the project. Two years ago, Turkmenistan President Gurbanguly Berdimuhamedow received a letter backing Chevron's project from then-Secretary of State Hillary Clinton. But he knew that there had been not a word of support from the National Security Council or White House, let alone the U.S. president. This led to suspicions in Ashgabat that Mr. Obama was hanging back.....

6--Pipedreams---Pepe Escobar notes: WA Blog
Under newly elected president George W Bush… Unocal snuck back into the game and, as early as January 2001, was cozying up to the Taliban yet again, this time supported by a star-studded governmental cast of characters, including undersecretary of state Richard Armitage, himself a former Unocal lobbyist.
Negotiations eventually broke down because of those pesky transit fees the Taliban demanded. Beware the Empire’s fury. At a Group of Eight summit meeting in Genoa in July 2001, Western diplomats indicated that the Bush administration had decided to take the Taliban down before year’s end. (Pakistani diplomats in Islamabad would later confirm this to me.) The attacks of September 11, 2001 just slightly accelerated the schedule.
Soon after the start of the Afghan war, Karzai became president (while Le Monde reported that Karzai was a Unocal consultant, it is possible that it was a mix-up with the Unocal consultant and neocon who got Karzai elected, Zalmay Khalilzad). In any event, a mere year later, a U.S.-friendly Afghani regime signed onto TAPI.

Competing Pipe Dreams

Virtually all of the current global geopolitical tension is based upon whose vision of the “New Silk Road” will control....

Indeed, the “Great Game” being played right now by the world powers largely boils down to the United States and Russia fighting for control over Eurasian oil and gas resources:
Russia and the USA have been in a state of competition in this region, ever since the former Soviet Union split up, and Russia is adamant on keeping the Americans out of its Central Asian backyard. Russia aims to increase European gas dominance on its resources whereas the US wants the European Union (EU) to diversify its energy supply, primarily away from Russian dominance. There are already around three major Russian pipelines that are supplying energy to Europe and Russia has planned two new pipelines.
The rising power China is also getting into this Great Game:

TrimTabs Investment Research reported today that announced stock buybacks have slowed to $92.7 billion in the second quarter, down from $138.5 billion in the first quarter.
Stock buyback announcements in the second quarter are on track to be the lowest in seven quarters,” said David Santschi, Chief Executive Officer of TrimTabs.  “Buybacks in June have sunk to just $11.5 billion, the lowest level since May 2012.”

In a research note, TrimTabs noted that the decline in share repurchase announcements began in May, when they fell to $24.8 billion, and has persisted into June.  Only four companies have announced buybacks of at least $1 billion so far this month.
“The sharp slowdown in buybacks is a negative sign for the U.S. stock market,” Santschi said.  “Share repurchases are the main way companies reduce the float of shares.  Perhaps fewer companies like what they see when they look into the future.”

“This project, which has been in the planning stages for several years, consists in creating an arc of instability, chaos, and violence extending from Lebanon, Palestine, and Syria to Iraq, the Persian Gulf, Iran, and the borders of NATO-garrisoned Afghanistan.
The ‘New Middle East’ project was introduced publicly by Washington and Tel Aviv with the expectation that Lebanon would be the pressure point for realigning the whole Middle East and thereby unleashing the forces of “constructive chaos.” This “constructive chaos” –which generates conditions of violence and warfare throughout the region– would in turn be used so that the United States, Britain, and Israel could redraw the map of the Middle East in accordance with their geo-strategic needs and objectives. …
The redrawing and partition of the Middle East from the Eastern Mediterranean shores of Lebanon and Syria to Anatolia (Asia Minor), Arabia, the Persian Gulf, and the Iranian Plateau responds to broad economic, strategic and military objectives, which are part of a longstanding Anglo-American and Israeli agenda in the region…
A wider war in the Middle East could result in redrawn borders that are strategically advantageous to Anglo-American interests and Israel…

Attempts at intentionally creating animosity between the different ethno-cultural and religious groups of the Middle East have been systematic. In fact, they are part of a carefully designed covert intelligence agenda.

Even more ominous, many Middle Eastern governments, such as that of Saudi Arabia, are assisting Washington in fomenting divisions between Middle Eastern populations. The ultimate objective is to weaken the resistance movement against foreign occupation through a “divide and conquer strategy” which serves Anglo-American and Israeli interests in the broader region.” (Mahdi Darius Nazemroaya, Plans for Redrawing the Middle East: The Project for a “New Middle East”, November 2006)
7--Chart o’ the day: Dividends and Buybacks Jump to new All-time High, prag cap

8--Chart O’ the Day: Round Trippin’ it, prag cap
.  Just a chart of the volatility index.  Right back to where we were before the crisis occurred and fast approaching the all-time lows

9--GDP Hits Air Pocket: Recession Warning or False Alarm?, naked capitalism

Particularly disturbing in this revision was the downgrade in consumer spending. The American shopper was supposed to be the bright spot in this recovery, reliably trudging to the malls and filling their online shopping carts despite government shutdowns and wintry snowstorms. Consumer spending jumped 3.3 percent at the end of last year, and the data initially showed a similarly strong increase during the first quarter. Wednesday’s release showed the cracks in that pillar.

10--NYSE Margin debt falls in April for 2nd straight month, Reuters

11--Terrible Recovery, House of Debt

Real GDP growth for 2014q1 was revised downward today to -3.0% on an annualized basis. Yes, our reading of Table 1.1.3 of NIPA shows -3.0%, not -2.9%.
Here is real GDP indexed to the quarter before each recession for all 10 recessions since 1950, taking into account this morning’s revision. Notice the significant bend downward in the last quarter for the 2007-2009 recession (solid red line). It makes the recent recovery look even  worse relative to previous recoveries.
Just a terrible recovery. Terrible.

There is no direct relationship between the tax cuts Mr. Cochrane has supported and the cuts in discretionary spending that Congress and President Obama agreed to. The cuts came about because of a commitment to hit arbitrary deficit targets. Given the vast amount of unemployment and underemployment in the economy, there is no reason to be reducing the deficit. There is no reason that we could not have both maintained higher levels of discretionary spending and left the tax cuts in place.
It is important to be clear on this issue since the public needs to know that the main factor slowing growth and keeping millions of people out of work is simply a perverse cult of low deficits, not the need to raise taxes on anyone.

14--US economic output tumbled by 2.9 percent in the first quarter, wsws

A further drag on economic growth was a collapse in investment, which fell by 11.7 percent compared to the previous estimate of a 6.1 percent fall. Even as corporations are sitting on massive cash hoards or initiating stock buybacks to inflate the wealth of their shareholders, they are generally refusing to invest in production.

According to a separate report released Wednesday, US orders for durable goods—products designed to last more than three years, such as cars and refrigerators—tumbled one percent last month. The figure was the first decline in four months and was significantly worse than expected by economists...

Speaking last week, Fed Chair Janet Yellen reiterated that the Federal Reserve would keep its benchmark federal funds rate near zero “for a considerable time,” guaranteeing that the flow of virtually free credit to the banks would continue. The Fed has held its federal funds rate at near zero since December 2008.
This influx of free cash is fueling a huge asset bubble, with stock markets hitting record levels day after day despite the near-moribund state of the economy. The increasingly speculative character of Wall Street’s activities was reflected in a report published Wednesday by the Office of the Comptroller of Currency (OCC), which warned that “credit risk is building in supervised national banks and federal savings associations,” and that “easing in underwriting and increased risk layering is also occurring in commercial loans.”
The so-called economic “recovery” is, in fact, a vast redistribution of wealth from the great majority of the population to the super-rich, whose wealth has more than doubled since 2009..

15---The fiasco of Kerry’s Middle East tour, wsws

Kerry’s tour only deepened the debacle created by US policy in Iraq. In the course of the trip, he made the most astounding statement at a news conference in Cairo, declaring, “The United States of America is not responsible for what happened in Libya, nor is it responsible for what is happening in Iraq today.” He went on to add, “The United States shed blood and worked hard for years for the Iraqis to have their own governance.”

What arrogance and hypocrisy! Not only is US imperialism responsible for the crises in Iraq and Libya (not to mention Syria), the crimes it has carried out in each of these countries have come together to create the current Iraqi disaster.

In Iraq, the full force of the US military was unleashed to decimate an entire society, destroying every institution and the country’s entire infrastructure, while claiming the lives of over one million people. Employing a strategy of divide and rule, Washington deliberately implanted a system of sectarian politics to extinguish Iraqi nationalism, thereby unleashing the bitter sectarian civil war that is now reigniting.

In Libya and Syria, Washington armed and funded Islamist militias, including ISIS, as shock troops in sectarian civil wars for regime-change that again claimed hundreds of thousands of lives. Now, ISIS, which the US and its reactionary allies in Turkey, Saudi Arabia and the Gulf monarchies have backed against the regime of Bashar al-Assad, have crossed the border into Iraq, turning a war fanned by US imperialism into a regional conflagration. On the Syrian side of the border, Washington denounces the existing government for military strikes against ISIS, while on the Iraqi side it is desperately attempting to organize government forces to defeat ISIS.

14---Did the federal reserve’s taper slow housing and cause a new recession? , oc housing

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