Monday, November 2, 2015

Today's Links

1--Washington Is Ignoring ISIS' Oil Trade via Turkey
A $500 million per annum spigot for Washington's frenemies left open

“The Obama administration has created a no-win situation by forging a ‘coalition’ with some of the major states backing [the Islamic State], including Turkey and Saudi Arabia,” Steinberg said.
Turkey’s ruling Justice and Development Party (AKP), which is expected to win reelection in the next general election on Sunday, is benefitting from the secret trade through the country on behalf of the Islamic State and the Nusra Front, Steinberg maintained.

“The AKP is virtually financing its desperate election campaign on the basis of black market business dealings with ISIS [Islamic State] and the Nusra Front,” he said.
Steinberg noted the Turkish military has also intervened against the Kurds on behalf of the Islamic State and the Nusra Front to keep the oil transporting routes operating.
“When the Kurds in Syria began moving to cut off the main transit routes between Turkey and Raqqa, the Turkish Air Force started bombing the Kurds to keep the logistical lines between Turkey and [the Islamic State] open,” he said

2--Turkish army reluctant over government will to intervene in Syria (archive)

there is no information showing that Russia would turn a blind eye to Turkey’s active military intervention in Syria...
Turkey’s government wants more active military action to support the Free Syrian Army (FSA) against the regime, Kurdish and jihadist forces in Syrian territory, but the military is reluctant to do so, playing for time as the country heads for a new coalition government, official sources told the Hürriyet Daily News.

According to the HDN sources, who asked not to be named, the “active support” which Prime Minister Ahmet Davutoğlu government has been seeking from the military ranges from long-range artillery fire (not only in retaliatory terms) against the Islamic State of Iraq and Levant (ISIL) positions in Syrian territory to air operations and entering Syria with land forces to secure a strip along the Turkish border.

One source explained the “need” as to “prevent more clashes between the ISIL and the Kurdish forces led by the Democratic Union Party (PYD), prevent the PYD from taking full control over the Turkish-Syrian border and create a safe zone against a new wave of refugees on Syrian territory, no longer in Turkey.”

Chief of General Staff Gen. Necdet Özel has delayed the government directive with justifications of international law and politics and the uncertainty of reactions from the Bashar al-Assad regime in Syria, as well as from its supporters Russia and Iran, together with the United States.

The government has been conducting dialogue since then to convince the army on its plans....
According to the HDN sources, Davutoğlu suggested that it could be time for Turkey to intervene in the situation in Syria, especially targeting the town of Jarabulus based on the assessments of the National Intelligence Organization (MİT) that ISIL could launch new attacks from there, especially after the PYD’s taking of Tel Abyad from ISIL on June 16.

Özel said he needed a written directive for that. When Davutoğlu could not convince Özel that the earlier motion by the parliament would be enough, he asked his office to produce a new government directive immediately which they did and he signed.

With the directive in writing, Özel began to list certain consequences of an active Turkish intervention into Syrian territory, whether it would be directed at ISIL, which is a legitimate target for all U.N. members. Özel said ISIL could attack Turkish soldiers there and civilians in Turkey, the Turkish army could come to face to face with the PYD, as well as its Turkey-based sister organization, the Kurdistan Workers’ Party (PKK), on Syrian soil, while the PKK could resume actions in Turkey following a three-year period of relative silence thanks to the government’s Kurdish peace initiative.

(NB: The impetus for snap elections was the intention to go to war in Syria!)
The military does not want to get into a major military action on the directives of the Justice and Development Party (AK Parti) government which lost its parliamentary majority in the June 7 elections. The coalition talks to form a new government with either the Republican Peoples’ Party (CHP) or the Nationalist Movement Party (MHP) will start next week and if a new government is formed in weeks’ time, the directive which might lead to a war could be obsolete. It is a fact that if the CHP becomes a coalition partner, which is more likely, that Turkey’s policy on Syria and ISIL could change.

The contacts with the Americans have provided limited to U.S.-led coalition attacks on ISIL – limited because Turkey has not opened the İncirlik air base in Adana yet, meaning the jets are taking off from Kuwait and Qatar

There is also the factor of a reshuffle among military ranks. The office of Özel ends in August and civilian sources speculate that he is playing with time in order not to become the general that takes Turkey into war at a critical time.

Özel elected for surgery in May, before the elections, when again there were rumors that the government wanted more active military involvement regarding ISIL and PYD forces in Syria.

3---More trouble for the greenback

For one, a strong U.S. Dollar depresses commodities coming into an election year, boosting consumers in lower income brackets. The second motivation for a strong dollar is to ward off the threat of the Yuan replacing the Dollar as the reserve currency.

Impending U.S Dollar Weakness
The news that the Chinese government is considering relaxing capital controls and thus allowing the Yuan to appreciate, is a sign that they think the IMF inclusion of the Yuan is imminent. The displacement of the Petrodollar, even fractionally, will result in a drop in the U.S. Dollar. Thus, with this threat, if the Federal Reserve undertakes another round of QE it will further stoke U.S. Dollar weakness.

That would reverse the commodity declines that began last summer, wreaking havoc on the standard of living especially for the lower income electorate the government depends on for votes, come 2016. So the Fed is weighing the negative consequences of a strong dollar on corporate profits vs. unleashing inflation on the electorate, pressuring long term interest rates. We now see which negative scenario they favor and why.
This should further explain the influences on oil prices and clearly show that fundamentals aren’t the only thing at play on setting prices.

4--Putin hits 90%
“Russian President Vladimir Putin’s approval rating has reached historical maximum and hit almost 90%, according to a poll conducted by Russian Public Opinion Research Center (WCIOM). Putin’s approval rating has broken a new record reaching 89.9%. The last record was registered in June 2015 — 89.1%

According to WCIOM, ‘such high rating of approval of the Russian president is registered, first of all, in connection with events in Syria, Russian aviation’s airstrikes at terrorist positions.’

5--Petrodollar in trouble

The collapse in oil prices is draining oil-exporting countries of revenue. With substantially lower oil revenues, many of the world’s sovereign wealth funds are dropping in value, which has ramifications for the assets they are invested in. The IMF took a look at this connection between oil prices and sovereign wealth funds and raised the possibility that asset prices around the world could be negatively impacted...

The world’s largest sovereign wealth funds were made possible by the huge flow of capital into oil-producing countries. The sovereign wealth funds, in turn, reinjected hundreds of billions of dollars into a variety of assets around the world. Notably, a lot of that wealth was plowed into U.S. Treasuries, pushing down interest rates for the U.S., allowing for a large buildup of American consumer debt. Capital also flowed into other assets, such as property, corporate debt, hedge funds, and much more.
Now that the flow has dried up, oil-producing countries are starting to recall some of their investments, pulling out cash that had been parked in an array of assets around the world...

Capital flowing out from worldwide assets and back to oil-producing countries is occurring because of shrinking revenues. ...The IMF cites a study from the Federal Reserve, which estimates that a decline of capital flows into U.S. Treasuries by $100 billion in a given month could push up interest rates for five-year bonds by 40 to 60 basis points in the short-term. Fewer petrodollars flowing into the United States could push up interest rates.

Cheap crude, for instance, keeps a lid on inflation, deterring the Fed from raising interest rates, counteracting a withdrawal of capital from sovereign wealth funds....

Flows of petrodollars can have dramatic financial, monetary, and fiscal effects. Asset bubbles can occur when oil-producing countries are flush with cash. Skyrocketing property values in London or New York are just one small, but very tangible, effect of rising inflows of capital. Perhaps more consequential is the effect on Treasuries, corporate bonds, currencies, and other asset classes. The flows of capital are rushing back to oil-producers as they take money home, seeking to correct the holes left by low oil prices. The effects of these flows will be enormous

6---US INVASION of Syria Begins, Tony Cartalucci
Admission of Special Forces in Syria is Just the Beginning 
While the US claims this move is to “defeat the Islamic State (ISIS),” it is instead clearly a move to establish long-sought “buffer zones” or “safe zones” in Syria where the Syrian government can no longer operate. US airpower will also undoubtedly be used to cover these special forces, creating a defacto no-fly-zone wherever they operate

The eventual outcome, if these operations are successful, will be the division and destruction of Syria as a nation-state. This is more than mere speculation – this is a conclusion drawn by signed and dated policy papers produced by the Brookings Institution, who has called for such zones since as early as 2012, but under different contrived pretexts.
In the March 2012 Brookings Institution”Middle East Memo #21″ “Assessing Options for Regime Change” it is stated specifically (emphasis added):
An alternative is for diplomatic efforts to focus first on how to end the violence and how to gain humanitarian access, as is being done under Annan’s leadership. This may lead to the creation of safe-havens and humanitarian corridors, which would have to be backed by limited military power. This would, of course, fall short of U.S. goals for Syria and could preserve Asad in power. From that starting point, however, it is possible that a broad coalition with the appropriate international mandate could add further coercive action to its efforts.
More recently, in a June 2015 Brookings document literally titled, “Deconstructing Syria: A new strategy for America’s most hopeless war,” it is stated that (emphasis added):
The idea would be to help moderate elements establish reliable safe zones within Syria once they were able. American, as well as Saudi and Turkish and British and Jordanian and other Arab forces would act in support, not only from the air but eventually on the ground via the presence of special forces as well. The approach would benefit from Syria’s open desert terrain which could allow creation of buffer zones that could be monitored for possible signs of enemy attack through a combination of technologies, patrols, and other methods that outside special forces could help Syrian local fighters set up.

Were Assad foolish enough to challenge these zones, even if he somehow forced the withdrawal of the outside special forces, he would be likely to lose his air power in ensuing retaliatory strikes by outside forces, depriving his military of one of its few advantages over ISIL.Thus, he would be unlikely to do this.
7---Turkish PM calls for new constitution after election victory

The preliminary results suggest that the ruling party's gamble to hold new elections has paid off. Supporters at the party's Ankara and Istanbul headquarters were already waving flags in rapturous celebrations. Crowds outside President Recep Tayyip Erdoğan's home in İstanbul were shouting "Turkey is proud of you."
The vote is a rerun of a June election in which AK Party surprisingly lost its one-party rule due to a strong showing by a Kurdish party. Most analysts had expected AKP to fall short again, but the preliminary results suggest it picked up millions of votes at the expense of the nationalist MHP and pro-Kurdish People's Democratic Party (HDP). AK Party's vote tally jumped nearly nine percentage points. The secularist CHP was hovering around the same result as in June.

8---Bond market blues

In Europe, bonds yielding less than zero have ballooned to $1.9 trillion, with the average yield on securities in an index of euro-area sovereign notes due within five years turning negative for the first time. Worldwide, the bond market’s outlook for inflation is now close to levels last seen during the global recession. And even in the U.S., the bright spot in the global economy, 10-year Treasury yields are pinned near 2 percent -- well below what most on Wall Street expected by now.
“Where are the animal spirits to turn us around?” said Charles Diebel, the London-based head of rates at Aviva Investors, which oversees about $377 billion. What you see in the bond market is “a lack of confidence in the future.”

(QE fails to produce growth or inflation, just asset inflation)

“Even after successive rounds of QE there is no sign of inflation anywhere out there,” said David Tan, the London-based global head of rates at JPMorgan Asset Management, which oversees more than $1.7 trillion. “We still face massive growth headwinds” and that will support demand for even low-yielding bonds....
Americans themselves have also pared pared back inflation expectations over the next five to 10 years to an all-time low, according to a University of Michigan survey released last week.
he economy is “looking relatively subpar,” said Thomas Tucci, the head of Treasury trading at CIBC World Markets Corp. in New York. “Japan, China, Europe are not growing at the levels they used to. You have to ask, where is the engine...

Last month, the International Monetary Fund cut its global growth forecasts for 2015 and 2016 as weak commodity prices drive a slowdown in emerging markets. The IMF now forecasts growth of 3.1 percent this year. In the half decade before the financial crisis, annual growth was at least 4 percent.
The world’s richest nations also remain threatened by deflationary pressures, according to the Washington-based organization

9--Apocalypse now: has the next giant financial crash already begun

Let’s assemble the evidence. First, the unsustainable debt. Since 2007, the pile of debt in the world has grown by $57tn (£37tn). That’s a compound annual growth rate of 5.3%, significantly beating GDP. Debts have doubled in the so-called emerging markets, while rising by just over a third in the developed world.
John Maynard Keynes once wrote that money is a “link to the future” – meaning that what we do with money is a signal of what we think is going to happen in the future. What we’ve done with credit since the global crisis of 2008 is expand it faster than the economy – which can only be done rationally if we think the future is going to be much richer than the present.

The underlying cause of this debt glut is the $12tn of free or cheap money created by central banks since 2009, combined with near-zero interest rates. When the real price of money is close to zero, people borrow and worry about the consequences later.

In short, as the BIS economists put it, this is “a world in which debt levels are too high, productivity growth too weak and financial risks too threatening”. It’s impossible to extrapolate from all this the date the crash will happen, or the form it will take. All we know is there is a mismatch between rising credit, falling growth, trade and prices, and a febrile financial market, which, at present, keeps switchback riding as money flows from one sector, or geographic region, to another.

10--The AKP used its stranglehold on the media, including some 32 newspapers and 22 television channels, to dominate news coverage and drown out reporting on opposition parties. A few days before the elections, it ordered security forces to storm the Koza-Ipek media corporation, the main remaining pro-opposition television news outlet, and take it off the air.

11--Offshoring the Economy: Why the US is on the Road to the Third World

In a recently released report, the Social Security Administration provides annual income data on an individual basis.  Are you ready for this?
In 2014 38% of all American workers made less than $20,000;  51% made less than $30,000; 63% made less than $40,000;  and 72% made less than $50,000.
The scarcity of jobs and the low pay are direct consequences of jobs offshoring.  Under pressure from “shareholder advocates” (Wall Street) and large retailers, US manufacturing companies moved their manufacturing abroad to countries where the rock bottom price of labor results in a rise in corporate profits, executive “performance bonuses,” and stock prices

The evidence is everywhere.  In September the US Bureau of the Census released its report on US household income by quintile. Every quintile, as well as the top 5%, has experienced a decline in real household income since their peaks.  The bottom quintile (lower 20 percent) has had a 17.1% decline in real income from the 1999 peak (from $14,092 to $11,676).  The 4th quintile has had a 10.8% fall in real income since 2000 (from $34,863 to $31,087). The middle quintile has had a 6.9% decline in real income since 2000 (from $58,058 to $54,041). The 2nd quintile has had a 2.8% fall in real income since 2007 (from $90,331 to $87,834). The top quintile has had a decline in real income since 2006 of 1.7% (from $197,466 to $194,053).  The top 5% has experienced a 4.8% reduction in real income since 2006 (from $349,215 to $332,347).  Only the top One Percent or less (mainly the 0.1%) has experienced growth in income and wealth

11--Atlanta Fed forecast---Starting out at 2.5% this quarter. We’ll see how it evolves as numbers are released:

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