Sunday, September 20, 2015

Today's links

1--BofA: peak in liquidity = peak of excess returns = trough in volatility
Deflationary recovery means “growth”, “yield”, “quality” remain structurally bid. We stay long US$, volatility, real estate & stocks>bond, but upside for risk assets now constrained until unambiguous handoff from liquidity to growth.

2--The Russian leadership has decided that Syria is a key guarantor of its interests in the Middle East, and that the Russian-Iranian alliance in Syria is a strategic priority.
Many considerations are behind this thinking. First, Russia is present on the ground to exercise influence, by turning the port in Tartous to a Russian military base, and the civilian airport in Latakia to a Russian air base.

 Another consideration is the oil and gas reserves off the Syrian coast and its implications for Russian oil and gas interests.
There is also the consideration related to restoring Russian prestige, after the United States excluded Russia from Iraq and the war on terrorism there, and after NATO "tricked" Russia in Libya.
Another major consideration for Russia is seeking to prevent Islamists from taking power, as the United States and Britain tried to engineer in Egypt by supporting the Muslim Brotherhood. Russia is seriously worried about Islamist terrorism, and is convinced that its victory in Syria would bring it to Russian soil.
...Russia moved to replace the Geneva process with a new one that does away with the fundamental idea in the Geneva I communique, namely, establishing a transitional governing body with executive powers. For this reason, President Putin spoke about Assad's willingness to share power with the "sound" opposition - as defined by the Russian and Syrian governments....
 Russian President Vladimir Putin tasked his foreign minister Sergei Lavrov to chair a ministerial session of the Security Council titled "Maintenance of International Peace and Security: Settlement of Conflicts in the Middle East and North Africa and Countering the Terrorist Threat in the Region."

 President Putin has effectively declared to the world that Russia intends to fight a war directly against ISIS and similar groups in Syria, while keeping the Syrian regime as a key ally in this war. Russia wants the United States to be a military partner - including of the Syrian regime - in this bid....

The US-led international coalition, which comprises Arab countries, and which has focused on Iraq, does not include Russia and Iran as official members, even through Iran is a secret partner in the war on ISIS in Iraq. This coalition has proven its failure against ISIS, and has failed to factor in the important political elements that are key to success.....

The Russian-Iranian concern for the fate of the Syrian regime led to a shift in a direction opposite to the one predicted by President Obama, who had claimed Moscow and Tehran were willing to abandon Assad to preserve the regime. Both capital have instead decided that discussing Assad's fate is misplaced or premature, and that the developments instead require increasing political and military support for the Assad regime.
President Putin's announcement of this decision and linking it to the war on terrorism ushers in a new phase in the Russian role in Syria. Putin spoke about a regional-international alliance, and is now spoking about an international decision to build a coalition against terrorism. The bottom line is that Russia has decided to fight a war on terrorism in Syria.

 The requirements of the Russian war on terror in Syria, according to the Russian president, include having Moscow in the lead. Putin is practically saying to Obama: You run the war on ISIS in Iraq, and I run the war on ISIS in Syria. This would require Washington to - publicly or tacitly - agree to Russia's strategy to win that war in partnership with the regime.

3--The Beauty of Truth and the Beast of Dogma John P. Hussman, Ph.D., Hussman Funds

The real problem isn’t what the Fed may do, but the ultimately unavoidable consequences of what the Fed has already done. The cost of reckless Fed-induced yield seeking will likely be felt first in the financial markets as previous paper gains evaporate, while defaults on excessive low-quality covenant-lite credit will emerge over the course of the economic cycle, and the impact of malinvestment will be to limit productivity and economic growth over the longer run. This is all rather inevitable except in the eyes of those who haven’t watched and memorized a dozen adaptations of the same movie. ....

investors should remember that the Fed did not tighten in 1929, but instead began cutting interest rates on February 11, 1930 – nearly two and a half years before the market bottomed. The Fed cut rates on January 3, 2001 just as a two-year bear market collapse was starting, and kept cutting all the way down. The Fed cut the federal funds rate on September 18, 2007 – several weeks before the top of the market, and kept cutting all the way down.

“What will matter significantly for investors is the condition of market internals, credit spreads, and other risk-sensitive measures in the event that U.S. economic activity begins to further reflect the downturn that is already evident abroad. It is that evidence of investor risk-preferences that will determine the proper response to any change in Fed policy.”

In short, my view is that activist Fed policy is both ineffective and reckless (and the historical data bears this out), and that the Federal Reserve has pushed the financial markets to a precipice from which no gentle retreat is ultimately likely. Similar precipices, such as 1929 and 2000, and even lesser precipices like 1906, 1937, 1973 and 2007 have always had unfortunate endings (see All Their Eggs in Janet’s Basket for a review). A quarter-point hike will not cause anything. The causes are already baked in the cake. A rate hike may be a trigger with respect to timing, but that’s all. History suggests we should place our attention on valuations and market internals in any event.

Moscow began “quiet support” to the Syrian regime
  • A Russian “stormy support” would follow to regain the initiative on the ground and recovery main cities

  • “Special Elite Russian combat forces arrived to Hama, Aleppo, Homs, Damascus, as well as Zabadani to monitor, participate and study the military map on the field and suggest future workflow Combat plans. These Special Forces submit to the operating room suggestions to determine the full plan to start the flow of further Russian special combat forces and troops on the battlefield all over the Syrian map where it is necessary”......

    Russia is beginning with what we define as a” quiet support ” supplying advanced technology and preparing a spearhead force before reaching a further level we call the” stormy Support “. We expect a large presence of troops that will be supported by Russian Air Force. There are around 2500 Russian fighters, military expert and consultant in Syria. The number is expected to go much higher in the near future “, confirm the source that is in contact with the Russian units on the Syrian ground.
    “There are two aspects for the Russian intervention in Syria: In the first, the front line should be reinforced, maintained and is expected later to recover more lands and lost cities. The second is to hunt and bomb the Islamic State (ISIS) group leaders as well as other extremist groups in Syria, without exception. There are no red lines for the Russian operational tactics against terrorism that may extend to Iraq if necessary. The Kremlin has decided to face and fight terrorism by all means and is determine to eliminate, not to contain, ISIS. The Russians are aware of the necessity of cooperation with the U.S. led coalition over the sky of Syria to prevent unnecessarily accidents “, the source said.

    The senior commander explained, “Israel and the United States are also concerned about the possibility that Hezbollah could benefit from the advanced Russian military equipment pouring into Syria. As far as it concerns us, Damascus and Hezbollah are strategically linked and share the same destiny. Any sophisticated weapon owned by Syria and Iran that an organized but irregular force, like Hezbollah, can use in case of war against Israel is already in our possession. Israel is raising the alarm by saying that its “national security” could be in jeopardy if Hezbollah has this or that technology or could benefit from Russia’s presence to transport more weapons into Lebanon. Russia’s answer is that its own national security is already in jeopardy due to terrorism expansion. Russia is not fighting a battle but a war on terror on Syrian soil and elsewhere and is present in a hostile environment. Russia will pursue and won’t give up upon in this war, in Syria, regardless any possible international pressure to persuade it otherwise”....

    From MoA:

    US/Kerry says Assad must go, timing down to negotiation
    Kerry said the United States welcomed Russia's involvement in tackling the Islamic State in Syria but a worsening refugee crisis underscored the need to find a compromise that could also lead to political change in the country.
    "We need to get to the negotiation. That is what we're looking for and we hope Russia and Iran, and any other countries with influence, will help to bring about that, because that's what is preventing this crisis from ending," said Kerry.
    Kerry said of Assad's removal: "For the last year and a half we have said Assad has to go, but how long and what the modality is ...that's a decision that has to be made in the context of the Geneva process and negotiation."
    Kerry added: "It doesn't have to be on day one or month one ... there is a process by which all the parties have to come together and reach an understanding of how this can best be achieved."
    Posted by: Oui | Sep 20, 2015 5:32:51 AM | 32
    The ‘magic words:’ How a simple phrase enmeshed the U.S. in Syria’s crisis
    After a month of interagency emails, intelligence assessments and legal reviews, the White House settled on a written statement that President Barack Obama would issue on Aug. 18, 2011. There was a preamble hailing the peaceful demonstrators who stood up to the regime’s “ferocious brutality,” and then the money line:
    “For the sake of the Syrian people, the time has come for President Assad to step aside.”

    5--George Galloway on Corbyn

    6--Iran’s President Hassan Rouhani says the solution to the ongoing refugee crisis in Europe lies in "serious" fight against terrorism.
    "The solution to this problem is to seriously fight and counter terrorism," Rouhani said in a meeting with the visiting Dutch Foreign Minister Bert Koenders in the Iranian capital, Tehran, on Sunday....

    “Terrorism should not be viewed as a problem limited to our region; rather it [should be considered as] a global scourge and fighting it requires global determination,” Rouhani said.
    He noted that most challenges in the Middle East have been imposed from outside the region

    7--75 US-trained militants enter Syria via Turkey: Report

    8--Putin announces his unreserved support for national sovereignty, international law and non intervention. He declares his wholehearted opposition to regime change and support of terrorist organizations for geopolitical gain ("anti-constitutional coups and the promotion of radical and extremist forces....")  Did Putin just declare war on the US?

    I am certain that we must resume concrete discussions on creating Euro-Atlantic systems for equitable and indivisible security; we need to carry out a full inventory of existing problems and disagreements. This analysis can be used to achieve a discussion of the principles of sustainable political development. The OSCE and other international organisations can be used to agree on legally binding guarantees concerning the indivisibility of security for all nations, achieve observance of important fundamental principles of international law (respecting the sovereignty of states, not meddling in their domestic affairs), and strengthen regulations on the inadmissibility of appeasing anti-state, anti-constitutional coups and the promotion of radical and extremist forces....

    the situation in Syria and Iraq; they are the same as the situation in Afghanistan, in that they worry all of us. Please allow me to say a few words on the situation in this region, the situation around Syria.
    The state of affairs there is very serious. The so-called Islamic State controls significant stretches of territory in Iraq and Syria. Terrorists are already publicly stating that they have targets set on Mecca, Medina and Jerusalem. Their plans include expanding activities to Europe, Russia, Central and Southeast Asia.
    We are concerned by this, especially since militants undergoing ideological indoctrinations and military training by ISIS come from many nations around the world – including, unfortunately, European nations, the Russian Federation, and many former Soviet republics. And, of course, we are concerned by their possible return to our territories.

    Basic common sense and a sense of responsibility for global and regional security require the international community to join forces against this threat. We need to set aside geopolitical ambitions, leave behind so-called double standards and the policy of direct or indirect use of individual terrorist groups to achieve one’s own opportunistic goals, including changes in undesirable governments and regimes.
    As you know, Russia has proposed rapidly forming a broad coalition to counteract the extremists. It must unite everyone who is prepared to make, or is already making, an input into fighting terrorism, just as Iraq and Syria’s armed forces are doing today. We support the Syrian government – I want to say this – in countering terrorist aggression. We provide and will continue to provide the necessary military technology assistance and urge other nations to join in.

    Clearly, without active participation by the Syrian authorities and military, without participation by the Syrian army, as the soldiers fighting with the Islamic State say, you cannot expel terrorists from this nation, as well as the region overall, it is impossible to protect the multi-ethnic and multi-faith people of Syria from elimination, enslavement and barbarism.
    Of course, it is imperative to think about the political changes in Syria. And we know that President Assad is ready to involve the moderate segment of the opposition, the healthy opposition forces in these processes, in managing the state. But the need to join forces in the fight against terrorism is certainly at the forefront today. Without this, it is impossible to resolve the other urgent and growing problems, including the problem of refugees we are seeing now....

    the support of the legitimate government in Syria is not in any way related to the flow of refugees from nations like Libya, which I already mentioned, Iraq, Yemen, Afghanistan, and many others. We were not the ones that destabilised the situation in those nations, in whole regions of the world. We did not destroy government institutions there, creating power vacuums that were immediately filled by terrorists. So nobody can say that we were the cause of this problem.
    But right now, as I said, we need to focus on joining forces between the Syrian government, the Kurdish militia, the so-called moderate opposition, and nations in the region to fight the threat against Syria’s very statehood and the fight against terrorism – so that together, with our efforts combined, we can solve this problem.

    9--US Syria Strategy Officially Unravels: Kerry Admits Timetable For Assad Exit Is Completely Unknown

    10--Islamic State threat to Russia is real – FSB
    11--Russia is ready to rip

    Russian business newspaper Kommersant cited Israeli military expert Yakov Kedmi, who emphasized that with the creation of a base at Latakia capable of serving as a point of entry for Russian military supplies and equipment, including advanced aviation, "it will now be extremely important to specify the conditions and to coordinate in order to avoid a direct clash between the Israeli and Russian armies, and this is a topic which is best to be discussed at the highest level."

    12-- Putin's statements about Russia's role in the resolution of global conflicts have sounded loud and clear."

    ..Appearing on the podium of the UN on September 28, following a ten-year absence, Vladimir Putin will not be coming empty-handed," Leventhal noted. "He will outline his proposal to resolve the crisis in Syria, including proposals for dialogue between Assad and the so-called 'healthy opposition', that is, the Free Syrian Army and moderate opposition. He will propose the formation of a coalition for the fight against ISIL, but in a form which suits Russia."
    13--Russia won't give up on assad

    As I wrote in my last column, over the past few weeks Russia has begun to boost its military presence in Syria.
    Not only does Moscow intend to be more visible, including playing a larger role in the fight against the Islamic State of Iraq and the Levant (ISIL) by increasing its support for its ally, Syrian President Bashar al-Assad, Russia is also working to put itself center stage in efforts to broker a political solution for the Syrian crisis. The Kremlin's goal is to safeguard Russia's strategic and military interests in a region where the balance of power is rapidly shifting.
    While nothing has been officially confirmed, Russia seems to be in the process of establishing its first military air base in the coastal province of Latakia, where the Assad family claims its family roots are. Latakia airport is undergoing large-scale renovation. This would significantly boost the presence Russia already has through its naval base at Tartus in the Eastern Mediterranean region. There is also talk of a new naval base being created at Ramaileh.

    14--Russia has been providing military assistance and expert training to its ally, the Assad regime, for a long time. Recently there has been a visible increase. As of the beginning of this week, the Pentagon reported that it had tracked a total of 15 Russian Antonov-124 Condor flights into Syria, reflecting a steady stream of military cargo into the country with an average of two Russian cargo planes flying into Syria each day. There is a growing consensus that Russia is preparing to bring in fighter jets in addition to the dozen or so tanks it has already delivered to a Syrian airfield near Latakia.

    Latakia is one of the few remaining strongholds of Assad that is under the strong protection of the Shia militia. Russia has also reportedly sent some three dozen armored personnel carriers, about 15 new artillery pieces, and housing for some 1,500 people. This seems to indicate that Russia is preparing to build a new military hub. The coastal region offers Russia vital access to the Mediterranean Sea. Russia already has a naval base in the port city of Tartus, about 60 miles south of Latakia, that it is reportedly upgrading. Concerns over Russia's plans led to Washington asking Bulgaria and Greece to close their airspace to Russia. Bulgaria did so, Greece did not.

    According to Russian Foreign Minister Sergei Lavrov, “supporting the Syrian regime is essential if the world wants to defeat the Islamic State in Iraq and the Levant [ISIL] … air strikes alone are not enough … and it is necessary to cooperate with ground troops and the Syrian army.” Hence at the very least it seems the Kremlin wants to help Assad, by giving a boost to his flagging military in order to preserve the limited control his regime now has over the country

    15--Kerry discusses Syria with Turkish FM after talks with Russia

    Kerry reiterated al-Assad must go, saying the timing of his departure should be decided through negotiations.

    “It doesn’t have to be on day one or month one. There is a process by which all the parties have to come together and reach an understanding of how this can best be achieved,” he said on Sept. 18, speaking after talks with British Foreign Secretary Philip Hammond.

    Al-Assad’s removal has to be made in the context of the Geneva process and negotiation, Kerry said.
    During a press conference on Sept. 18, Sinirlioğlu ruled out al-Assad’s role in Syria’s future or in any settlement process.

    “[Al-Assad] is already buried in history as a leader who declared war on its own people. Al-Assad has no role to play whether in Syria’s future or in efforts to bring stability to Syria,” Sinirlioğlu stated.

    Following his visit to Russia, Turkey’s top diplomat reiterated Ankara disagreed with Moscow over ways to handle the Syrian conflict, with a particular difference of view of the regime being run by the Syrian president.

    “Our view is that al-Assad cannot play a role in Syria reaching stability again because he is the principal one who is responsible for this matter and is on top of those who are responsible for the division in Syria. But the Russians state that this should be decided by the Syrian people,” he said in an interview with the state-run Anadolu Agency.

    Erdoğan to visit Russia
    Meanwhile, Erdoğan will pay a one-day visit to Russia on Sept. 23 and meet with Russian President Vladimir Putin. The main agenda of the talks is expected to be the Syrian crisis.

    16--One of its most vocal supporters, Anne-Marie Slaughter, had very clear ideas about the way forward: “Establishing ‘free zones’ would require nations like Turkey, Qatar, Saudi Arabia and Jordan to arm the opposition soldiers with anti-tank, counter-sniper and portable antiaircraft weapons. Special forces from countries like Qatar, Turkey and possibly Britain and France could offer tactical and strategic advice to the Free Syrian Army forces. Sending them in is logistically and politically feasible; some may be there already.”

    The budget deficits have been shrinking under Obama which means that the government share of aggregate spending has gone down which reduces growth.
    The same is true with government employment which has shrunk under Obama more than any president in the post war era.
    Obama may be the best Republican president we ever had, but he's a pretty shitty progressive. He is, in fact, America's high priest of austerity...more Milton Friedman than the original.
    Additionally, congress has relinquished any role in providing stimulus for the economy, the whole kit-n-kabootle has been handed over to the Fed on a silver platter...
    The Fed provides trillions for financial markets and underwater banks, but not a dime dribbles down to the workerbees below. Stocks have tripled in 6 years while workers get bupkis.
    Thursday's FOMC meeting just confirmed that the recovery is a fraud and the Fed has no idea what its doing. So investors bailed out.
    Can you blame them?

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