Today’s News October 6, 2015

• World's Largest Sovereign Wealth Fund Is Forced To Begin Liquidating Assets

  One of the biggest stories of this summer, as previewed originally here in November of 2014, has been the dramatic shift in the direction of capital flow from toward emerging markets (and China), to away from emerging markets (and China). The reason for this has been the double whammy of the soaring dollar, and the collapse in oil prices which as we said one year ago, would lead to the first negative global petrodollar export balance in 18 years…

  

  …  a topic which the IIF finally picked up and expanded on last week when it likewise calculated that capital outflows from emerging markets are on track to exceed inflows this year for the first time since 1988.

  

   

  We first dubbed this phenomenon Reverse QE, a name which Deutsche Bank subsequently “reverse-engineering” into Quantitative Tightening, a different name for the same thing – the removal of excess liquidity from the market by way of obtaining liquidity for existing reserve assets, also known as “selling.”

  However, while Reverse QE, or QT, or whatever one wants to call it has become traditionally associated with Emerging Markets and petroleum exporters, nobody had linked it with one of the most advanced Developed Markets in the world which also happens to be an oil exporter, the market with the largest sovereign wealth fun in the world: Norway.

  That is about to change because as Bloomberg reports, “the future may already be here”, a future in which Norway’s gargantuan $830 billion sovereign wealth fund, the product of two decades of capital accumulation courtesy of Norway’s vast petroleum reserves and oil trade, is forced to begin liquidating its vast assets.

  According to Bloomberg, Norway could as soon as next year start making withdrawals from its massive $830 billion sovereign wealth fund, which is a nest egg for “future generations.”

  The start of asset sales marks a historic shift for said “nest egg” which was not supposed to be tapped for many more years. Unfortunately for Norway, which has already spent recent years using a growing chunk of its oil revenue to plug deficits while at the same time building the wealth fund…

  

  … tax revenue from petroleum extraction are down 42% which means budget spending in 2016 will outstrip income.

  The real problem for Noway is simple: the very procyclical plunge in oil prices.

  As Bloomberg calculates, taxes collected on petroleum extraction reached 138 billion kroner in the first three quarters of the year, down over 40% from 238.2 billion kroner in the same period a year earlier, according to Statistics Norway. But while oil-linked revenues are plunging, spending is going nowhere but up:

  The government said in May its non-oil budget deficit, or spending in real terms, would be a record 180.9 billion kroner ($21.6 billion). With its crude output waning and prices falling, the government saw petroleum income dropping to 251.6 billion kroner this year, almost 30 percent lower than its October projections. Those estimates assumed oil at about $69 a barrel.

  Brent crude has averaged $56 so far this year, and has been below $50 for the past several months, presenting a huge challenge: how to tap the revenue shortfall.

  The answer is simple, if unpleasant: break open the piggy bank, or in this case, start selling the securities held in the Norwegian sovereign wealth fund.

  “We have reached a point where we will from now on see that the oil-corrected balance will be above the cash flow — that’s based on oil prices increasing slowly in the future,” said Kyrre Aamdal, senior economist at DNB ASA in Oslo. Tapping the fund’s returns marks a turning point that wasn’t expected to come for “several more years,” he said.

   

  Tapping the fund to cover budget needs comes at a time when the managers of the fund, set up to safeguard the wealth of future generations, warn that it also faces diminished returns ahead amid record-low interest rates.

  To be sure, government officials, terrified of revealing the unpleasant truth to the people, are pretending that the funding shortfall can be covered only with dividend and interest income:

  Government officials and economists contend that only investment returns from the fund will be used for the budget, meaning it will not actually shrink in size. By using interest and dividends to cover the deficit, “no one will ever need to break the piggy bank,” said Knut Anton Mork, senior economist at Svenska Handelsbanken AB in Oslo. Oeyvind Schanke, chief investment officer for asset strategies at the Oslo-based fund, said in an interview last month it will be able to use the cash it gets from dividends and bond interest payments to make shifts in the portfolio, rather than having to sell assets.

  Populist rhetoric aside, the SWF will have no choice but to sell: “capital coming into to the fund has already started to dwindle. Inflows were just 17 billion kroner in the first half of this year, compared with a quarterly average of 60 billion kroner over the past 10 years. Central bank Governor Oeystein Olsen, who oversees the fund as head of the bank’s board, said in February that oil around $60 would mean transfers to the fund “may come to a halt.”

  Oil is now nearly 20% lower, and as goes the price oil, so go the inflows into the fund. Which means that any month now, if not already, Norway will shift from net buyer of global financial assets to a net seller, in the process joining the Emerging Markets and, of course, China in soaking up even more liquidity, mostly USD-denominated, out of the market, in the process removing much of the liquidity injected by the Fed and its peer central banks.

  This situation will only deteriorate that much further, and force the wealth fund to sell even more assets should the Fed hike rates, pushing the dollar even higher, and sending the price of oil crashing below. In fact, the coordinated selling of US-denominated assets will be precisely the catalyst that sends the global stock market tumbling, and ultimately serve as the catalyst for NIRP and/or QE4.

  The only question is whether Yellen has finally figured this out and will proceed straight to the NIRP/QE4 part or whether she will subject the market to 6-9 months of gut-wrenching volatility as the world’s largest sovereign wealth fund realizes what it means to try to sell billions of assets into an illiquid, bidless, market.

  In the meantime, and completely independent of what Yellen does in the near future, what was until recently a parabolic move higher in assets…

  

  … is about to see its first ever decline.

  

  

  

  

  

• Role Reversal In The New Cold War

  Submitted by Justin Raimondo via Anti-War.com,

  This past weekend marks the twenty-fifth anniversary of the reunification of Germany, an event that formalized the end of the cold war. The so-called “German Democratic Republic,” one of the most repressive of the Soviet-imposed regimes established in the wake of World War II, was no more. It imploded without a shot being fired.

  The largely bloodless revolution that swept across Eastern Europe, toppling Communist dictatorships from Berlin to Budapest, soon penetrated the epicenter of the “evil empire” itself – and the Union of Soviet Socialist Republics evaporated like mist on a sunlit morning. It was the end of the cold war, and peoples all over the world breathed a joyful sigh of relief – and yet that joy was not shared by all.

  The cadre of that troublesome little sect known as the neoconservatives weren’t convinced that the Soviets were on their last legs: they had opposed the arms control agreements signed by Ronald Reagan in the Kremlin’s twilight years, attacking them as signs of “appeasement” and arguing that any rapprochement with the Soviets would give them breathing room and the strength to gather their forces for one last push against the West. The United States, they averred, should take the opportunity to push harder and institute a policy of “rollback,” because only a foreign policy of aggression could defeat the Evil Empire once and for all.

  They were wrong.

  What happened, instead, is that the captive nations of the Soviet bloc rose up all on their own, without any substantial support from us, and overthrew their oppressors. Not because we had weakened the USSR in any significant way, but because a system that never worked to begin with had finally reached its endpoint. As the great libertarian theoretician Ludwig von Mises had predicted as early as 1920 that it would.

  Indeed, it could be argued that all our efforts during the cold war era had merely strengthened the Leninist project, unnaturally extending its lifespan. For Joseph Stalin realized two vital facts early on:

  1) That in spite of Soviet propaganda, the Russian economy was no match for the West, and that it was necessary to build up Soviet industry on a massive scale. Thus began the various Five Year Plans that sought to make the leap from a backward agricultural economy into something resembling an industrial powerhouse.

   

  2) That the old Bolshevik ideology of “proletarian internationalism” – the idea that the World Revolution was a perquisite for the survival of the Soviet state – had to be ditched. The Trotskyists, who clung to the original Leninist conception, were purged, and in the place of the old party line the Stalinists substituted Soviet “patriotism,” i.e. Russian nationalism, as the official ideology of the post-Leninist Kremlin.

  While the economic project of the Stalinist regime rendered dubious results – slave labor cannot serve as the basis of a modern economic order, and the inability of the Soviet system to overcome the calculation problem could not be overcome – their ideological revisionism met with more success. Instead of appealing to some abstract ideal, i.e. egalitarianism, the theories of Karl Marx, etc., they instead evoked loyalty to real-world allegiances: in short, they became “patriots,” in whatever country they were operating in.

  In Russia, Soviet propaganda focused on the “Great Patriotic War” against Germany during World War II – of course downplaying Stalin’s pact with Hitler and their joint invasion of Poland, which sparked the conflict to begin with. Sure, the Russian people had to wait on line for the simplest items, but, the regime told them – with some justification – that the West was getting ready to destroy them, just as Hitler had tried to do, and that only the Soviet government could protect Holy Mother Russia from a repeat of that horrific catastrophe in which millions perished.

  In the Third World, where the Soviets were engaged in an ideological battle with Western-backed regimes, they posed as champions of “national liberation,” and – abjuring purely communist slogans – called for a “national democratic revolution” and inveighed against “foreign domination,” denouncing the brutalities of colonialism. This is what made the victory of the Communist-dominated National Liberation Front of Vietnam possible, and it energized Marxist insurrections throughout Asia, Africa, and Latin America. Fidel Castro never revealed himself as a Communist until well after taking power because he realized what Stalin discovered long before the Cuban revolution overthrew a US-supported despot: that nationalism – allegiance to a really-existing entity, rather than a moral or ideological abstraction – has the power to inspire people to resist.

  So while economic reality eventually overcame the Soviets, and doomed their system to failure from the beginning, they managed to survive as long as they did – and inspire a global movement – in large part due to the energy imparted to them by the West. The very effort to “roll back” Communism had the opposite result, generating a nationalistic reaction that aided the Soviets to such an extent that, for a while, it looked – on the surface – as if they had the advantage. Communism, you’ll recall, was supposed to be the “wave of the future,” along with all the other totalitarian movements – fascism and national socialism – that gained ascendancy in the wake of World War I. As it turned out, Marxism proved to be a dead end, albeit one that had all the appearance of an idea whose time had come.

  Looking back on the demise of the Soviets, one can see that the same hubris that blinded the Communists to their own imminent decline and fall has its echoes in today’s world.

  The Western response to the Communist implosion was, at first, quite reasonable. In negotiations with Mikhail Gorbachev, who saw the Soviet empire crumbling all around him, Western leaders guaranteed that NATO would not move eastward. As Joshua Shifrinson, citing declassified US government documents, argued in Foreign Affairs:

  “The story begins in the months after the fall of the Berlin Wall, as policymakers struggled to determine whether and how a divided Germany might reunify. By early 1990, U.S. and West German officials decided to seek reunification. Uncertain about whether the Soviets would be willing to withdraw from East Germany, they decided to offer a quid pro quo.

   

  “On January 31, West German Foreign Minister Hans-Dietrich Genscher publicly declared that there would be “no expansion of NATO territory eastward” after reunification. Two days later, US Secretary of State James Baker met with Genscher to discuss the plan. Although Baker did not publicly endorse Genscher’s plan, it served as the basis for subsequent meetings between Baker, Soviet President Mikhail Gorbachev, and Soviet Foreign Minister Eduard Shevardnadze. During these discussions, Baker repeatedly underlined the informal deal on the table, first telling Shevardnadze that NATO’s jurisdiction ‘would not move eastward’ and later offering Gorbachev ‘assurances that there would be no extension of NATO’s current jurisdiction eastward.’ When Gorbachev argued that ‘a broadening of the NATO zone’ was ‘not acceptable,’ Baker replied, ‘We agree with that.’ Most explicit was a meeting with Shevardnadze on February 9, in which Baker, according to the declassified State Department transcript, promised ‘ironclad guarantees that NATO’s jurisdiction or forces would not move eastward.’ Hammering home the point, West German Chancellor Helmut Kohl advanced an identical pledge during meetings in Moscow the next day.

   

  “At that point, it was easy to see the outline of a new strategic landscape coming into view: Germany would reunify, the Soviet Union would pull back, and NATO would halt in place. According to any ordinary sense of the term ‘east,’ all of the countries to which NATO later expanded would have remained outside the Western orbit. As a diplomatic cable summarizing Baker’s meetings put it, ‘The Secretary made clear that the US had supported the goal of [German] unification for years; that we supported a unified Germany within NATO, but that we were prepared to ensure that NATO’s military presence would not extend further eastward.’”

  Yet the domestic pressures in the US for NATO expansion were too strong to let this guarantee stand for very long. NATO maintains standards for its member militaries, and the upgrades required for the entry of the East European countries would prove immensely profitable for US weapons makers – who soon launched a campaign for NATO expansion that had its tentacles reaching into both political parties. And there was also the inherently expansionist dynamic embedded in all global empires, such as the American. This was fueled by the ideological Kool-Aid of the “end of history” fable, pushed by the neoconservatives, who dreamed of a Hegelian “universal homogenous state” – to be established by the United States.

  As NATO pushed up to the gates of Moscow, what happened, oddly enough, is that the Americans and the Russians switched roles. The former, invoking a militant “democratic” internationalism, adopted the revolutionary rhetoric and mindset of the early pre-Stalinist communists, while the latter took up the conservatizing role abandoned by Washington.

  Which is where we are today – except that the danger posed by Washington is far greater than any the old Soviet empire could have mustered, for two reasons:

  1) The Soviet economic system was inherently unworkable, and ended the only way it could have ended. On the other hand, the American economic system is the mightiest industrial machine the world has ever known: capitalism has created enormous wealth, and while we’ve eaten a lot of our seed corn and built up an enormous mountain of debt, the system is still coasting along on the achievements of the past.

   

  2) Stalin was essentially an “isolationist,” that is, he didn’t want to get too involved in the affairs of other countries, concerned as he was with cementing his own despotic rule at home. That’s why he ditched the old Leninism, drove Trotsky into exile, and declared the official Soviet doctrine of “socialism in one country.” In the US, however, “isolationism” is out of style: both parties support an “internationalist” foreign policy, differing only in the details of how to apply the general principle of empire-building on a global scale.

  What all this means is that the world’s wealthiest nation has now decided it can and should rule the world – and has embarked on a campaign, consisting of both military and “soft power” aspects, to achieve just that. And while this effort effectively undermines whatever claim the US once had to be being the leader of the “Free” World – as Edward Snowden revealed, and as the continuous erosion of our constitutional liberties underscores every day – Washington still wields the banner of “freedom” to great effect, especially when compared with the regimes it seeks to overthrow.

  Baldly stated, the United States government is the greatest danger to peace and freedom the world has ever known. This is true precisely because it has held aloft the torch of liberty for so long, an example to the world of what a society based on individual freedom can achieve. That is the great paradox of American power. As we abandon our libertarian heritage – even as we retain the forms of a constitutional republic – we destroy what made our power possible.

  The process is reversible: we can restore our old republic – but only if we give up the mirage of empire. If we continue to pursue the fatal dream of a beneficent internationalism, America will lose itself, dissolve its unique character – and wreak destruction, not only on its own people but on the peoples of the world. In switching roles with the Soviets, we prefigure their fate: and the resulting implosion is going to shake the world to its foundations in a way that the fall of the Kremlin never did. In programming our own self-destruction, we will likely drag much of the world with us.

  Those are the stakes, and they are high – too high for us anti-interventionists to rest for a single moment.

   

  

  

  

  

  

• Gun Sales Soar After Surge In US Mass Shootings

  Just as was evidenced after the 2007 shootings at Virginia Tech, after Columbine and Tucson in 2011, and following the theater shootings in Aurora, Colorado in 2012, US gun sales have soared following the mass-shooting at Umpqua Community College in Oregon, which killed 10 people and injured seven others. As The FT reports, gun sales this year could surpass the record set in 2013, when gun purchases surged after the December 2012 Sandy Hook murders.

  As The FT reports,

  Business has been brisk for Larry Hyatt, owner of Hyatt Guns in North Carolina, since the Oregon community college shooting last week that left 10 people dead, including the 26-year-old suspect.

   

  Mr Hyatt saw an even bigger surge in customers after the 2012 massacre at Sandy Hook Elementary School in Connecticut that left 26 people dead, including 20 children, before the gunman killed himself.

   

  …

   

  However, the calls for tighter gun laws lead to an increase in weapons sales. “Once the public hears the president on the news say we need more gun controls, it tends to drive sales,” said Mr Hyatt, who owns one of the largest gun retailers in the US. “People think, if I don’t get a gun now, it might be difficult to get one in the future. The store is crowded.”

   

  “We don’t want our business to be based on tragedy but we have to deal with what we have no control over,” Mr Hyatt said. “And after these shootings and then the calls for tougher gun laws, we see a buying rush.”

  In the first nine months of this year, 15.6m of the background checks needed to purchase guns from federally licensed sellers have been processed, compared with the 15.5m applications in the same period in 2013, according to the National Instant Criminal Background Check System.

  Strong sales this year have also boosted the earnings for the two of the largest gun manufacturers in the US. Smith & Wesson and Sturm, Ruger & Co have seen their stocks rise this year by over 88% and 67% respectively.

   

  

   

  As Wired wrote back in 2012, the sharp spike in gun sales following mass shootings is not a new occurence and appears to happen for several reasons…

  The desire to protect one's self In many cases, gun shootings followed by 24/7 media coverage prompt citizens to arm themselves, according to testimonies. In Aurora, for instance, Jake Meyers of Rocky Mountain Guns and Ammo told The Post shoppers cited self-protection when checking out new weapons. "A lot of it is people saying, 'I didn't think I needed a gun, but now I do,' " Meyers said. "When it happens in your backyard, people start reassessing — 'Hey, I go to the movies.'"

   

  The fear of stricter gun laws Another logical factor is that gun owners' or soon-to-be-gun owners' sense a tide of gun control regulations following a massacre and seek to purchase guns ahead of fast-moving laws. Paul Helmke, president of the Brady Campaign to Prevent Gun Violence, spoke to this following a 60 percent uptick in gun sales in the aftermath of the Tucson shootings in 2011. "Some Americans fear tougher gun control laws in the aftermath of Saturday’s attack so they want to stock up now," he told Politico. “What it shows is maybe gun owners in Arizona and these other states feel that there’s going to be some change in the law, which is what I hope our elected officials” trying to enact. Obviously, that fear has been unfounded. Since coming into office, Obama has been virtually silent on the issue of gun control, despite the protestations of liberals.

   

  The feeling of uncertainty It's important to remember, spikes in guns sales don't just coincide with shooting sprees. They also coincide with violent events of any kind, as Fredrick Kunkle at The Washington Post reported. "People also rushed to buy guns after the 1992 riots in Los Angeles and the breakdown of order in New Orleans after Hurricane Katrina." That has led some industry experts and law enforcement officials to point to a general feeling of uncertainty as a driver of gun buying habits. "People often buy firearms during periods of uncertainty," Gary Kleck, a researcher at Florida State University's College of Criminology and Criminal Justice, told the paper.

  As Pew's most recent research found, America remains divided over the 'guns' issue:

  Pew’s latest survey, conducted in July this year, found that opinions had remained largely unchanged since the Sandy Hook massacre.

   

  Almost eight in 10 people surveyed supported laws to prevent people suffering from mental illness buying firearms, while 70 per cent backed the creation of a database on gun sales and almost 60 per cent wanted to see assault weapons banned.

   

  “The public continues to be more evenly divided in fundamental attitudes about whether it is more important to control gun ownership or to protect the right of Americans to own guns,” Pew’s report said.

   

  “Currently, 50 per cent say it is more important to control gun ownership, while 47 per cent say it is more important to protect the right of Americans to own guns.”

  

  

  

  

  

• Peter Schiff: The Fed Has Created A "Bad Is Good" Economy

  Submitted by Peter Schiff via Euro Pacific Capital,

  The popular belief that the U.S. economy has been steadily recovering has endured months of disappointing data without losing much of its appeal. A deep bench of excuses, ranging from the weather to the Chinese economy, has been called on to justify why the economy hasn't built up any noticeable steam, and why the Fed has failed to move rates off zero, where they have been for seven years. But the downright dismal September jobs report that was released last Friday may prove to be the flashing red beacon that even the most skilled apologists can't explain away. The report should make it abundantly clear that we are far closer to recession than recovery. But old notions die hard and, shockingly, most economists still believe that we have hit a temporary speed bump not a brick wall. But at some point healthy hope turns into dangerous delusion. We may have just turned that corner.

   

  The report was horrific any way you slice it. The consensus of economists had expected to see 203,000 new jobs in September, not a particularly impressive number, but at least it would have been an improvement from the 173,000 new jobs that were added in August. Not only did September miss substantially, at just 142,000 jobs, but August was revised down to 136,000 (Bureau of Labor Statistics) (there were economists who had even expected August to be revised up to as high 247,000). This means that the last three months have averaged just 167,000 jobs, a level that is not even close to where we should have been in a real recovery. But it gets worse from there.

   

  The labor force participation rate got even lower still, dropping from 62.6% of working age adults, to just 62.4%, a near-40 year low. In September, another 579,000 potential workers gave up looking for jobs altogether and simply left the labor force. This figure dwarfs the 142,000 people that actually found jobs. Those lucky enough to still be working saw no increase in their hourly wages (the consensus had expected a .2% increase) and their average workweek ticked down from 34.6 hours to 34.5. In short, in September, fewer Americans worked, and those who did had fewer hours and lower pay. This is not supposed to be what a recovery looks like.

   

  Even after the Fed surprised markets back in September by failing to raise interest rates for the first time in nine years, most economists still strongly believed that the Fed was on track to do so this year. Just prior to Friday's jobs report, a full 94% of economists in a Reuters survey saw a hike coming this year. No word yet on how much these expectations may have changed since Friday's jobs report, but my guess is that they won't fall nearly as much as they should. Many a happy economist took to the airwaves last week to explain that two more jobs reports will be issued before the Fed's December meeting. They insisted that those reports could provide the impetus that the Fed needs to finally pull the trigger.

   

  But Janet Yellen said months ago that she would need to see "further improvements" in the labor market before she felt fully comfortable in raising rates. Since she made that statement, not only has the labor market not improved, it has actually retrogressed considerably. The fact that the headline unemployment rate has remained at a very low 5.1% is immaterial, as that rate has been low for some time without prompting any rate hikes. Yellen has already conceded that the official unemployment rate is not the benchmark she is using to assess the strength of the labor market. Instead, she is focused on labor force participation, wages, and the proliferation of involuntary part-time work. On these scores we continue to move further away from any potential rate hike.

   

  But rather than questioning the Fed's credibility in missing another forecast, most economists are lauding it for supposedly seeing weakness that others missed, which allowed it to wisely do nothing in September. But I see this simply as a continuation of the Fed's long-standing playbook: Talk the economy up through optimistic statements while continually holding off an actual rate hike that the Fed is concerned could undermine an economy teetering on the brink of recession. I did not expect the Fed to raise rates in September, and I don't expect them to do so in December either, or at all in 2016, for that matter. I expect the Fed shares this view but they know any public utterance could be disastrous. Despite the fact that I was one of the few economists to declare no hikes in 2015, the media has continued to ignore and ridicule my forecasts.

   

  Dazzled by the Fed's many statements of gaining economic strength, Wall Street has, by contrast, been completely blind to the many, many signs of gathering weakness. In September, factory orders were down year-over-year for the 10th month in a row, according to the Census Bureau's August Factory Orders report. As far as I know, this has never happened outside of a recession. But good luck finding anyone on Wall Street who shares my opinion that these figures suggest that a recession is already underway. My position is buttressed by the steady torrent of disappointing production numbers contained in the regional Fed surveys. But since manufacturing is no longer considered an important sector for the American economy, those once important surveys are no longer even mentioned in main-stream press.

   

  In addition, the Atlanta Fed's "GDPNow" statistics, which attempt to offer a real time glimpse at economic conditions, gets similarly short shrift in the media. That number currently stands at just .9% annualized growth. However, consensus on Wall Street for Q3 GDP remains at 2.4%. Those forecasts should have been slashed months ago. But they have not. Based on the reports that I am seeing, I believe that there is a good chance that the barely positive growth rate that the Atlanta Fed is seeing for Q3, could turn negative. After all, jobs reports have been revised down in six of the last eight months (BLS). What makes economists think that this trend will suddenly reverse? It is, therefore, more likely that the awful employment picture for September will even get worse. A negative GDP print in the third and fourth quarters of this year, which would qualify as a recession, is a possibility that Wall Street has not even considered, let alone prepared.

   

  If weakening conditions prevent the Fed from pulling the rate hike trigger by December, can we really expect it to do it in the election year of 2016? With the economy already on thin ice, a rising rate environment may likely push the economy into recession if it somehow isn't already there. This will play directly into the hands of the Republicans who will be able to hammer the outgoing Obama Administration's economic legacy, thereby handing the election to the GOP. Does anyone really expect the left-leaning Federal Reserve led by Janet Yellen to do that? Given that, we may not see a rate increase until 2017, even if conditions improve, which is a dubious proposition. Predictably, Goldman Sachs' chief economist Jan Hatzius came out with a statement today predicting the first move may not come until 2017. Look for many other influential economists to follow suit.

   

  My view is that it is far more likely that we will see a fresh round of Quantitative Easing before we see a rate hike. As far as I know, however, I am still one of the only economists making this "outrageous" forecast.

   

  The biggest practical implications of all this is that the commodity and foreign currency markets, which have been so thoroughly decimated by expectations of imminent rate hikes in the U.S., should reverse course. In the past, the dollar has generally risen on the anticipation of rate hikes and has sold off when the Fed actually delivered on those expectations. This is the classic "buy the rumor, sell the fact" trade.  But what will happen when the Fed fails to deliver? Then all we have is false rumor and no fact. In such a scenario, reversals in the "bid up" dollar and in "beaten down" commodities like gold, silver, copper, and oil, could be dramatic. This could be especially true when you consider all the global economic problems that would be solved by a weaker dollar. Already we are seeing the markets drifting in that direction. Today silver hit a three-month high, and other commodities are finally getting up off the mat. It's been a long time coming, and I expect that it's a pattern that will take hold for a long time to come.

   

  When the jobs report was released last Friday, markets reacted initially with a sharp 200-point sell off. For a while, traders seemed to forget that it's not the economy that has driven the markets but Fed stimulus. They thought bad news was actually bad news. But that "perverse" sentiment didn't last. Once it became clearer (to some) that rate hikes this year were less likely, the markets reversed course and completed a 450-point reversal to the upside. The Fed has created a phony "bad is good economy" and we are not about to snap out of it any time soon.

   

  I expect that once the threat of rate hikes is finally and officially taken off the table, the Wall Street rally will continue. But those gains will be attenuated by a weaker dollar and depressed earnings by domestically focused companies. In that case, it may be better to search for stocks outside the dollar and for the potential benefit of rising share prices and a rising currency. Given how far those assets have been beaten down (see my commentary of July 6th), the opportunities may be worthwhile.

   

  

  

  

  

  

• An Up Close And Personal Look At The Russian Firepower Deployed In Syria

  As Moscow’s air campaign in Syria enters its sixth day, both the West and The Kremlin have put their respective media propaganda machines into overdrive. 

  In many respects, the geopolitical stakes for both sides are the highest they’ve been in decades. The West cannot afford to stand by and watch Russia do in a matter of weeks what the US has failed to accomplish in 13 months. Put simply: if Moscow declares victory over ISIS within the next month or two (and that appears as likely as not), Washington will be left to explain to a bewildered public what just happened. To the uninitiated, it will appear as though Russia’s military is far superior to the US Army when it comes to fighting terror and on top of that, Iran’s now well publicized role will not only cast further doubt on the nuclear deal, but will also raise questions about the contention that Tehran is committed to financing and exporting terror. 

  For Russia, the powerplay in Syria represents nothing short of a return to the world stage after decades of flying below the radar as a second rate superpower. Putin has now proven that Moscow can project its influence with virtual impunity and as Monday’s “accidental” violation of Turkish airspace suggests, The Kremlin is getting more brave by the day in the face of what certainly looks like a de facto surrender by the West. 

  All of the above presents a real challenge when it comes to analyzing the conflict. That is, with both sides in full-on spin mode, getting at the truth is even more difficult than it would normally be in an East vs. West standoff and while US foreign policy is something of an easy target when it comes to pointing out hypocrisy and outright incompetence, one also has to be careful to avoid taking the Russian line at face value because after all, this is all just a contest to control the narrative and thus to help determine how history will remember the Syrian civil war. 

  With all of that said, watching Russia effectively humiliate the West by bragging day in and day out is nothing if it’s not amusing, and indeed, as we said on Sunday, the leaked diplomatic cable from 2006 which outlines Washington’s intent to effectively start a civil war in Syria leaves one completely uninclined to be at all sympathetic to the ridiculous situation the US and its allies have found themselves in and on that note, we present the following rundown from Sputnik and RT, respectively, of just what type of hardware Moscow is using on the way to routing anti-regime elements in Syria.

  Of course one could easily create a similar profile for Washington’s military hardware with the only difference being that the US likes to perpetuate the myth that there’s a degree of separation between the Army, the government, and weapons manufacturers.

  From Sputnik:

  A wide range of missiles and bombs equipped with advanced guidance systems are currently being used by Russia in its air campaign against Islamic State militants in Syria.

   

  During precision airstrikes, Russian weaponry is launched from high altitudes to evade mobile air-defense systems.

   

  The precision bombs typically use the GLONASS navigation system to destroy targets, the Russian developed alternative to GPS, whereas missiles are guided by a weapons system operator.

   

  

   

  The precision weapons include is the KAB guided bomb, which includes two modifications such as KAB-250 and KAB-500.The KAB-250 bomb was designed in the 2000s for the Russian fifth generation PAK-FA fighter jet. Its distinctive egg-shaped form can be explained by the fact that this bomb is mounted in inside the plane’s bays.

   

  

   

  The bomb is also used by advanced Russian warplanes, including the Su-34 bombers, which are currently taking part in the air operation in Syria. The aircraft drop these bombs on Islamic State targets from an altitude of 5,000 meters.

   

  The concrete-piercing BETAB-500 bombs are equipped with a jet booster, which allows the bombs to completely destroy any underground installation.

   

  

  From RT:

  The Su-34 is a strike fighter and the most modern aircraft to take part in Russia’s operation against Islamic State in Syria. 

   

  Its development began in the mid-’80s as a replacement for the Su-24, with the country’s military receiving the first batch of new warplanes in 2006. 

   

  The jet is designed for the supersonic penetration of enemy airspace at treetop level in the most severe weather and battle conditions. 

   

  The two-pilot strike fighter is sometimes referred to as ‘a flying tank’ due to an armored cockpit and efficient standoff weapons, which enable it to survive not only missile fragments, but even direct hits from small caliber arms.

   

  

   

  The Su-24 is a tactical bomber meant to fly below the radar and hit ground targets from low altitudes. The military wanted the plane to have short take-off and landing capabilities to so that it could be used on small airfields.

   

  An early prototype had four turbojet engines that complemented two main engines during take-off. The scheme, however, proved to be very inefficient, so instead designers gave it variable-sweep wings.

   

  The plane first entered service in the early 1970s. A decade later a better variant called Su-24M with a different radar and targeting equipment needed for more precise weapons was introduced. This model is the backbone of Russia’s tactical bomber. Sukhoi continues upgrading the aircraft.

   

  

   

  Su-25 is another Russian Air Force work horse, introduced in early 1980s. The jet was designed for close air support – that is, to directly help ground forces engage the enemy.

   

  

  
  

  

  

  

  

• Nickels, Meet Steamroller: Embattled Bank Suckers Hedge Funds Into EM Insurance Bet

  Are you looking to make a terrible investment decision?

  Well sure you are, isn’t everyone?

  And thanks to the fact that it appears we may now be testing the limits of the market’s collective patience with the notion of central bank omnipotence, there are plenty of bad investment opportunities out there to choose from. 

  That said, you always want to go big or go home, which is why what you might want to do is go out and ask a struggling emerging markets lender what its worst “assets” are and then offer to insure those assets against default so that said lender can then go out and invariably make more terrible decisions on the way to hopefully creating a non-negligible amount of systemic risk. 

  If that sounds crazy to you, that’s because it most certainly is, but don’t tell the buysiders who inexplicably decided to go long EM credit risk at the worst possible time in decades via their participation in a synthetic CLO from none other than Standard Chartered. Here’s Bloomberg:

  Imagine this pitch: Buy a complicated, derivatives-based deal tied to emerging-markets debt. Right now. In a shaky credit market.

   

  The expected response might be laughter — or speechlessness. But Standard Chartered pulled off just such a deal in the past few weeks, selling a $236.3 million piece of a synthetic collateralized loan obligation to a group of hedge funds in a risk-transfer maneuver.

   

  Did I mention this is Standard Chartered? The London-based bank has been accused of breaching U.S. sanctions against Iran, shook up its upper management a few months ago and does a lot of business in China. Its shares have lost more than 20 percent so far this year.

   

  Standard Chartered’s deal was aimed at lowering the amount of money it must hold to offset riskier holdings. The bank reduced its capital charges by millions of dollars on a $3.5 billion pool of debt by paying hedge funds to insure against potential losses.

   

  The bank had a ready-made audience,and other big banks have completed billions of dollars of similar deals in recent years.

   

  But this one took an extra leap of faith. About 17 percent of the reference loans were domiciled in China, some 17 percent in Hong Kong and 7 percent in India, according to the prospectus dated Sept. 23. Also, this deal came after Standard Chartered shook up its upper management and as China’s slowest growth in more than two decades roils Southeast Asia.

  Now look, there’s never really a “good” time to start moving credit risk from imperiled banks onto your own balance sheet, and apparently, the hedge funds that got into the mezz tranches here are getting something like an 11% yield which looks great in a world dominated by ZIRP, but one can’t help but wonder if this isn’t going to be a disaster. 

  Bloomberg characterizes this as “a complicated, derivatives-based deal,” which is a typical characterization for synthetic CDOs. Not to take anything away from that description (because bless their hearts, it’s probably just a well meaning attempt to warn readers that they’re about to be subjected to some financial alphabet soup), but these deals aren’t really all that complicated conceptually. Here’s how this works: I have some loans I made that I think are probably bad and it’s keeping me from making more bad loans because the regulators don’t like the amount of risk I’m taking, so what I’ll do is I’ll periodically pay you some spread over a benchmark rate I probably manipulated and then you’ll agree to pay up when these loans go bad. Because they aren’t my problem anymore, I get to go to my regulators and say “see, these guys are on the hook, not me, so now please let me go out and make more of these bad loans” and of course because the cost of capital is zero, it’s a sweet deal for me, even if I fooled you into believing that the CDS premium I’m paying you is attractive. 

  In case that’s not clear enough, allow us to simplify further: metaphorically speaking, the hedge funds that participated in this deal just knowingly issued a whole bunch of flood insurance on a bevy of homes in New Orleans knowing that hurricane Katrina is coming. 

  Of course there are no certainties in the world and if EM doesn’t suffer a complete meltdown, then anyone who agreed to provide doomsday insurance in return for a thousand basis points of yield is going to look very, very smart and we certainly won’t begrudge them their (fiat) profits, but just note that you heard it here first – this is picking up nickels in front of a steamroller.

  

  

  

  

• How The Chinese Will Establish A New Financial Order

  Submitted by Porter Stansberry via InternationalMan.com,

  For many years now, it’s been clear that China would soon be pull­ing the strings in the U.S. financial system.

  In 2015, the American people owe the Chinese government nearly $1.5 trillion.

  I know big numbers don’t mean much to most people, but keep in mind… this tab is now hundreds of billions of dollars more than what the U.S. government collects in ALL income taxes (both cor­porate and individual) each year. It’s basically a sum we can never, ever hope to repay – at least, not by normal means.

  Of course, the Chinese aren’t stupid. They realize we are both trapped.

  We are stuck with an enormous debt we can never realistically repay… And the Chinese are trapped with an outstanding loan they can neither get rid of, nor hope to collect. So the Chinese govern­ment is now taking a secret and somewhat radical approach.

  China has recently put into place a covert plan to get back as much of its money as possible – by extracting colossal sums from both the United States government and ordinary citizens, like you and me.

  The Chinese “State Administration of Foreign Exchange” (SAFE) is now engaged in a full-fledged currency war with the United States. The ultimate goal – as the Chinese have publicly stated – is to cre­ate a new dominant world currency, dislodge the U.S. dollar from its current reserve role, and recover as much of the $1.5 trillion the U.S. government has borrowed as possible.

  Lucky for us, we know what’s going to happen. And we even have a pretty good idea of how it will all unfold. How do we know so much? Well, this isn’t the first time the U.S. has tried to stiff its foreign creditors.

  Most Americans probably don’t remember this, but our last big currency war took place in the 1960s. Back then, French President Charles de Gaulle denounced the U.S. government’s policy of print­ing overvalued U.S. dollars to pay for its trade deficits… which allowed U.S. companies to buy European assets with dollars that were artificially held up in value by a gold peg that was nothing more than an accounting fiction. So de Gaulle took action…

  In 1965, he took $150 million of his country’s dollar reserves and redeemed the paper currency for U.S. gold from Ft. Knox. De Gaulle even offered to send the French Navy to escort the gold back to France. Today, this gold is worth about $12 billion.

  Keep in mind… this occurred during a time when foreign govern­ments could legally redeem their paper dollars for gold, but U.S. citizens could not.

  And France was not the only nation to do this… Spain soon re­deemed $60 million of U.S. dollar reserves for gold, and many other nations followed suit. By March 1968, gold was flowing out of the United States at an alarming rate.

  By 1950, U.S. depositories held more gold than had ever been assembled in one place in world history (roughly 702 million ounces). But to manipulate our currency, the U.S. government was willing to give away more than half of the country’s gold.

  It’s estimated that during the 1950s and early 1970s, we essentially gave away about two-thirds of our nation’s gold reserves… around 400 million ounces… all because the U.S. government was trying to defend the U.S. dollar at a fixed rate of $35 per ounce of gold.

  In short, we gave away 400 million ounces of gold and got $14 billion in exchange. Today, that same gold would be worth $620 billion… a 4,330% difference.

  Incredibly stupid, wouldn’t you agree? This blunder cost the U.S. much of its gold hoard.

  When the history books are finally written, this chapter will go down as one of our nation’s most incompetent political blunders. Of course, as is typical with politicians, they managed to make a bad situation even worse…

  The root cause of the weakness in the U.S. dollar was easy to understand. Americans were consuming far more than they were producing. You could see this by looking at our government’s annual deficits, which were larger than ever and growing… thanks to the gigantic new welfare programs and the Vietnam “police ac­tion.” You could also see this by looking at our trade deficit, which continued to get bigger and bigger, forecasting a dramatic drop (eventually) in the value of the U.S. dollar.

  Of course, economic realities are never foremost on the minds of politicians – especially not Richard Nixon’s. On August 15, 1971, he went on live television before the most popular show in Ameri­ca (Bonanza) and announced a new plan…

  The U.S. gold window would close effective immediately – and no nation or individual anywhere in the world would be allowed to exchange U.S. dollars for gold. The president announced a 10% surtax on ALL imports!

   

  Such tariffs never accomplish much in terms of actually altering the balance of trade, as our trading partners simply put matching charges on our exports. So what actually happens is just less trade overall, which slows the whole global economy, making the impact of inflation worse.

   

  Of course, Nixon pitched these moves as patriotic, saying: “I am determined that the American dollar must never again be a hos­tage in the hands of international speculators.”

   

  The “sheeple” cheered, as they always do whenever something is done to “stop the speculators.” But the joke was on them. Within two years, America was in its worst recession since WWII… with an oil crisis, skyrocketing unemployment, a 30% drop in the stock market, and soaring inflation. Instead of becoming richer, millions of Americans got a lot poorer, practically overnight.

  And that brings us to today…

  Roughly 40 years later, the United States is in the middle of anoth­er currency war. But this time, our main adversary is not Europe. It’s China.

   

  And this time, the situation is far more serious. Our nation and our economy are already in an extremely fragile state. In the 1960s, the American economy was growing rapidly, with decades of expansion still to come. That’s not the case today.

  This new currency war with China will wreak absolute havoc on the lives of millions of ordinary Americans, much sooner than most people think. It’s critical over the next few years for you to understand exactly what the Chinese are doing, why they are doing it, and the near-certain outcome.

  

  

  

  

  

• A New "Red Line"

  Presented with no comment…

   

  

   

  Source: Investors.com

  

  

  

  

  

• Have We Reached A "Peak Water" Tipping Point In California?

  Submitted by Gaius Publius via DownWithTyrannry blog,

  

  It may be a see-saw course, but it's riding an uphill train.

  A bit ago I wrote, regarding climate and tipping points:

  The concept of "tipping point" — a change beyond which there's no turning back — comes up a lot in climate discussions. An obvious tipping point involves polar ice. If the earth keeps warming — both in the atmosphere and in the ocean — at some point a full and permanent melt of Arctic and Antarctic ice is inevitable. Permanent ice first started forming in the Antarctic about 35 million years ago, thanks to global cooling which crossed a tipping point for ice formation. That's not very long ago. During the 200 million years before that, the earth was too warm for permanent ice to form, at least as far as we know.

   

  We're now going the other direction, rewarming the earth, and permanent ice is increasingly disappearing, as you'd expect. At some point, permanent ice will be gone. At some point before that, its loss will be inevitable. Like the passengers in the car above, its end may not have come — yet — but there's no turning back….

   

  I think the American Southwest is beyond a tipping point for available fresh water. I've written several times — for example, here — that California and the Southwest have passed "peak water," that the most water available to the region is what's available now. We can mitigate the severity of decline in supply (i.e., arrest the decline at a less-bad place by arresting its cause), and we can adapt to whatever consequences can't be mitigated.

   

  But we can no longer go back to plentiful fresh water from the Colorado River watershed. That day is gone, and in fact, I suspect most in the region know it, even though it's not yet reflected in real estate prices.

  Two of the three takeaways from the above paragraphs are these: "California and the Southwest have passed 'peak water'" and "most in the region know it." (The third takeaway from the above is discussed at the end of this piece.)

  "For the first time in 120 years, winter average minimum temperature in the Sierra Nevada was above freezing"

  My comment, that "most in the region know it," is anecdotal. What you're about to read below isn't. Hunter Cutting, writing at Huffington Post, notes (my emphasis):

  With Californians crossing their fingers in hopes of a super El Niño to help end the state's historic drought, California's water agency just delivered some startling news: for the first time in 120 years of record keeping, the winter average minimum temperature in the Sierra Nevada was above freezing. And across the state, the last 12 months were the warmest on record. This explains why the Sierra Nevada snow pack that provides nearly 30% of the state's water stood at its lowest level in at least 500 years this last winter despite precipitation levels that, while low, still came in above recent record lows. The few winter storms of the past two years were warmer than average and tended to produce rain, not snow. And what snow fell melted away almost immediately.

   

  Thresholds matter when it comes to climate change. A small increase in temperature can have a huge impact on natural systems and human infrastructure designed to cope with current weather patterns and extremes. Only a few inches of extra rain can top a levee protecting against flood. Only a degree of warming can be the difference between ice-up and navigable water, between snow pack and bare ground.

   

  Climate change has intensified the California drought by fueling record-breaking temperatures that evaporate critically important snowpack, convert snowfall into rain, and dry out soils. This last winter in California was the warmest in 119 years of record keeping, smashing the prior record by an unprecedented margin. Weather records tend to be broken when a temporary trend driven by natural variability runs in the same direction as the long-term trend driven by climate change, in this case towards warmer temperatures. Drought in California has increased significantly over the past 100 years due to rising temperatures. A recent paleoclimate study found that the current drought stands out as the worst to hit the state in 1,200 years largely due the remarkable, record-high temperatures.

  The rest of Cutting's good piece deals with what the coming El Niño will do. Please read if that interests you.

  There's an easy way to think about this. Imagine the thermostat in your home freezer is broken and the temperature inside goes from 31 degrees to 33 degrees overnight, just above freezing, with no way to turn it down. Now imagine the Koch Bros (and "friends of carbon" Democrats) have emptied your town of repair people — every last one of them is gone. It's over, right? Everything in the freezer is going to thaw. Then the inside is going to dry out. And everyone in your house who doesn't already know this will figure it out. All because of a two-degree change in temperature that can't be reversed.

  When it comes to climate, two non-obvious rules apply:

  • Change won't be linear; there will be sudden bursts at tipping points.
  • Pessimistic predictions are more likely to be right than optimistic ones.

  Most people get this already, even if they haven't internalized it. Which is why most people already know, or strongly suspect, that California and the American Southwest have already crossed a line from which there will be no return. This revelation, from the state's water agency, just adds numbers. Time to act decisively? Do enough people think so?

  Negative and Positive Takeaways

  I said that two of the three takeaways about California, from the text I quoted at the beginning, were these: "California and the Southwest have passed 'peak water'" and "most in the region know it." The third is from the same sentence: "though it's not yet reflected in real estate prices"  — meaning farm land as well as urban property.

  It's just a matter of time, though. Prices will fall as awareness hits, awareness that future prices can only fall. Note that prices in bear markets tend to be decidedly non-linear. And when that awareness does hit, when land is cheap, insurance expensive and the population in decline, nothing coming out of the mouths of the Kochs — or methane-promoting politicians in the Democratic Party — will change a single mind. (In terms of our playful freezer metaphor, you know the thing's going to end up in the yard, right? It just hasn't been carted out yet.)

  But that's just the negative takeaway. There's a positive takeaway as well. It's not over everywhere, not yet. From the same piece quoted at the top, referring to the tipping point of extreme weather:

  This [incidence of extreme weather] is "a" tipping point, not "the" tipping point. We have slid into a "new normal" for weather, but please note:

  • We're talking only about the weather, not a host of other effects, like extreme sea level rise. I don't think we've passed that tipping point yet.
  • We can stop this process whenever we want to — or rather, we can force the "carbon bosses" and their minions in government to stop whenever we want to stop them. They have only the power we collectively allow them to have.

  It really is up to us, and it really is not too late in any absolute sense. For my playfully named (but effective) "Easter Island solution," see here. For a look at one sure way out, see here.

  Will it take a decidedly non-linear, noticeably dramatic, event to create critical mass for a real solution? If so, we could use it soon, because the clock is ticking. It may be a see-saw course, but it's riding an uphill train. (Again, the real solution, expressed metaphorically, is here. Expressed directly, it's here. Everything less is a delaying tactic.)

  

  

  

  

• Caught On Tape: Furious French Workers Attack Air France Executives, Rip Their Clothes Off

  Earlier today amid the general gloom of Europe’s sliding non-manufacturing PMIs, the one place that stood out like a sore thumb bucking the deteriorating trend, was France which not only posted an increase from August but also beat expectations.

  We strongly doubt this metric has any basis in reality because among numerous other contrary-specific factors, Bloomberg reported that as part of Air France’s long-running spat with workers over cost cuts, violence erupted earlier today as protesters stormed a meeting where managers were presenting plans for 2,900 jobs cuts, causing executives to flee with their clothes in tatters.

  According to the report, human resources chief Xavier Broseta and Pierre Plissonnier, the head of long-haul flights, scaled an eight-foot high fence to escape, shielded by security guards, with Broseta emerging shirtless and Plissonnier with his suit shredded.

  Casting some serious doubt on the service PMI “recovery” is that the attacks happened Monday as Air France told its works council that after the failure of productivity talks with pilots last week some 300 cockpit crew, 900 flight attendants and 1,700 ground staff might have to go. The cuts could include the first forced dismissals since the 1990s, according to the carrier, which subsequently postponed the meeting.

  The company, unhappy with the terrible publicity that the photos and video clips presented below will unveil about the corporate culture at Air France, promptly tried to downplay the incident, saying in a statement that “these attacks were made by isolated and particularly violent individuals as the demonstration by personnel on strike was going on calmly,” adding that a complaint had been filed for aggravated violence. We expect many more complains will be filed before the latest surge in anger at the upcoming layoffs dissipates.

  It’s not just bad news for up to 3,000 soon to be unemployed workers but for Boeing too, which may be about to see the first scrapping of Dreamliner orders:

  Under the savings plan announced today, Air France’s fleet would be reduced by 14 jets, with orders for Boeing Co. 787s scrapped and aging Airbus Group SE A340s phased out. The Air France-KLM Group unit indicated there was scope for compromise should unions come forward with serious savings measure.

   

  Air France said last week it was planning cuts to jobs, jets and routes in the absence of a deal with pilots, who had been asked to work more hours for the same pay to help end annual losses that began in 2011. Government ministers had urged the sides to continue talking so that jobs could be saved.

  The upcoming layoffs were once again blamed almost entirely on events in Asia: “The changes would require a shrinking of Air France’s network, with a reduction in frequencies and more sweeping seasonal capacity cuts next year, following by the termination of some routes in 2017, especially to Asia, where competition is toughest. Frequencies to 22 destinations would be affected.”

  Expect more outbursts of violence and even more profits for tailors in Paris, confirming the Keynesian “torn suit fallacy”, because the job cuts are said to be implemented around mid-December at the earliest, or just in time for the holidays.

  Meanwhile, this is the outcome as the anger of several thousand French workers finally spills over.

  

  

  

  

  

  

  

   

  And roll the tape:

  

  

  

  

• Saudi Oil Minister Puts On Brave Face Amid Severe Headwinds: "Eventually, Economic Producers Will Prevail"

  As the EM world looks on helplessly while Saudi Arabia’s war with the US shale complex (and, by extension, with the Fed) serves to keep crude prices depressed putting enormous pressure on commodity currencies and accelerating emerging market outflows, the question is whether Riyadh’s SAMA piggy bank can outlast the various capital market lifelines available to America’s largely uneconomic shale drillers. 

  It’s tempting to simply say “yes.” That is, with the next round of revolver raids due in days and with HY spreads blowing out amid jittery US markets, it seems unlikely that maligned US producers will be able to survive for much longer, and despite the fact that data out yesterday shows Riyadh’s FX reserves falling to a 32-month low, the Saudi war chest still amounts to nearly $700 billion,  giving the kingdom plenty of ammo. However, between maintaining subsidies, defending the riyal peg, and fighting two proxy wars, Saudi Arabia’s fiscal situation has deteriorated rapidly, forcing Riyadh to tap the bond market in an effort to help plug a hole that amounts to some 20% of GDP. 

  Given the above, some have dared to suggest that in fact, the Saudis could lose this “war” just as they may be set to lose their status as regional power broker to Tehran thanks to Iran’s partnership with Moscow in the ongoing effort to shore up Assad in Syria and wrest control of Baghdad from the US.

  But don’t tell that to Saudi Arabia’s Oil Minister Ali al-Naimi who says that despite all the uncertainty, the economics of oil exploration and production will prevail at the end of the day. Here’s Reuters, citing Economic Times:

  Saudi Arabia’s Oil Minister Ali al-Naimi believes economic producers will prevail over higher-cost suppliers and OPEC’s share of the market will rise, India’s Economic Times newspaper reported on its website on Monday.

   

  In comments suggesting Saudi Arabia, the world’s top oil exporter, is sticking to its policy of defending market share rather than supporting prices, Naimi told the paper the drop in oil prices was less of a problem than fluctuations.

   

  “The world needs a reliable, sustainable supply. Best way to do it is to make sure that demand and supply should be equal, so there will not be fluctuation of price. The biggest problem for everybody, producer and consumer today, is fluctuation — the ups and downs,” he was quoted as saying.

   

  Referring to reports that the number of drilling rigs deployed by U.S. shale producers is falling, Naimi said: “Eventually, economic producers will continue to prevail,” the paper reported.     

   

  Naimi disagreed with analysts who believe OPEC’s market share would fall further, the paper reported. “On the contrary, OPEC’s market share will be higher,” he said.

  Maybe so, but make no mistake, this is a precarious time for the Saudis. If the US shale complex finally folds under the weight of its own debt, bad economics, and less forgiving capital markets allowing Riyadh to raise prices again having secured the future of the country’s market share, and if Iran and Russia end up being content with preserving the regional balance of power and don’t move to push the issue in Iraq and Yemen once they’re done “saving” Syria, then the Saudis may well weather the storm. 

  However, there are quite a few things that can go wrong here that would serve to destabilize the situation and if the rumors about a rebellion within the royal family are true, the slightest misstep could end up being catastrophic.

  

  

  

  

  

• Treasury Sells 3-Month Bills At 0% Yield For First Time Ever

  “Investors” are so desperate to hold on to short-term paper that they paid $100 for a 3-month Treasury-bill at today’s auction. That is a 0% yield – for the first time ever – lower even than the auction right after Lehman’s bankruptcy in Nov 2008.

   

  

  Chart: Bloomberg

  It is probably safe to say that NIRP is next, followed by more negative yields further to the right of the curve, as the US gradually becomes Europe.

  But don’t worry: as Yellen admitted during her healthcare-scare speech, “nominal interest rates cannot go much below zero“, just a little.
  

  

  

  

  

  

• Russia Escalates Syria Proxy War: Threatens Full Naval Blockade Of Syria

  Last week, NATO’s supreme allied commander for Europe, General Philip Breedlove, suggested that Russia has effectively declared a no-fly zone in Syria. 

  That contention was supported by Moscow’s rather bold move to effectively instruct the US-led coalition to keep its planes out of the sky starting last Wednesday. Ultimately, The Kremlin has declared a monopoly on Syrian air space for the duration of Russia’s military campaign, marking an epic embarrassment for Washington, and serving notice to the anti-regime forces operating in Syria that there’s a new sheriff in town. 

  Well, don’t look now, but in addition to the de facto no-fly zone, some experts are out suggesting that Russia is set to use its Black Sea fleet to enforce a blockade on the Syrian coast. Here’s Sputnik:

  Russia’s Black Sea Fleet may be used in Syria to blockade the Syrian coastline and deliver armaments, as well as possibly deliver artillery strikes, the head of Russian State Duma’s defense committee and former Black Sea Fleet commander Vladimir Komoyedov said.

   

  “Regarding the large-scale use of the Black Sea Fleet in this operation, I don’t think it will happen, but in terms of a coastal blockade, I think that it’s quite [possible]. The delivery of artillery strikes hasn’t been excluded; the ships are ready for this, but there is no point in it for now. The terrorists are in deep, where the artillery cannot reach,” Komoyedov said.

   

  Komoyedov added that the size of the naval grouping used in the operation will depend on the intensity of the fighting. He noted that currently, the navy’s Mediterranean flotilla is currently sufficient for actions in the given area.

   

  Komoyedov also said that auxiliary vessels will certainly be used in the operation against ISIL to deliver armaments as well as military and technical equipment.

  Meanwhile, the aerial bombardment continues unabated as Russian warplanes have reportedly destroyed “a terrorist base in the woods” where tanks – which are ironically Soviet made- were stationed. Here’s RT:

  The Russian Air Force in Syria has conducted 25 sorties on 9 Islamic State installations in the last 24 hours, eliminating a disguised terrorist base equipped with tanks, a command center and a communication hub, the Defense Ministry reported.

   

  Russian bombers taking off from Khmeimim airbase knocked out a terrorist base hidden in the woods near the city of Idlib, eliminating 30 vehicles, among which were several Soviet-made T-55 tanks.

   

  “Six airstrikes hit the base, and the terrorists’ equipment was fully destroyed,” Konashenkov said. 

  And here’s the video which purportedly shows the attack on the hidden ISIS base:

  While according to Russian weatherwomen, mother nature is smiling on The Kremlin’s efforts (via The Guardian):

  It’s warm and sunny in Syria – and conditions are perfect for flying fighter jets and launching airstrikes, according to a weather report broadcast on Russian state television. 

   

  “Russian aerospace forces are continuing their operation in Syria. Experts say the timing for it was chosen very well in terms of weather,” said the forecaster in a segment aired on Rossiya 24 on Sunday, standing in front of a screen showing a Sukhoi Su-27 fighter jet with the words “flying weather”.

  For those wondering how long it would be before an “accident” took place, “inadvertently” pitting Russian fighter planes against NATO, we got the answer on Monday as Turkey scrambled F-16s to the border after Russia allegedly violated Ankara’s air space. Here’s a bit of color from BBC:

  Russia said the incident was a “navigational error” and that it has “clarified” the matter to Ankara.

   

  Turkish jets patrolling the border were also “harassed” by an unidentified plane on Sunday, Turkey said.

   

  Turkey, a Nato member, has called the Russian strikes a “grave mistake”.

   

  Turkish Prime Minister Ahmet Davutoglu told Turkish TV that the rules of engagement were clear, whoever violates its airspace.

   

  “The Turkish Armed Forces are clearly instructed. Even if it is a flying bird, it will be intercepted,” he said.

  Only, that’s not true, because the first time Ankara shoots down a Russian “flying bird”, Erdogan will have a real war on his hands and will swiftly discover that while bombing air force-less Kurdish separatists with impunity is easy, dog fights with Russian fighter pilots are not, and just about the last thing Turkey needs with inflation soaring and the lira tumbling and elections looming is to go to war with Russia. 

  In any event, the situation is clearly escalating, and as the Russians get more bold with each passing NATO bluff and subsequent fold, the stakes get still higher. As hyperbolic as it may sound, the West is now one Erodgan miscalculation away from open warfare with Russia and Moscow looks to be just days away from enforcing a full naval blockade of what is rapidly becoming a Mid-East Kremlin colony.

  

  

  

  

  

• US Government Accused Of "War Crime" By Doctors Without Borders In Bombing That Killed 22

  In the aftermath of Saturday’s tragic and unprecedented bombing of an Afghanistan hospital by the US air force, one which killed 22 and continued for 30 minutes after mission command has been allegedly notified of the “error” which the US initially claimed was “collateral damage”, the Doctors without Borders physician group in charge of operating the hospital has come out swinging and has equated the US bombing of a hospital to engaging in nothing short of a war crime.

  According to AFP, “pressure mounted on Washington Monday to come clean over the apparent US airstrike on an Afghan hospital that killed 22, an incident the Pentagon chief said was “confused and complicated” but which medical charity MSF branded a war crime.”

  MSF general director Christopher Stokes, however, had no intention of waiting:

  “Under the clear presumption that a war crime has been committed, MSF demands that a full and transparent investigation into the event be conducted by an independent international body.”

  Stokes also hit out at claims by Afghan officials that insurgents were using the hospital as a position to target Afghan forces and civilians.

  “These statements imply that Afghan and US forces working together decided to raze to the ground a fully functioning hospital with more than 180 staff and patients inside because they claim that members of the Taliban were present,” he said.

  “This amounts to an admission of a war crime. This utterly contradicts the initial attempts of the US government to minimise the attack as ‘collateral damage’.”

  Others joined in: UN rights chief Zeid Ra’ad Al Hussein has also called for a full and transparent probe, noting: “An air strike on a hospital may amount to a war crime.”

  To be sure, the US which has done everything in its power in the past week to divert attention to Russian bombardment in Syria as attacks on Syrian “civilians” and “moderate rebels”, had a canned response: Defense Secretary Ashton Carter expressed sadness over the “tragic loss of life” but warned that the investigation will not be swift.

  “The situation there is confused and complicated so it may take some time to get the facts, but we will get the facts, but we will be full and transparent about sharing them,” he told reporters on a flight to Madrid at the start of a European tour.

  Then, moments ago after the US government did in fact admit, again, it was at fault, the DwB once again lashes out at the US government with the following statement:

  “Today the US government has admitted that it was their airstrike that hit our hospital in Kunduz and killed 22 patients and MSF staff. Their description of the attack keeps changing—from collateral damage, to a tragic incident, to now attempting to pass responsibility to the Afghanistan government. The reality is the US dropped those bombs. The US hit a huge hospital full of wounded patients and MSF staff. The US military remains responsible for the targets it hits, even though it is part of a coalition. There can be no justification for this horrible attack. With such constant discrepancies in the US and Afghan accounts of what happened, the need for a full transparent independent investigation is ever more critical.”

  So what is the US response? Why desperately attempt to pivot once again to Russian “war crimes”

  • NATO URGES RUSSIA TO STOP HARMING CIVILIANS, SYRIAN OPPOSITION

  And the biggest US strategic asset in the region, of course: ISIS.

  More importantly, we fail to find any historical precedent for a Nobel Peace Prize winner having been accused of engaging in war crimes just several short years later.

  

  

  

  

  

  

• How America's "Think Tanks" Are Compromised & Bought Off By Foreign Governments

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  The think tanks do not disclose the terms of the agreements they have reached with foreign governments. And they have not registered with the United States government as representatives of the donor countries, an omission that appears, in some cases, to be a violation of federal law, according to several legal specialists who examined the agreements at the request of The Times.

   

  As a result, policy makers who rely on think tanks are often unaware of the role of foreign governments in funding the research.

   

  Several legal experts who reviewed the documents, however, said the tightening relationships between United States think tanks and their overseas sponsors could violate the Foreign Agents Registration Act, the 1938 federal law that sought to combat a Nazi propaganda campaign in the United States. The law requires groups that are paid by foreign governments with the intention of influencing public policy to register as “foreign agents” with the Justice Department.

   

  At least one of the research groups conceded that it may in fact be violating the federal law.

   

  – From the New York Times article: Foreign Powers Buy Influence at Think Tanks

  Liberty Blitzkrieg readers will be under no illusions when it comes to the role “Think Tanks” play within America’s crony, unethical, slimy and entirely compromised political system. Nevertheless, the recent New York Times article exposing how foreign governments, likely illegally, use them to buy influence in Washington D.C., is extremely important and disturbing. Let’s examine a few excerpts.

  From the New York Times:

  WASHINGTON — The agreement signed last year by the Norway Ministry of Foreign Affairs was explicit: For $5 million, Norway’s partner in Washington would push top officials at the White House, at the Treasury Department and in Congress to double spending on a United States foreign aid program.

   

  But the recipient of the cash was not one of the many Beltway lobbying firms that work every year on behalf of foreign governments.

   

  It was the Center for Global Development, a nonprofit research organization, or think tank, one of many such groups in Washington that lawmakers, government officials and the news media have long relied on to provide independent policy analysis and scholarship.

   

  The money is increasingly transforming the once-staid think-tank world into a muscular arm of foreign governments’ lobbying in Washington. And it has set off troubling questions about intellectual freedom: Some scholars say they have been pressured to reach conclusions friendly to the government financing the research.

   

  The think tanks do not disclose the terms of the agreements they have reached with foreign governments. And they have not registered with the United States government as representatives of the donor countries, an omission that appears, in some cases, to be a violation of federal law, according to several legal specialists who examined the agreements at the request of The Times.

   

  As a result, policy makers who rely on think tanks are often unaware of the role of foreign governments in funding the research.

  And you wonder why U.S. foreign policy is such an epic disaster…

  “It is particularly egregious because with a law firm or lobbying firm, you expect them to be an advocate,” Mr. Sandler added. “Think tanks have this patina of academic neutrality and objectivity, and that is being compromised.”

   

  The arrangements involve Washington’s most influential think tanks, including the Brookings Institution, the Center for Strategic and International Studies, and the Atlantic Council. Each is a major recipient of overseas funds, producing policy papers, hosting forums and organizing private briefings for senior United States government officials that typically align with the foreign governments’ agendas.

   

  Most of the money comes from countries in Europe, the Middle East and elsewhere in Asia, particularly the oil-producing nations of the United Arab Emirates, Qatar and Norway, and takes many forms. The United Arab Emirates, a major supporter of the Center for Strategic and International Studies, quietly provided a donation of more than $1 million to help build the center’s gleaming new glass and steel headquarters not far from the White House. Qatar, the small but wealthy Middle East nation, agreed last year to make a $14.8 million, four-year donation to Brookings, which has helped fund a Brookings affiliate in Qatar and a project on United States relations with the Islamic world.

  Recall that Qatar was one of the major funders of ISIS in the early days. For more, see:

  America’s Disastrous Foreign Policy – My Thoughts on Iraq

  Some scholars say the donations have led to implicit agreements that the research groups would refrain from criticizing the donor governments.

   

  “If a member of Congress is using the Brookings reports, they should be aware — they are not getting the full story,” said Saleem Ali, who served as a visiting fellow at the Brookings Doha Center in Qatar and who said he had been told during his job interview that he could not take positions critical of the Qatari government in papers. “They may not be getting a false story, but they are not getting the full story.”

  Oh, they’re getting a false story.

  In interviews, top executives at the think tanks strongly defended the arrangements, saying the money never compromised the integrity of their organizations’ research. Where their scholars’ views overlapped with those of donors, they said, was coincidence.

   

  “Our currency is our credibility,” said Frederick Kempe, chief executive of the Atlantic Council, a fast-growing research center that focuses mainly on international affairs and has accepted donations from at least 25 countries since 2008.

  If that’s the case, I’d be loading up on the tenge way before buying Atlantic Council rupee.

  In their contracts and internal documents, however, foreign governments are often explicit about what they expect from the research groups they finance.

   

  “In Washington, it is difficult for a small country to gain access to powerful politicians, bureaucrats and experts,” states an internal reportcommissioned by the Norwegian Foreign Affairs Ministry assessing its grant making. “Funding powerful think tanks is one way to gain such access, and some think tanks in Washington are openly conveying that they can service only those foreign governments that provide funding.”

   

  Several legal experts who reviewed the documents, however, said the tightening relationships between United States think tanks and their overseas sponsors could violate the Foreign Agents Registration Act, the 1938 federal law that sought to combat a Nazi propaganda campaign in the United States. The law requires groups that are paid by foreign governments with the intention of influencing public policy to register as “foreign agents” with the Justice Department.

   

  “I am surprised, quite frankly, at how explicit the relationship is between money paid, papers published and policy makers and politicians influenced,” said Amos Jones, a Washington lawyer who has specialized in the foreign agents act, after reviewing transactions between the Norway government and Brookings, the Center for Global Development and other groups.

   

  At least one of the research groups conceded that it may in fact be violating the federal law.

   

  “We have to respect their academic and intellectual independence,” Mr. Otaka, the Japanese Embassy spokesman, said in a separate interview. But one Japanese diplomat, who asked not to be named as he was not authorized to discuss the matter, said the country expected favorable treatment in return for donations to think tanks.

   

  “If we put actual money in, we want to have a good result for that money — as it is an investment,” he said.

   

  But three lawyers who specialize in the law governing Americans’ activities on behalf of foreign governments said that the Center for Global Development and Brookings, in particular, appeared to have taken actions that merited registration as foreign agents of Norway. The activities by the Center for Strategic and International Studies and the Atlantic Council, they added, at least raised questions.

   

  “The Department of Justice needs to be looking at this,” said Joshua Rosenstein, a lawyer at Sandler Reiff.

  But of course, the “Justice” Department will not be looking into anything.

  Now how about this gem…

  Michele Dunne served for nearly two decades as a specialist in Middle Eastern affairs at the State Department, including stints in Cairo and Jerusalem, and on the White House National Security Council. In 2011, she was a natural choice to become the founding director of the Atlantic Council’s Rafik Hariri Center for the Middle East, named after the former prime minister of Lebanon, who was assassinated in 2005.

   

  But by the summer of 2013, when Egypt’s military forcibly removed the country’s democratically elected president, Mohamed Morsi, Ms. Dunne soon realized there were limits to her independence. After she signed a petition and testified before a Senate Foreign Relations Committee urging the United States to suspend military aid to Egypt, calling Mr. Morsi’s ouster a “military coup,” Bahaa Hariri called the Atlantic Council to complain, executives with direct knowledge of the events said.

   

  Ms. Dunne declined to comment on the matter. But four months after the call, Ms. Dunne left the Atlantic Council.

   

  Ms. Dunne was replaced by Francis J. Ricciardone Jr., who served as United States ambassador to Egypt during the rule of Hosni Mubarak, the longtime Egyptian military and political leader forced out of power at the beginning of the Arab Spring. Mr. Ricciardone, a career foreign service officer, had earlier been criticized by conservatives and human rights activists for being too deferential to the Mubarak government.

   

  Scholars at other Washington think tanks, who were granted anonymity to detail confidential internal discussions, described similar experiences that had a chilling effect on their research and ability to make public statements that might offend current or future foreign sponsors. At Brookings, for example, a donor with apparent ties to the Turkish government suspended its support after a scholar there made critical statements about the country, sending a message, one scholar there said.

   

  “It is the self-censorship that really affects us over time,” the scholar said. “But the fund-raising environment is very difficult at the moment, and Brookings keeps growing and it has to support itself.”

   

  But in 2012, when a revised agreement was signed between Brookings and the Qatari government, the Qatar Ministry of Foreign Affairs itself praised the agreement on its website, announcing that “the center will assume its role in reflecting the bright image of Qatar in the international media, especially the American ones.” Brookings officials also acknowledged that they have regular meetings with Qatari government officials about the center’s activities and budget, and that the former Qatar prime minister sits on the center’s advisory board.

   

  Mr. Ali, who served as one of the first visiting fellows at the Brookings Doha Center after it opened in 2009, said such a policy, though unwritten, was clear.

   

  “There was a no-go zone when it came to criticizing the Qatari government,” said Mr. Ali, who is now a professor at the University of Queensland in Australia. “It was unsettling for the academics there. But it was the price we had to pay.”

  The price “we the people had to pay is…

  

  The above excerpts are just a small part of the story. I suggest you read the entire article, as it also explains how the mad dash to push the corporate giveaway, Trans Pacific Partnership (TPP) agreement, was partly funded by foreign payoffs to think tanks.

  

  

  

  

  

• Bad News Piles On For Hedge Fund Hotel SunEdison: First $315MM Margin Call, Now Mass Layoffs

  It has been a long way up and quick ride down for SunEdison but bad news keeps piling up for the hedge fund hotel even as it dead-cat-bounces again. As the stock bounces, just as it bounced in September after Steve Cohen's Point72 exposed their stake and JPM jumped to the rescue, uncertainty remains extreme. Amid a surge in debt and increasingly negative operating cash-flow, the plunge in stock (asset) price may have triggered a cross-collateral margin call of around $315 million. Furthermore, mass layoffs are on the cards as the CEO attempts to "optimize" the business.

   

  Another squeeze…

  

  Charts: Bloomberg

  Some investors have dumped the stock due to low oil prices and turmoil in commodity markets — a problem for other public solar companies as well. However, short sellers have targeted SunEdison more than its competitors.

  Recent acquisitions have nearly doubled SunEdison's debt load and increased negative operating cash flow. The Vivint acquisition, which wasn't an obvious fit with SunEdison's culture and traditional business of building large solar-power plants, added to investor skepticism.

   

  The stock has become a playground for hedge funds.

  But uncertainty remains extreme…

  SunEdison may have triggered a collateral call on its $410 million margin loan, a report from CreditSights says, citing a decline in the financially-linked TerraForm Power Inc (known as a "yieldco," the spin-off of a related business venture), which fell 36% in September and continued to slide, down 49% year ­to ­date.

   

  

   

  After sifting through four different SEC documents – a 10Q at SunEdison, an equity prospectus at TerraForm, a convertible bond 8K from SunEdison and a margin loan agreement at SunEdison… the report concludes it is possible SunEdison to be dragged down by TerraForm and the added burden of posting cash collateral for the margin loan that was backed by stock.

   

  CreditSights says the margin loan is yet another example of lack of disclosure but they reiterate their our conclusion on the collateral call.

  As Creditsights concludes…

  there are a lot of moving parts to SunEdison and the more we find the more negative we get on the sponsor company of TerraForm Power.

  And now, as GreenTechMedia.com's Stephen Lacey reports, SunEdison is now culling its workforce.

  According to a company-wide memo from CEO Ahmad Chatila released on September 30, SunEdison will be laying off around 10 percent of its 7,300 employees. Many employees received notices on Friday.

   

  "Overall, the proposed changes result in an overall reduction of about 30%, 20% being from non-labor expenses and about 10% from headcount reduction. And this process will take some time to complete. Most of the changes will be announced during the fourth quarter with some final steps expected in the first quarter of 2016," reads the memo.

   

  The staff reduction will come through integrating acquired companies and "eliminating redundancy." It will also come from simplifying management structures in different areas of the business, and focusing on a smaller range of geographic regions.

   

  The cuts have reached all the way to the VP level, but not the executive level. Sources within the company expressed worry and surprise that the cuts didn't impact the architects of the Vivint acquisition.

   

  When asked for comment, SunEdison would not address the cuts specifically.

   

  "We are proposing to take several actions around the world to optimize our business, align with current and expected market opportunities and position ourselves for long-term growth. In October we plan to provide investors with a more comprehensive view of our business structure and go-forward strategic growth plan in a conference call," wrote spokesperson Gordon Handelsman in an email.

  More details on SunEdison's plans to "align with current and expected market opportunities" will be forthcoming this week.

  

  

  

  

  

• Oct 6 – Fed's Rosengren: Door Still Open For 2015 Fed Rate Hike

  Follow The Market Madness with Voice and Text on FinancialJuice

  EMOTION MOVING MARKETS NOW: 33/100 FEAR

  PREVIOUS CLOSE: 20/100 EXTREME FEAR

  ONE WEEK AGO: 12/100 EXTREME FEAR

  ONE MONTH AGO: 10/100 EXTREME FEAR

  ONE YEAR AGO: 5/100 EXTREME FEAR

  Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 25.65% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating fear on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 19.54. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: FEAR The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating fear.

   

  PIVOT POINTS

  EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY 
  

  S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B)

  EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL)

  CRUDE OIL (CL) | GOLD (GC) | 10 YR T NOTE | 2 YR T  NOTE | 5 YR T NOTE | 30 YR TREASURY BOND| SOYBEANS | CORN

   

  MEME OF THE DAY – BEIJING AFTER VOLKSWAGEN

   

  UNUSUAL ACTIVITY

  FOLD .. JAN 9 and 10 CALLS on the offer

  MDT activity in the NOV 72.5 CALLS

  FUND  Senior Portfolio Manager P    18,231  A  $ 5.9175

  LPCN – President and CEO P    2,000  A  $ 12  P    700  A  $ 11.6799 P    1,300  A  $ 11.676

  More Unusual Activity…

  HEADLINES

   

  Fed’s Rosengren: Door Still Open For 2015 Fed Rate Hike

  BOJ may need to ease again as prospect of Fed rate hike fades –Nikkei

  ECB: French, Dutch, Lithuanian cbanks to trial reverse auctions

  ECB PSPP: +EUR8.271Bn To EUR346.15Bn (prev +EUR11.161Bn To EUR337.879Bn)

  ECB Post-Summer Boost to Bond Purchases Slows Near Month End

  US, 11 nations on verge of historic Pacific Rim trade accord

  Russia mulls oil talks

  Saudis say Opec market share will increase

  UK FinMin Osborne: There a lot of risks in world economy

  DoJ: BP settlement will cost $20.8bn

   

  GOVERNMENTS/CENTRAL BANKS

  Fed’s Rosengren: Door Still Open For 2015 Fed Rate Hike –MW

  US, 11 nations on verge of historic Pacific Rim trade accord –WaPo

  Ford, others say trade deal lacks currency protections

  ISM’s Nieves says a slowdown in retail was linked to stocks and confidence –ForexLive

  ECB: French, Dutch, Lithuanian C. Banks To Trial Reverse Auctions –BBG

  BOJ may need to ease again as prospect of Fed rate hike fades

  UK FinMin Osborne: There a lot of risks in world economy –ForexLive

  UK FinMin Osborne: We will build a budget surplus in UK –FT

  PMI: Eurozone Shows Signs Of Growth Waning At End Of Solid Q3 –Markit

  PMI: Weakest Rise In UK Activity In Nearly 2.5-Years In September –Markit

  Germany FinMin Schaeuble: Too early to talk about delays in the Greek plan –ForexLive

  Portugal Government Re-Elected Despite Painful Austerity –Yahoo

  Greek Budget To Forecast EUR3.4 Bln Rev. Shortfall In 2015 –EFSYN

  Fitch: EU Bank Resolution Paths Diverge, Coordination Important

  Italy FinMin Padoan will tomorrow announce proposals for common funds to finance cyclical unemployment benefits in the EZ –BBG

  FIXED INCOME

  ECB PSPP: +EUR8.271Bn To EUR346.15Bn (prev +EUR11.161Bn To EUR337.879Bn)

  ECB CBPP: +EUR 2.548Bn To EUR122.803Bn (prev +EUR1.993Bn To EUR120.255Bn)

  ECB ABSPP: +EUR385Mn To EUR13.150Bn (prev +EUR759Mn To EUR12.765Bn)

  ECB Post-Summer Boost to Bond Purchases Slows Near Month End

  Portuguese bonds at five-month high after election –FT

  Central Banks Lose Bond-Market Credibility as Woes Mount –BBG

  FX

  FX: Currency trading volumes pull back in September –FT

  USD: Dollar Ticks Down After ISM Non-manufacturing Survey

  BANKS: Banks face erosion of business around currency fix –FT

  ENERGY/COMMODITIES

  WTI futures settle +1.6% at $46.26 per barrel

  Brent futures settle +2.3% at $49.25 per barrel

  Brent crude jumps most in two weeks –FT

  Oil prices rise on China stimulus hopes –MW

  Russia mulls oil talks –CNBC

  Saudi’s Naimi says OPEC share of the oil market will increase –ForexLive

  More pain ahead for copper – Barclays

  EQUITIES

  BofA, Deutsche Bank slice S&P 500 forecasts –FT

  DoJ: BP settlement will cost $20.8 billion –WaPo

  M&A: Potash Corp. Withdraws $8.8bn Offer For German Rival K+S –WSJ

  M&A: Suncor makes C$6.6bn bid for Canadian Oil Sands –FT

  Canadian Oil Sands unlikely to engage with Suncor on basis of current proposals –Rtrs source

  M&A: Nestle in talks to merge international ice cream ops with R&R –Rtrs

  ACTIVIST: Trian Takes $2.5bn stake in General Electric –MW

  ACTIVIST: Trian buys more Dupont shares –CNBC

  TECH: Jack Dorsey back in the flock as permanant Twitter boss –CityAM

  TECH: Google takes stake in messaging startup Symphony, valuing company at $650M –BI

  BANKS: UK launches Lloyds bank shares sell-off –Daily Mail

  BANKS: Banks face erosion of business around currency fix –FT

  M&A: Full Takeover Of Glencore Is Not On The Agenda –Telegraph

  COMMODS: Glencore Surges In Hong Kong Amid Unit Sale Talks –Rtrs

  ECONOMY: UK Firms See Least Certain Outlook In 2.5 Years –Deloitte

  BREXIT: Prudential May Quit Britain Over New EU Diktat –Sunday Times

  AIRLINES: Air France To Announce Job Cuts Under New Restructuring Plan –BizTimes

  TECH: The UK is the e-commerce capital of the EU –CityAM

  RETAIL: American Apparel files for bankruptcy protection –FT

  TECH: Facebook Says Planned Software Changes Caused Outages –WSJ

  RETAILS: Moody’s: US Apparel And Footwear Industry Outlook Drops To Stable As Strong Dollar Squeezes Earnings

  BANKS: ANZ limits lending to clean coal –AFR

  EMERGING MARKETS

  World Bank Trims 2015, 2016 East Asia Forecasts, Cites China, US Rate Risks –Rtrs

  Modi and Merkel vow trade talks and 2.25 billion green energy dollars –Rtrs

   

  Nigerian central bank chief hints at import ban end –FT

  

  

  

  

  

• Nomi Prins: How Trump Became Trump And What That Means For The Rest Of Us

  Authored by Nomi Prins via TomDispatch.com,

  Trumpocrisy

  The Donald’s Finances and the Art of Ignoring Conflicts and Contradictions

  The 2016 election campaign is certainly a billionaire’s playground when it comes to “establishment candidates” like Hillary Clinton and Jeb Bush who cater to mega-donors and use their money to try to rally party bases. The only genuine exception to the rule this time around has been Bernie Sanders, who has built a solid grassroots following and funding machine, while shunning what he calls “the billionaire class” that fuels the super PACs.

  Donald Trump, like Ross Perot back in the 1992 and 1996 elections, has played quite a different trick on the money-saturated American political system.  He has removed the billionaire as middleman between citizen plebeians and political elites, and created a true .00001% candidate, because he’s… well, a financial elite unto himself, however conveniently posed as the country’s straight-talking “everyman.”

  Despite his I-can-buy-but-can’t-be-bought swagger, Trump’s persona has been carefully constructed to deflect even the most obvious questions of conflict of interest that his wealth and deal-making history should bring up. He claims that he would govern (or dictate) as he is, no apologies or bullshit. But would he?

  The billionaire-as-president is a new prospect for America. The only faintly comparable situation in our history came before the Crash of 1929, when President Calvin Coolidge, who famously declared that “the business of America is business,” reappointed mogul Andrew Mellon as his treasury secretary, just as President Warren Harding had done before him. A walking conflict of interest, Mellon left Washington during Herbert Hoover’s administration to avoid Congressional scrutiny of his personal business endeavors. He was later investigated by the Department of Justice for falsifying tax information in his own business empire.

  Trump is, by his own admission, a dealmaker who has, since the 1970s, utilized self-promotion and his own growing celebrity to make money.  Nonetheless, he denies the importance of money itself. His quasi-autobiography, The Art of the Deal, opens with this now-familiar tall tale: “I don’t do it for the money. I’ve got enough, much more than I’ll ever need. I do it to do it. Deals are my art form.”

  Today, he asserts that he is worth a cool $10 billion, having long been cagey about just how much he has. That figure, too, may be more scam than reality. Forbes pegs Trump's fortune at $4 billion in its 2015 top billionaires list, where he places 405th in the world and 133rd in the U.S.  In his 92-page Federal Election Committee financial filing, which doesn’t require the disclosure of his total wealth, the value of his global enterprises, assets, debts, and income sources are listed in ranges, rather than exact figures. More than 20 items are characterized as worth “over $50 million.”

  He has at least $1.4 billion in assets and $285 million in debt, if we use just $50 million as a guesstimate on those items; $2.8 billion in assets and $570 million in debt, if we pick the figure of $100 million instead. In other words, we still don’t know what he’s worth. As with so much else, we just have to take his word for it.

  Consider the presidency as Donald Trump’s ultimate deal. And don’t think for a second that if he entered the Oval Office his money and deal-making lust and every conflict of interest that went with them wouldn’t follow him there.

  He claims to be an open book — “the definition of the American success story,” as his campaign website puts it.  He wants people to believe (as his acolytes do) that he’s just like us — except for the hair — only richer, more successful, and (not to mince words) better. That narrative has, of course, been carefully constructed for our consumption, which means, if he succeeds, we are part of his chosen art form, his deal.  

  Though you might not know it from the incessant media coverage of his candidacy or his P.T. Barnum-ish self-glorification, there are plenty of pieces missing from his financial story that call into question both his skill as a dealmaker and his business acumen.  Though there’s been much discussion of how money from the Koch Brothers and other billionaire donors might influence 2016’s candidates, there’s been little discussion of how Trump might be influenced by the billionaire backing him: himself.

  Celebrity Apprentice

  The Trump phenomenon has delivered ratings to networks and, arguably, the apolitical to their TV sets. It’s probably sold a lot of cars, judging from the commercials that went with the recent Republican debates. A record 24 million people watched the first one on Fox News.  That event was, in fact, such an obvious triumph for Fox that CNN upped the ante, expanding the second debate to a full (some would say endless) three hours. As Trump noted, “I guess it was to sell commercials.” CNN similarly shattered its prior election debate records, averaging 23 million viewers.

  All of this has been a boon for The Donald, who clearly has a remarkable ability to glue cameras to him and use the media to his advantage, a skill he honed starting with his first Manhattan deal in 1973. When Trump went on ABC’s This Week with George Stephanopoulos on August 23rd, he dispatched Jeb Bush this way: “We need a person with a lot of smarts, a lot of cunning, and a lot of energy. And Jeb doesn't have that,” while dissing Scott Walker as a governor whose “state is really in trouble.” Walker just left the race. Jeb continues to falter. Call it Trump magic.

  The Donald has long perfected two proven strategies for winning: attack and deflect. On both counts, he is a TV veteran. Appearing on NBC’s Late Night with David Letterman in 1987 to promote The Art of the Deal, his skill in deflecting attention from aspects of his life that might otherwise diminish his aura was already on full display. When Letterman probed the particulars of Trump’s personal wealth multiple times, he dodged effectively, insisting, “You’ll never get it out of me.” He also deflected his host’s question about the degree to which his father’s money contributed to his success. “He was a solid guy and a bright guy, I learned a lot” was about all Letterman could dig out of him on Fred Trump.

  And here’s an irony: for all his edginess, Trump’s savvy in avoiding what might embarrass or confine him makes him much more of a politician that he’d like us to believe.  His father, however, provided Trump with far more guidance and help than that “self-made man” would care for us to realize.  So let’s start with a little tour of his celebrity apprenticeship.

  Fred Trump was born in Queens, New York, in 1905. According to The Donald, Fred's father had emigrated to the United States from Sweden in 1885.  Fred himself would convert a business in low-income housing into a $300 million fortune.

  A year after leaving high school, Fred built his first home in Woodhaven, Queens. “It cost a little less than $5,000 and he sold it for $7,500,” his son proudly wrote years later. 

  By 1929, Fred was building larger homes. When the Depression hit, he bought a bankruptcy mortgage-service company, which he sold for a profit a year later. In 1934, he returned to building lower-priced homes in the depressed Flatbush area of Brooklyn. During the next dozen years, he would build 2,500 of them in Brooklyn and Queens. 

  Trump and his father had an "a relationship that was almost businesslike,” The Donald would later write and from Fred he would, he’s testified, learn toughness, though “I also realized that if I ever wanted to be known as more than Fred Trump’s son, I was eventually going to have to go out and make my own mark.”

  Think, for instance, of George W. Bush’s urge to surpass his father’s record of political power — and war making. But don’t imagine for a moment that Trump struck out on his own any more than the young Bush did. Trump recounts his first major deal as Swifton Village, a foreclosed apartment complex in Cincinnati that he said he bought with his father in 1969, while still in college. (Cincinnati Magazine claims the purchase was Fred’s exclusively.) The price was $6 million and in 1972, they resold it for $12 million, according to Trump (and a far more modest $6.75 million according to other estimates).

  But Cincinnati was never The Donald’s dream. He wanted Manhattan from the beginning. His first deal there started in 1973 with a desire to purchase the old Penn Central rail yards at 34th Street on the West side of the island.

  At that time, New York was a complete financial mess. That summer, Trump came across a newspaper story about the Penn Central Railroad bankruptcy filing. Penn Central trustees had hired a small LA-based investment management company led by Victor Palmieri to sell its assets, including its long abandoned yards in the West thirties and sixties. Ever the con artist, Trump recalled, “I couldn’t sell him on my experience or my accomplishments, so instead I sold him on my energy and my enthusiasm.”

  Trump initially proposed building middle-income housing on the site with government financing. When the city became mired in financial problems and money for public housing dried up, he switched to Plan B and “began promoting the site as ideal for a convention center.”

  Trump still did nothing without his father’s involvement.  As their development firm had no official name, they decided to call it the Trump Organization, which covered them both and, they hoped, had a certain gravitas. Over the next several years, Trump solicited support from New York Mayor Abe Beame, who belonged to the same club as his father and to whom his father and he gave money, as he later wrote, “like all developers.” Palmieri would give Trump his virgin credibility with the press as his choice for developer, swearing to Barron’s that “he’s larger than life.”

  On July 29, 1974, the New York Times featured a front-page story on how the Trump Organization secured options to buy the two waterfront sites from Penn Central for $62 million. However, it was Mayor Ed Koch who, in 1978, gave Trump’s pet project for a future convention center at West 34th Street his official stamp of approval by agreeing to buy the site. That site would eventually become the Javits Convention Center.

  It was the symbolic, if not financial break The Donald had been waiting for. As for the West 60th street site, due to numerous problems, he let the option expire in 1979. In a sense, Donald Trump would never look back, but he would have to look down often enough.

  Trump’s Bankruptcies

  As Carly Fiorina made crystal clear to almost 23 million Americans in the second Republican debate (the topic had been broached in the first one), Trump’s companies have officially gone bankrupt four times since 1991, or as Trump spun it, “I used the law four times and made a tremendous thing. I’m in business. I did a very good job.”

  While that’s a small number of bankruptcies relative to the hundreds of companies that comprise his empire, they represented a fair amount of debt. There was the Trump Taj Mahal (with $1 billion in debt) in Atlantic City in 1991 and the Trump Plaza Hotel in Atlantic City in 1992 (with $550 million in debt). Trump Hotels and Casino Resorts, the company created from the post-bankruptcy ashes of the Taj Mahal, the Trump Plaza, and also Trump Marina in Atlantic City filed for Chapter 11 bankruptcy protection (with $1.8 billion of debt) in 2004. Bankruptcy number four, Trump Entertainment Resorts (the post-bankruptcy company created to take over the remains of Trump Hotels and Casino Resorts) filed for Chapter 11 bankruptcy protection (with $1.74 billion of debt) in February 2009.

  While Trump owned 28% of its stock, as he told Bloomberg News upon resigning from the board four days before the $53 million bond payment that forced it into bankruptcy was due, “I have nothing to do with it. I’m not in it. I’m not on the board.”

  He continues to argue that the Atlantic City bankruptcies weren’t his fault, but attributable to the casino environment of that moment.  Though there is some truth to that, he glosses over his method of creating new companies to purchase the bankrupt ones, after shedding their debts, and his convenient exit timing from management posts to shed blame.

  While four of his companies officially went down for the count, he had many companies that didn’t and, as he has repeatedly said, he himself never declared personal bankruptcy (so his credit score likely remains in fine shape).  Keep in mind, though, that, hard as it is to find consistent basic information about Trump’s various disasters, the count of his unofficial bankruptcies would undoubtedly run significantly higher.  After all, a number of his companies effectively went bankrupt by closing down or being bought out at bargain basement prices.

  In 1989, for instance, Trump purchased the Eastern Air Shuttle, connecting New York, Boston, and Washington, D.C. with hourly flights, for roughly $365 million. But the Trump name didn’t carry the day and passengers didn’t pony up for the line’s fancier seats and gold lavatory fixtures. Instead, in 1990 Trump defaulted on the loans he had taken out to finance the company, and its ownership reverted to its creditors, led by Citibank. The Trump Shuttle was then merged into a new corporation, Shuttle Inc., and in April 1992, its routes were assumed by USAir Shuttle, which is one way the rich make problems disappear.

  In April 2006, at a Trump Tower gala, Trump’s son Donald, Jr. promised that Trump Mortgage would become the nation's number one home-loan lender. In a CNBC interview shortly afterwards, Trump said, “Who knows about financing better than I do?” Eight months later, the company closed down amid the crashing housing market and negative publicity over an unfortunate hiring choice. Trump’s CEO, E.J. Ridings, had lied on his résumé. His previously advertised “top” spot at one of Wall Street’s “most prestigious banks” turned out to have been as a lowly broker — for one week. As Trump continually reminds us, he only has the best people work for him.

  Then there was “Trump University,” active from 2005 to 2010, where, for $25,000-$35,000, students could assumedly learn how to become real-estate gods like Trump. According to related lawsuits, they were then enticed to take out credit cards under phony business names to help pay for the privilege, and to inflate their income by projecting profits from non-existing businesses.

  Earlier this month, New York Attorney General Eric Schneiderman told the New York Daily News that approximately 600 former students have filed suit against the “university” in Manhattan Supreme Court. Similar suits are pending in California. Schneiderman claimed Trump banked $5 million personally from the scam. Trump had also ignored 2005 warnings not to use the word “university” in the name.

  Of course, if ordinary Americans declare bankruptcy due to unforeseen or difficult circumstances, they are regularly stigmatized as lazy deadbeats. The Trumps of our world, however, being rich enough to launch corporate bankruptcy protection filings, are seen as savvy dealers.  In this sense, Trump couldn’t have been savvier, since he’s survived one potential financial catastrophe after another. Unfortunately, his experiences have absolutely no applicability to ordinary Americans, even though, as David Dayen wrote at the Intercept, “Everyone would have benefited from relieving primary mortgage debt, the absence of which led to at least six million foreclosures.“

  Trump International

  It’s evident from Trump’s recent comments that his foreign policy ideas haven’t evolved much since he last seriously thought about running for president in 2011 when he wrote the first version of a campaign book, Time to Get Tough (updated for his 2016 bid). 

  Then, too, he talked about “getting China to stop playing currency charades,” while declaring his “great respect for the people of China” and blaming “our leaders and representatives” for making terrible deals with their leaders that have cost American jobs.  What Trump didn’t discuss then, and doesn’t discuss now, is how U.S. companies, his own included, produce and sell in China because they make more money doing that. Though he regularly complains that we don't manufacture anything here anymore, neither does he bother to explain his own patriotism shortfall, since he and his daughter, Ivanka, have clothing lines made in China (and Mexico, that land of “rapists,” and Bangladesh, a country continuously in violation of human rights for garment workers).

  Absent any sense of irony, he has blamed Chinese currency manipulation for making him set up shop in China and claims China is “killing us.” This, though the Chinese stock markets have recently been hammered, the Yuan is weakening, and the country’s growth is slowing, hardly signs of an imminent threat. It’s a great Trumpian combo, though: anti-China anger plays well with the xenophobic crowd, while a weaker Yuan keeps costs down on Trump’s clothing business. A deal, after all, is a deal.

  According to the Trump Organization website and his Federal Election Commission financial disclosures, he has operations practically worldwide, but notably not in Russia.  Yet Trump has had his eye on doing business there for a long time. As far back as 1987, when it was still the Soviet Union, he wanted to erect a Trump Tower in Moscow’s Red Square. In 2013, he was still talking about the possibility in Vladimir Putin’s Russia. Perhaps because of his ongoing business interests (or their mutual maverick styles), Trump, unlike his Republican presidential opponents for whom the Russian president is little short of the devil incarnate, regularly claims that he will have a “great relationship” with Putin.

  As for Trump’s Mexican border wall and the fantasy of getting the Mexican government to pay for it, Trump has made hay with the immigration issue.  You wouldn’t know, listening to him, that the number of illegal immigrants has dropped significantly since the financial crisis. On the Late Show recently, Trump doubled down on his wall, comparing it to the Great Wall of China and suggesting that “we can have a great and beautiful wall, we'll have our border, and guess what, nobody comes in unless they have their papers." This from the man who has a borderless record of outsourcing jobs and tax revenues to Mexico and elsewhere.

  All of this adds up to a vast set of potential conflicts of interest and downright deception should Donald Trump ever set foot in the White House, a subject that is at the heart of what might be called Trumpocrisy in the present campaign, but seldom part of the debate by or about The Donald himself.

  The Polls

  For now, Trump remains the clear GOP frontrunner in terms of composite polling results. His polling success has been predicated since announcing his candidacy on a cocktail of bravado, media exposure, tactical hits on opponents as if they were competitors for one of his casino deals, and the wholesale avoidance of any serious discussion of the financial baggage he brings with him into the election season. Can there be any question that, for the man who wanted to leave his father’s helping hand behind, bagging the Oval Office would be the ultimate step in outshining Fred Trump’s legacy? It’s less clear what the rest of us get out of it.

  Trump assures us that he wouldn’t let his business dealings interfere with his politics, but is he really prepared to step away from all Trump Organization matters globally? Does anyone believe that his deal-making instincts will die in the Oval Office? Or would building Trump Tower in Moscow be the touchstone for any future conversation with Putin about Ukraine and Syria? Would his acts be indicative of what happens — consider Bill Clinton netting high speaking fees from countries in which then-Secretary of State Hillary Clinton was conducting foreign policy — when you fuse public office and private power? In historical terms, it would be as if a Morgan or a Rockefeller were running the country and his private business affairs at the same time, creating the quintessential conflict of public and private interest.

  Unfortunately, we are used to politicians saying whatever they think they need to say to be elected president, and falling way short of their campaign promises on the job. Even scarier would be the notion of selling America to the craftiest bidder. The election may be more than a year away, but isn’t it time to dig beneath the carefully crafted persona that is Trump and unearth the person and the full spectrum of his business dealings? To see the real Donald Trump is to plunge into all the conflicts of interest he denies, the financial tricks he dispenses, the crucial details he obfuscates, and the flimflam he offers up day in, day out.

  

  

  

  

  

• Syria Ground War Imminent? U.S. Accuses Russia Of Launching Syrian Land Campaign

  While the US was been surprised and angered by the stunningly fast turn of events in Syria where in the span of less than a month Russia unleashed a massive, Syria-based airborne campaign against what it says are ISIS terrorists, even as the US accuses Putin of targeting “moderate rebels”, it has had little recourse in accusing Putin of violating Syrian sovereignty: after all Russia is the only nation that Syria has officially invited to eradicate the “terrorist threat” that is ISIS.

  Then, last Friday, Syria raised the stakes once again, when as Bloomberg reported a loyalist of the Assad regime said “terrorism cannot only be fought from the air,” making an appeal for more military involvement to defeat Islamic State.

  In a defiant speech at the United Nations General Assembly in New York, Syrian Foreign Minister Walid al-Muallem criticized the current approach to fighting the group that has conquered swathes of territory and was encroaching on President Bashar al-Assad’s coastal stronghold in Latakia. Those gains triggered Russian intervention.

   

  “Air strikes are useless unless they are coordinated with the Syrian Arab army, the only force to combat terrorism,” al-Muallem, who also holds the title of deputy prime minister, told a largely empty assembly hall on Friday, the last day of speeches.

  The logical implication is that Syria will next invite, if it hasn’t already done so, Russian troops to join the Russian airforce in eradicating the great ISIS strawman which until recently was the pretext for “coalition” forces to bombard Syria with complete disregard for Syrian sovereignty, and the intention of destroying Assad’s military so the CIA can conclude a regime change with a pro-western leader, one which will permit the passage of a Qatar gas pipeline.

  Whether or not this assessment is accurate is irrelevant, because earlier today the US decided to jump right on it, and as CNN reported, accordint to the latest U.S. assessment of Moscow’s activity in western Syria, “Russia has moved several ground combat weapons and troops into the area to potentially back up Syrian forces in the field planning to attack anti-regime forces, according to two U.S. defense officials.”

  The U.S. views the move as Russia “stepping up its ground activity” in Syria to attack those forces, rather than ISIS elements, according to one of the officials.

   

  It’s believed the Russians are positioning the weapons to be able to support a Syrian ground offensive, the officials said.

   

  The equipment includes several piece of artillery, as well as four BM-30 multiple-launch rocket systems — all considered to be highly accurate weapons. The latter is capable of rapid-fire rocket launches. Several weeks ago, Russia moved about half a dozen artillery pieces into Latakia port.

   

  The U.S. originally had thought that might be for defense of the port, but the latest move is an indication of potential ground attacks in the coming days, the official said. The weapons have been spotted between Homs and Idlib and west of Idlib.

   

  It is not clear if they’re now in final position for possible artillery strikes.

   

  The officials also said that Russia has moved electronic jamming equipment into Syria. Both a truck-mounted system and a number of pods that can go on aircraft have been observed. This could potentially give the Russians the ability to jam electronics of coalition aircraft.

  Naturally, when playing the diplomatic game, one never admits or denies one’s true intentions until well after the fact, and moments ago the speaker of the Russian Federation Valentina Matviyenko denied. According to Interfax, Matviyenko said Russia has no intention of taking part in ground operations in Syria.

  “We do not intend, and we will not engage in any ground operations” said Matvienko in the meeting with the head of Jordan’s Senate president Abdelraouf al-Rawabdeh. She stressed that the Russian air campaign in Syria is to support the actions of the regular Syrian army against terrorists.

  Which, ironically, is the excuse for US presence in Syria too.

  What happens next? A very likely course of events is that despite Russia’s denials, the Pentagon will use the gambit of a Russian ground campaign, credible or not, to get permission from Congress to send a “small”, at first, then bigger ground force of US troops in Syria to, you guessed it, “fight ISIS“, but really to do everything to prevent Russian troops from taking over key strategic positions.

  What happens then? Well, with the previously discussed Russian naval campaign of Syria as a likely next step, and with both US and Russian warplanes already flying back and forth above Syria, and now both superpowers having a legitimate, if only in the eyes of their own media, justification to dispatch land troops, what was until now a mere proxy war is about to become full blown land combat on Syrian soil, one which will soon involve both Russian and US ground, sea and airborne forces.

  The last missing step will be when US cruisers, destroyers and/or battleships park next to the Syrian coastline, within earshot (and every other “shot”) away from comparable Russian warships. Keep tabs on the weekly US naval update, because once several US warships weigh anchor in the vicinity of Syria that will be the catalyst for the next and final escalation.

  At that point, the world will be one false flag away from what some could call another world war, only this time one launched not in Serbia but Syria.

  

  

  

  

  

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