Making Unique Observations in a Very Cluttered World

Saturday, 24 August 2013

Putin Responds To Syria Escalation: May "Reinforce Naval Grouping In Mediterranean" Following US Buildup -

Putin Responds To Syria Escalation: May "Reinforce Naval Grouping In Mediterranean" Following US Buildup - 

Newton's third law strikes again.

Yesterday, when describing the latest US developments in the Syrian "liberation" and "WMD elimination" we pointed out that the "use of war as a culmination point to end a depression is nothing new. Just look at the first Great Depression. And just like then, the only cost to perpetuate the myth of the Keynesian and monetarist religion and the pillaged wealth of the 0.01% status quo elite, will be a few hundred thousand innocent men, women and children. Or, as they are known in the Beltway, collateral damage. That is, unless, Putin decides to retaliate."

Moments ago Interfax reported that Russia is starting to pre-emptively, for now, retaliate.

Russia may reinforce naval grouping in Mediterranean in response to U.S. buildup - expert http://bit.ly/18aZtMy 

More from Interfax:

Russia can increase its military presence in the Mediterranean in the case of the possible enlargement of the U.S. naval grouping in the region in the event of the aggravation of the situation in Syria, President of the Academy of Geopolitical Problems Leonid Ivashov believes.

“Russia can increase its naval grouping in the Mediterranean as a reply measure. I think that nothing else remains to prevent the development of the factor of aggression,” he said to Interfax-AVN on Saturday commenting on media reports of the possible increase in U.S. naval presence in the Mediterranean.

In his opinion, Russia should point out to the world the most crying violations of the UN Charter concerning Egypt and especially Syria.

“We should be speaking more strongly of noninterference in the internal affairs of Syria,” Ivashov said.

He said that deliveries of Russian defense systems to the Syrian armed forces could become a lever of influencing the United States and of averting the threat of an attack on Syria.
Will Obama's misreading of the "New Normal" geopolitical balance of power, in which America is rapidly relegating itself from global superpower status and in which Putin most certainly does not see himself as inferior to the US, yet in which there is no actual game theoretical winner if everyone defects (but lots and lots of losers, except for the Fed) force America into a milltary confrontation from which there is no easy and simple way out?

We will find out over the next several days.

* * *

If there is still anyone confused about what the true underlying dynamics behind the "Syrian" question are, we urge you to read this. - http://www.zerohedge.com/news/2013-05-16/mystery-sponsor-weapons-and-money-syrian-rebels-revealed

1987 Redux - How the Fed could cause another 1987 crash - Rising interest rates and the Gathering Storm -

1987 Redux - How the Fed could cause another 1987 crash - Rising interest rates and the Gathering Storm - 

Let’s see. Consumers are carrying more debt than they did in 2007. Corporations are carrying more debt than they did in 2007. The Federal government is carrying 60% more debt than it did in 2007. Cities and States are carrying more debt than they did in 2007. Interest rates have jumped by 80% in the last three months. The economy is clearly in recession, as retailer after retailer reports horrific results. Stocks are as overvalued as they were in 1929, 2000, and 2007. China is experiencing a real estate collapse. Japan is experiencing a cultural/economic/societal collapse. The Middle East is awash in blood. The European Union is held together by lies, delusion and false promises.

What could possibly go wrong? 

Are investors high?

Stock market investors continue to ignore one of the biggest, fastest jumps in long-term interest rates on record.

Yes, the Dow slipped below 15,000 this week, but it remains near its long-term peak — despite the harrowing plunge in the bond market in the past couple of months, which has sent rates surging.

The Federal Reserve’s July policy minutes sent markets on a ride Wednesday afternoon. Steve Russolillo joins The News Hub with a look at the market’s confused reaction as it hedges when the central bank will begin tapering.

Indeed, I suspect one reason the stock market has risen is that some naive investors have calculated that they can be safe by “rotating” out of bonds and into stocks.


I sat down this week with one of the most experienced bond market gurus I know. When I asked him for his advice, he first suggested — only half jokingly - “panic.”

His second bit of advice? Keep calm and carry on. His wife just bought him a large “Keep Calm and Carry On” poster and had it framed. He’s going to take it into his office and hang it “where all the traders on our bond desk can see it.” We are, he believes, in an era of rising interest rates, and they’ll continue to rise much further than most people realize.

He concedes that that’s only his guess, of course.

But here’s what we do know.

At the start of May, the U.S. government could borrow money for 10 years at 1.6% interest. Today, barely four months later, it has to pay 2.88%.

At the start of May, someone buying a new home with a $200,000 mortgage was locking in monthly interest costs of $566. Today, thanks to the surge in mortgage rates, someone making the exact same purchase will have to pay $766 a month in interest.

A company with a BAA credit rating has seen its bond rates spike from 3% to 4% over the same period, and a riskier company with a BA rating jumped from 3.9% to 5.2%.

It’s easy to be fooled by the low absolute level of interest rates into thinking these are small moves. Rates are “only” up by 1% or 1.5%, after all. But actually these are huge moves, because they come from a low base. Mortgage costs are up about a third in a short period, from 3.4% to more than 4.4%. Uncle Sam’s cost of 10-year money has rocketed by 80%.

Traders continue to focus on the minutiae of Federal Reserve minutes and the timing of the Fed’s likely moves in the bond market. Ordinary investors should focus on the bigger picture. The Fed has announced that the era of quantitative easing, and aggressive manipulation of long-term interest rates, is coming to an end. We are due to move, sooner or later, back to an era of “normal” interest rates. Typically, that would mean 10-year Treasury rates about two percentage points above expected inflation, meaning today’s 2.88% yield would become more like 4.5%.

 Not to belabor the point, but when Uncle Sam has to pay 4.5% for 10-year money, he will be paying almost three times the interest he was paying at 1.6%.
If 10-year Treasury rates hit 4.5%, mortgage rates will probably near 6% - meaning that a $200,000 home loan will cost $1,000 a month in interest, instead of $566. An investment-grade BAA borrower will have to pay about 5% on its bonds, instead of the 3.1% paid in early May.

At the very least, you had better understand the risks - of stocks, and not simply of bonds.

Rising interest rates will hit everything from car loans and credit card borrowers to closed-end investment funds, many of which have artificially goosed their yields with leverage. They borrow money at short-term rates and invest it at long-term rates. That has looked good for the past few years. It won’t look so good if the process reverses.

This surge in borrowing costs comes in an economy more in debt than any in history. It’s not just Federal debt and mortgages, either. Consumer credit - ignoring mortgages - is up to $2.8 trillion, according to the Federal Reserve. In 2007, at the height of the “credit bubble,” it was just $2.5 trillion. U.S. businesses owe $12.9 trillion - compared with $11 trillion in 2007.

The future is unknown, of course, and I am acutely conscious of Peter Lynch’s famous dictum, that an individual investor will probably lose more money fearing a stock market crash (over time) than he or she will likely lose in a market crash. Nonetheless, we do know that borrowing costs have surged, and if history is any guide, they have quite a bit further to rise. And we know how indebted the system has become.

People forget that the infamous 1987 stock market crash followed a surge in bond rates. In the months leading up to the October crash, the interest rate on 10-year Treasurys jumped about 45%, compared with the 80% hike we’ve just seen.

I asked my bond market guru over lunch what the risks were that the latest surge in interest rates could precipitate an ’87-style crash. “Quite significant,” he said.

Read more -