Sunday, October 4, 2015

Today's Links

"The positioning of Russian aircraft in Syria gives the Kremlin the ability to shape and control the battle-space in both Syria and Iraq out of all proportion to the size of the Russian force. It could impact the US to accept the combined coalition of Russia, Syria, Iran, Iraq and Lebanese Hezbollah in support of operations against ISIS and Jabat al Nusra

1--Russia's airstrikes in Syria are playing well at home
Whatever effect Russia's airstrikes are having on the ground in Syria, their impact at home is clear: They prove to Russians that their country is showing up the United States and reclaiming its rightful place as a global power.
So far, Russia's intervention in Syria has served President Vladimir Putin's goals. The potential danger, military analysts say, lies down the road.

Channel One's evening news program on Saturday opened with dramatic cockpit videos of Russian jets making what were described as direct hits on terrorist training camps and weapons stores. The bombs were never off by more than five meters, a military spokesman said, because of the jets' advanced targeting capabilities.
This was followed by a report of the disastrous airstrike in the northern Afghan city of Kunduz that destroyed a hospital and killed at least 19 people, including international medical staff. U.S. responsibility for the airstrike had not been proven, but Russian viewers were left with little doubt of who was to blame or of whose military capabilities were superior....

On the contrary, Russian television stations replayed the section of Putin's address to the United Nations General Assembly last week in which he criticized U.S. policy in the Middle East and asked: "Do you realize now what you have done?"

2--Mid-East Coup: As Russia Pounds Militant Targets, Iran Readies Ground Invasions While Saudis Panic
If you think that’s far-fetched, consider the following just out from Reuters:
Hundreds of Iranian troops have arrived in Syria in the last 10 days and will soon join government forces and their Lebanese Hezbollah allies in a major ground offensive backed by Russian air strikes, two Lebanese sources told Reuters.
"The (Russian) air strikes will in the near future be accompanied by ground advances by the Syrian army and its allies," said one of the sources familiar with political and military developments in the conflict.
"It is possible that the coming land operations will be focused in the Idlib and Hama countryside," the source added.
The two sources said the operation would be aimed at recapturing territory lost by President Bashar al-Assad's government to rebels.
It points to an emerging military alliance between Russia and Assad's other main allies - Iran and Hezbollah - focused on recapturing areas of northwestern Syria that were seized by insurgents in rapid advances earlier this year.
"The vanguard of Iranian ground forces began arriving in Syria: soldiers and officers specifically to participate in this battle. They are not advisors ... we mean hundreds with equipment and weapons. They will be followed by more," the second source said. Iraqis would also take part in the operation, the source said.

And then consider this, also just out (via Reuters):
The Russian Foreign Ministry said on Thursday it would consider any request from the Iraqi government to conduct air strikes against Islamic State inside Iraq, but said it had not yet received such an appeal, the RIA Novosti news agency reported.
It cited the foreign ministry as saying it would evaluate the "political and military" logic of such a move if a request was forthcoming.

3--Assad: ‘West uses terrorism as new instrument to subjugate Middle East’

How can the United States and its allies fight terrorism or ISIS in Syria and Iraq while their closest allies in the government of Erdogan and Davutoglu are supporting terrorists and enabling them to cross the borders and bring weapons, money and volunteers through Turkey?” he asked.
Since the US-led coalition was formed, terrorism expanded geographically and its recruits multiplied, the Syrian president said.
“God willing it [Syria, Iran and Hezbollah] will be able to defeat terrorism which is a new instrument for subjugating the region,” he stressed

4--South Front Syria Update
5--Saudis Mull Launch Of Regional War As Russia Pounds Targets In Syria For Fourth Day

6--No Moderate Opposition in Syria
“The Free Syrian Army and the Syrian National Council, the vaunted bulwarks of the moderate opposition, only really exist in hotel lobbies and the minds of Western diplomats,” Ben Reynolds wrote in October, 2014. “There is simply no real separation between ‘moderate’ rebel groups and hardline Salafists allied with al-Qaeda.” The New York Times has dispelled the myth there is such a thing as a secular and moderate opposition to the Syrian government. “Nowhere in rebel-controlled Syria is there a secular fighting force to speak of,” Ben Hubbard wrote for the newspaper on April 27, 2013.
Even the Free Syrian Army (FSA), long portrayed as secular, is rife with jihadists. “The Wall Street Journal reports that Brig. Gen. Mithkal Albtaish, an FSA leader, says that the organization is ‘dominated by Islamist groups that are in close coordination with al Nusra,’ the al-Qaeda aligned terrorist group. The idea, then, that the FSA is secular is mistaken,” writes Stephen Gowans. Moreover, droves of FSA members have joined the Salafist mercenaries who have declared they will establish an Islamic caliphate ruled by Sharia law if they successfully overthrow Bashar al-Assad.

7--Syria: Air Duel between SU-30 Russian Sukhoi SM and Israeli F-15" Really

8--BOE Says Market May Be Underpricing Risks of Falling Liquidity
“Market prices might not yet sufficiently be factoring in the potential for a deterioration in liquidity conditions given changes in market functioning and elevated tail risks” related to emerging markets, the officials said, according to the record of the Financial Policy Committee meeting held on Sept. 23 in London.

9--Goldman: Buyback Burst Could Be Enough to Save the S&P 500's Year
“Buybacks represent the single largest source of demand for U.S. equities,” he wrote, adding that he expects companies in the index to spend more than $600 billion this year on their own shares. “The typical year-end surge in buyback activity could help boost the market above our year-end target

10--Here’s how ugly the third quarter was for stocks and commodities
The third quarter of 2015 proved to be the weakest quarter for risk assets for some years and most market participants are probably glad to see the back of it,” wrote Jim Reid, global strategist at Deutsche Bank, in a Thursday note

11--Is this the mother of all warnings on EMs?

Net capital flows for global emerging markets will be negative in 2015, the first time that has happened since 1988, the Institute of International Finance (IIF) said in its latest report. Net outflows for the year are projected at $541 billion, driven by a sustained slowdown in EM growth and uncertainty about China, it added

12---the Global Dow – was “hanging on the precipice”

13--Get ready for a ‘destruction of wealth’ as stocks head toward a bear market

14--World set for emerging market mass default, warns IMF

The International Monetary Fund (IMF) has issued a double warning over higher US interest rates, which it said could trigger a wave of emerging market corporate defaults and panic in financial markets as liquidity evaporates.
The IMF said corporate debts in emerging markets ballooned to $18 trillion (£12 trillion) last year, from $4 trillion in 2004 as companies gorged themselves on cheap debt.
It said the quadrupling in debt had been accompanied by weaker balance sheets, making companies more vulnerable to US rate rises.
"As advanced economies normalise monetary policy, emerging markets should prepare for an increase in corporate failures," the IMF said in a pre-released chapter of its latest Financial Stability Report.
Emerging market corporate debt has grown to $18 trillion  Photo: International Monetary

15--Investors Pull About $40 Billion From Emerging Markets in Current Quarter

16--Traders Flee Emerging Markets at Fastest Pace Since 2008

Severe Reaction

“The reaction we’re seeing is quite severe, but a lot of the damage has already probably taken place,” Brendan Ahern, managing director of Krane Fund Advisors LLC in New York, said by phone. “It’s the trifecta of slowing investment growth, declining commodity prices and the strong dollar.”


Furthermore, the global deflationary forces have been gathering steam as well as displayed in the below Gavekal Graph:
- source Gavekal

World CPI is falling, not a good indicator and no matter what central bankers are telling us, they are inept at re-igniting the "inflation" genie so far.

Furthermore, the US 10 year government bond market is pricing more and more a deflationary/quasi-recessionary picture
How can there be a recovery and a rise in "inflation expectations" when Average Hourly Earnings MoM are flat and Average Hourly Earnings YoY are growing at 2.2% when the market was expecting 2.4%?

This is proof that the US much vaunted recovery is weaker than expected.

Also the Atlanta Fed has revised its GDP outlook, On October 1, the GDPNow model forecast for real GDP growth in Q3 2015 is 0.9%. Many sell-side economists who also got their NFP call wrong (99 of economists polled by Bloomberg in fact) still suffer from "Overconfidence effect" when it comes to their US GDP growth expectations:
- source Atlanta
What we have long posited is that while wanting to induce inflation, QE induces deflation....
This is what we discussed in March this year in our conversation "The China Syndrome". At the time, we quoted CITI's Matt King's 27th of February note entitled "Is QE Deflationary":
"It’s that linkage between investment (or the lack of it) and all the stimulus which we find so disturbing. If the first $5tn of global QE, which saw corporate bond yields in both $ and € fall to all-time lows, didn’t prompt a wave of investment, what do we think a sixth trillion is going to do?
Another client put it more strongly still. “By lowering the cost of borrowing, QE has lowered the risk of default. This has led to overcapacity (see highly leveraged shale companies). Overcapacity leads to deflation. With QE, are central banks manufacturing what they are trying to defeat?”...

is as well confirmed by the same Wall Street Journal article quoted above:
"Companies have announced $3.2 trillion of M&A this year, according to Dealogic, emboldened to merge by cheap debt and the long stock rally that began after the financial crisis. That puts 2015 on pace to rival 2007 as the biggest year ever for takeovers. Issuance of junk bonds backing M&A deals hit a year-to-date record of $77 billion through Friday, according to data from Dealogic."
A souring of investors on junk bonds could limit the availability of financing for deals that require a lot of borrowing. Banks have been under pressure from federal regulators to reduce their loans to such companies, and a pinch in the bond market could leave those deals struggling for financing." - source Wall Street Journal 


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