Will Voters Elect The "Dutch Trump" Tomorrow?

Authored by Nick Giambruno via InternationalMan.com,

Tomorrow, a vote in the Netherlands could push the euro and the EU one step closer to death…

For the last several months, I’ve been warning readers about a populist tsunami washing through Europe. It’s drastically changing the Continent’s political landscape in a way not seen since before World War 2.

This wave is flushing away traditional “mainstream” parties. And it’s bringing in anti-establishment populists who want to leave the euro currency and the European Union.

It’s already hit the UK in the form of Brexit, killing David Cameron’s pro-EU government in the process.

Then it struck Italy, washing away pro-EU Matteo Renzi’s government.

Tomorrow, on March 15, the populist wave is set to hit the Netherlands.

That’s when Dutch voters go to the polls. I think the anti-EU populist Party for Freedom will win. It’s led by Geert Wilders, who was close to Trump’s campaign. Some even call him the “Dutch Trump.”

Leaving the euro is a top priority for the Party for Freedom. If it wins, it would be another nail in the coffin for the European currency.

Either way, the Dutch parliament will discuss how to leave the Eurozone shortly after the March 15 election.

A top lawmaker recently said that “the probe will examine whether it would be possible for the Dutch to withdraw from the single currency, and if so how,” Reuters reported.

The euro’s problems are compounding and could get much worse, very soon.

Some of Europe’s biggest countries have elections this year:

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  France (April 23)

  
  


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  Germany (September 24)

  
  

These elections will ultimately determine the fate of the European Union.

The Brexit vote, Donald Trump’s election, and the failure of Italy’s constitutional referendum have already boosted anti-euro populist parties in these countries. If the Party for Freedom wins in the Netherlands tomorrow, they’ll get another leg up.

Populist parties have a real chance to win in both France and Germany. But even if they win in just one, the EU would likely unravel.

The biggest issue in these elections is the migrant crisis, which we’ve covered here extensively. And the crisis is only accelerating.

Every single migrant that arrives in Europe increases the chance that anti-EU populists will win a key election. That’s not good news for the EU or the euro. It’s also not good news for the US.

Whatever happens in the EU—the world’s largest economy and a major US trading partner—matters. If the euro collapses, expect it to trigger a stock market collapse in the US.

The Financial Times recently put it this way:

It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash.

If the FT is even partially right, it means we’re looking at a possible stock market crash of historic proportions. It could devastate anyone with a brokerage account. But it could also create enormous opportunities to profit.

Consuming Our Future: Das Warns "The Model Was Always Doomed To Fail"

Only lowering our living standards will achieve sustainable growth. That’s the message from Satyajit Das, a former financier who anticipated the GFC. Debt, energy consumption, housing affordability or superannuation – it’s all based on a financial system that’s in fact a completely fictional model. This model was always doomed to fail – eventually.

Beyond growth as we know it – How can we stop consuming our future?

Full Interview below

As Das concluded previously, nothing has really changed since the 2008-09 crisis. Low interest rates encourage borrowing. Artificially low capital costs have allowed unsustainable businesses to continue, generating sub-standard returns. Companies seek glib solutions to the complex problem of earning adequate returns by re-engineering their finances, rather than improve their operations.

Governments also are increasingly borrowing and adopting private-sector financial engineering techniques to deal with economic problems. Governments have increased their debt levels, in some cases resorting to forcing purchases of bonds by central banks, domestic banks, and captive institutions such as state pension funds.

Conventional and innovative monetary policies have supported aggregate demand and helped maintain economic activity to prevent prevented even deeper recessions. Policies that have sent both real and nominal interest rates to ultra-low levels have resulted in re-distribution of income and wealth.

According to a 2013 report from the McKinsey Global Institute, between 2007 and 2012, governments in the U.S., Europe and the U.K. collectively benefited by $1.6 trillion, primarily through reduced debt-service costs and increased profits remitted from central banks. Most of this wealth transfer came from households, pension plans, insurers, and foreign investors, mainly through lower interest earnings on savings.

It is time that businesses and governments focus on helping the real economy to solve large problems including debt, lack of growth, industrial stagnation, slowing innovation and productivity, aging demographics, income inequality, resource scarcity, and environmental threats.

Financial engineering masks the true performance and health of companies and nations. But the damage goes much deeper, deluding decision-makers into thinking that things are better than they are, and that solutions to problems can be deferred.

And worse still, the mispricing of assets across world markets has reached epidemic proportions.

Stock prices have made strong advances over the past several years, yet market analysts see further gains, arguing that the selloffs of August 2015 and early 2016 represent a healthy correction.

But this rise in stock values has been underpinned by financial engineering and liquidity — setting the stage for a global financial crisis rivaling 2008 and early 2009.

The conditions for a crisis are now firmly established: overvaluation of financial assets; significant leverage; persistent low-growth and deflation; excessive risk taking reliant on central banks for liquidity, and the suppression of volatility.

US Auto Dealers Forced To Rent First "Overflow Lots" In 37 Years Amid Inventory Glut

Yesterday we noted that GM launched an aggressive incentive program in the month of February to clear out some of its pickup truck inventory.  In fact, incentives on the company"s Silverado were up 56% YoY to $6,996, while discounts on the Sierra were up 82% to $5,315 (see "GM Pickup Incentives Surge Over 80% As Auto Bubble Continues To Show Signs Of An Imminent Bust"). 

But apparently GM isn"t the only auto OEM who may have had to splurge on incentive spending in February to clear out inventory piling up on dealer lots.  Inventory days across the industry are up massively YoY and stood at 85 days at the beginning of February, up 22 days from January 1st and up 8 days compared to the same time last year.  As one Honda dealer told Bloomberg, the inventory pile up at his dealership has become so excessive that for the first time in 37 years of business he was forced to rent an overflow lot to park unsold cars in February.

For the first time in his 37 years working at New Jersey car dealerships, Larry Kull had to rent extra space to store unsold new Honda vehicles -- one of the latest signs that the record U.S. auto market is cooling.

Across dealer lots in America, inventory is piling up as automakers produce more cars than are being bought. Dealers had about 85 days worth of cars and trucks on hand at the beginning of February -- about 22 days more than at the beginning of 2017 and eight days more than a year earlier, according to Automotive News Data Center.

“The sales are good, I just have more product on the ground than I’ve had before,” said Kull, who has about 60 days of passenger cars including Civic compacts and Accord sedans stocked at an office parking lot down the road from his Honda store in Marlton, New Jersey. He prefers to have just 45 days worth of cars on hand.

Meanwhile, this news comes just as wall street prepares to digest new car sales data tomorrow.  Overall sales for February are expected to be down slightly while GM is expected to perform "best"  among the D3 on their massive incentive spending (though we"re not sure it"s much of a victory if you"re giving the cars way).

And the import brands are expected to have mixed results as well with VW benefiting from an easy YoY comp associated with their emissions scandal that effectively halted sales a year ago.

As we noted yesterday, there are only two ways to deal with the rising inventory conundrum: i) cut production or ii) splurge on incentives to sell more cars.  Unfortunately, financing terms for autos are about as loose as they can get and interest rates are now headed in the wrong direction so selling more cars the old fashioned way seems unlikely. 

Production cutbacks also have already begun. GM and Fiat Chrysler have eliminated shifts, laid off employees or scheduled days off early this year at plants making slower selling models including the Chevrolet Cruze compacts, Chrysler Pacifica minivans and Buick Lacrosse sedans.

While heavy inventory is a signal of potential pressure on automakers’ profits, it also boosts costs for dealers, which pay interest on inventory as well as any extra expense to store vehicles.

“No one likes to cut production or dial up incentives, and we’re seeing a bit of both,” Thomas King, an analyst with J.D. Power, said by phone. “We’ve got a lot of cars on the ground when the market is moving away from cars.”

Meanwhile, as one dealer points out, part of the inventory problem is a heavy mix towards cars when buyers are now looking to take advantage of low fuel prices and trade up to an SUV.

Raj Murjani, a sales manager at a Lexus dealership in Queens, said he’s selling about 40 or 50 fewer vehicles than usual this month. He sees the gap in popularity between SUVs and sedans continuing to widen, as low gasoline prices encourage consumers to switch to bigger vehicles.

“If it’s a person who’s been in a sedan and they got just the slightest taste of an SUV, they don’t ever want to go back,” he said. “They think going back into a sedan is a downgrade.”

Of course, we"re sure each of these buyers has done extensive modeling on the long-term equilibrium price for crude oil...

New Declassified CIA Memo Presents Blueprint for Syrian Regime Collapse

Submitted by Brad Hoff via The Libertarian Institute,

A newly declassified CIA document explored multiple scenarios of Syrian regime collapse at a time when Hafez al-Assad’s government was embroiled in a covert “dirty war” with Israel and the West, and in the midst of a diplomatic crisis which marked an unprecedented level of isolation for Syria.

The 24-page formerly classified memo entitled Syria: Scenarios of Dramatic Political Change was produced in July 1986, and had high level distribution within the Reagan administration and to agency directors, including presidential advisers, the National Security Council, and the US ambassador to Syria. The memo appears in the CIA’s latest CREST release (CIA Records Search Tool) of over 900,000 recently declassified documents.

A “severely restricted” report

The memo’s cover letter, drafted by the CIA’s Director of Global Issues (the report itself was prepared by the division’s Foreign Subversion and Instability Center), introduces the purpose of presenting “a number of possible scenarios that could lead to the ouster of President Assad or other dramatic change in Syria.”

It further curiously warns that, “Because the analysis out of context is susceptible to misunderstanding, external distribution has been severely restricted.” The report’s narrowed distribution list (sent to specific named national security heads, not entire agencies) indicates that it was considered at the highest levels of the Reagan administration.

The coming sectarian war for Syria

The intelligence report’s contents contain some striking passages which seem remarkably consistent with events as they unfolded decades later at the start of the Syrian war in 2011:

Although we judge that fear of reprisals and organizational problems make a second Sunni challenge unlikely, an excessive government reaction to minor outbreaks of Sunni dissidence might trigger large-scale unrest. In most instances the regime would have the resources to crush a Sunni opposition movement, but we believe widespread violence among the populace could stimulate large numbers of Sunni officers and conscripts to desert or munity, setting the stage for civil war. [pg.2]

The “second Sunni challenge” is a reference to the Syrian government’s prior long running war against a Muslim Brotherhood insurgency which culminated in the 1982 Hama Massacre. While downplaying the nationalist and pluralistic composition of the ruling Ba’ath party, the report envisions a renewal and exploitation of sectarian fault lines pitting Syria’s Sunni population against its Alawite leadership:

Sunnis make up 60 percent of the Syrian officer corps but are concentrated in junior officer ranks; enlisted men are predominantly Sunni conscripts. We believe that a renewal of communal violence between Alawis and Sunnis could inspire Sunnis in the military to turn against the regime. [pg.12]

Regime change and the Muslim Brotherhood

The possibility of the Muslim Brotherhood spearheading another future armed insurgency leading to regime change is given extensive focus. While the document’s tone suggests this as a long term future scenario (especially considering the Brotherhood suffered overwhelming defeat and went completely underground in Syria by the mid-1980’s), it is considered one of the top three “most likely” drivers of regime change (the other scenarios include “Succession Power Struggle” and “Military Reverses Spark a Coup”).

The potential for revival of the Muslim Brotherhood’s “militant faction” is introduced in the following:

Although the Muslim Brotherhood’s suppression drastically reduced armed dissidence, we judge a significant potential still exists for another Sunni opposition movement. In part the Brotherhood’s role was to exploit and orchestrate opposition activity by other organized groups… These groups still exist, and under proper leadership they could coalesce into a large movement… …young professionals who formed the base of support for the militant faction of the Muslim Brotherhood; and remnants of the Brotherhood itself who could become leaders in a new Sunni opposition movement… [pp.13-14]

The Brotherhood’s role is seen as escalating the potential for initially small Sunni protest movements to morph into violent sectarian civil war:

Sunni dissidence has been minimal since Assad crushed the Muslim Brotherhood in the early 1980s, but deep-seated tensions remain–keeping alive the potential for minor incidents to grow into major flareups of communal violence… Excessive government force in quelling such disturbances might be seen by Sunnis as evidence of a government vendetta against all Sunnis, precipitating even larger protests by other Sunni groups…

Mistaking the new protests as a resurgence of the Muslim Brotherhood, the government would step up its use of force and launch violent attacks on a broad spectrum of Sunni community leaders as well as on those engaged in protests. Regime efforts to restore order would founder if government violence against protestors inspired broad-based communal violence between Alawis and Sunnis. [pp.19-20]

The CIA report describes the final phase of an evolving sectarian war which witnesses the influx of fighters and weapons from neighboring countries. Consistent with a 1983 secret report that called for a US covert operation to utilize then US-allied Iraq as a base of attack on Syria, the 1986 analysis says, “Iraq might supply them with sufficient weapons to launch a civil war”:

A general campaign of Alawi violence against Sunnis might push even moderate Sunnis to join the opposition. Remnants of the Muslim Brotherhood–some returning from exile in Iraq–could provide a core of leadership for the movement. Although the regime has the resources to crush such a venture, we believe brutal attacks on Sunni civilians might prompt large numbers of Sunni officers and conscripts to desert or stage mutinies in support of dissidents, and Iraq might supply them with sufficient weapons to launch a civil war. [pp.20-21]

A Sunni regime serving Western economic interests

While the document is primarily a theoretical exploration projecting scenarios of Syrian regime weakening and collapse (its purpose is analysis and not necessarily policy), the authors admit of its “purposefully provocative” nature (see PREFACE) and closes with a list desired outcomes. One provocative outcome describes a pliant “Sunni regime” serving US economic interests:

In our view, US interests would be best served by a Sunni regime controlled by business-oriented moderates. Business moderates would see a strong need for Western aid and investment to build Syria’s private economy, thus opening the way for stronger ties to Western governments. [pg. 24]

Ironically, the Syrian government would accuse the United States and its allies of covert subversion within Syria after a string of domestic bombings created diplomatic tensions during the mid-1980’s.

Dirty tricks and diplomacy in the 1980’s

According to Patrick Seale’s landmark book, Asad of Syria: The Struggle for the Middle East, 1986 was a year that marked Syria’s greatest isolation among world powers as multiple diplomatic crises and terror events put Syria more and more out in the cold.

The year included “the Hindawi affair”—a Syrian intelligence sponsored attempt to hijack and bomb an El Al flight to Tel Aviv—and may or may not have involved Nezar Hindawi working as a double agent on behalf of Israel. The foiled plot brought down international condemnation on Syria and lives on as one of the more famous and bizarre terror conspiracies in history. Not only were Syria and Israel once again generally on the brink of war in 1986, but a string of “dirty tricks” tactics were being utilized by Syria and its regional enemies to shape diplomatic outcomes primarily in Lebanon and Jordan.

In March and April of 1986 (months prior to the distribution of the CIA memo), a string of still largely unexplained car bombs rocked Damascus and at least 5 towns throughout Syria, leaving over 200 civilians dead in the most significant wave of attacks since the earlier ’79-’82 war with the Muslim Brotherhood (also see BBC News recount the attacks).

Patrick Seale’s book speculates of the bombings that, “It may not have been unconnected that in late 1985 the NSC’s Colonel Oliver North and Amiram Nir, Peres’s counter-terrorism expert, set up a dirty tricks outfit to strike back at the alleged sponsors of Middle East terrorism.”

Consistency with future WikiLeaks files

The casual reader of Syria: Scenarios of Dramatic Political Change will immediately recognize a strategic thinking on Syria that looks much the same as what is revealed in national security memos produced decades later in the run up to the current war in Syria.

When US cables or intelligence papers talk regime change in Syria they usually strategize in terms of exploiting sectarian fault lines. In a sense, this is the US national security bureaucracy’s fall-back approach to Syria.

One well-known example is contained in a December 2006 State Dept. cable sent from the US embassy in Syria (subsequently released by WikiLeaks). The cable’s stated purpose is to explore Syrian regime vulnerabilities and weaknesses to exploit (in similar fashion to the 1986 CIA memo):

PLAY ON SUNNI FEARS OF IRANIAN INFLUENCE: There are fears in Syria that the Iranians are active in both Shia proselytizing and conversion of, mostly poor, Sunnis. Though often exaggerated, such fears reflect an element of the Sunni community in Syria that is increasingly upset by and focused on the spread of Iranian influence in their country through activities ranging from mosque construction to business.

Another section of the 2006 cable explains precisely the same scenario laid out in the 1986 memo in describing the increased “possibility of a self-defeating over-reaction” on the part of the regime.:

ENCOURAGE RUMORS AND SIGNALS OF EXTERNAL PLOTTING: The regime is intensely sensitive to rumors about coup-plotting and restlessness in the security services and military. Regional allies like Egypt and Saudi Arabia should be encouraged to meet with figures like [former Vice President Abdul Halim] Khaddam and [younger brother of Hafez] Rif’at Asad as a way of sending such signals, with appropriate leaking of the meetings afterwards. This again touches on this insular regime’s paranoia and increases the possibility of a self-defeating over-reaction.

And ironically, Rif’at Asad and Khaddam are both mentioned extensively in the 1986 memo as key players during a speculative future “Succession Power Struggle.” [p.15]

An Islamic State in Damascus?

While the 1986 CIA report makes a case in its concluding paragraph for “a Sunni regime controlled by business-oriented moderates” in Syria, the authors acknowledge that the collapse of the Ba’ath state could actually usher in the worst of all possible outcomes for Washington and the region: “religious zealots” might seek to establish “an Islamic Republic”. The words take on a new and special importance now, after the rise of ISIS:

Although Syria’s secular traditions would make it extremely difficult for religious zealots to establish an Islamic Republic, should they succeed they would likely deepen hostilities with Israel and provide support and sanctuary to terrorists groups. [pg.24]

What continues to unfold in Syria has apparently surpassed even the worst case scenarios of intelligence planners in the 1980’s. Tinkering with regime change has proven itself to be the most dangerous of all games.

What Trump Should Do to Oust McCain

Via The Daily Bell

John McCain Becomes Critic in Chief of the Trump Administration ... Senator John McCain has long had a reputation as a political maverick. But with the rise of a president who has vowed to shatter the old order, Mr. McCain has emerged as an outspoken defender of longstanding Republican verities on foreign policy and as one of his party’s most biting critics of the new commander in chief. - New York Times

Why doesn"t President Trump just confront McCain on his denials that captured troops were left behind in Vietnam? That would be one way to go after McCain and the idea that he is an honorable man. What kind of individual argues for 50 years that there are no prisoners in Vietnam post-war when there probably were at least a thousand or more?

For decades, McCain has been in the forefront of denying that Hanoi had prisoners it hadn"t released at the end of the war. Hanoi actually kept these troops as bargaining chips subject to further negotiations that never occurred. Now, with both Hanoi and Washington denying such left-behind troops, their chances of their freedom has dwindled to virtually nothing.

Sydney Schanberg back in 2010 wrote what is perhaps the most convincingly argued article for additional POWs retained by Hanoi after the end of the war. It has well over ten points developed in detail rebutting McCain"s claims.

Schanberg has been a journalist for nearly 50 years. The 1984 movie “The Killing Fields,” was based on his book The Death and Life of Dith Pran. In 1975, Schanberg was awarded the Pulitzer Prize for international reporting “at great risk.” He is also the recipient of two George Polk awards, two Overseas Press Club awards, and the Sigma Delta Chi prize for distinguished journalism.

More from the McCain article at the beginning of this story:

Newly re-elected to a six-year term and eager to wield the megaphone that comes with the chairmanship of the powerful Armed Services Committee, Mr. McCain has repeatedly pushed back on the White House’s national security policies in its first weeks.

In a star turn at a security conference in Munich on Friday, he delivered a forceful critique of President Trump’s “America First” vision before a receptive audience of experts and allied officials worried about American drift from a seven-decade-old Western alliance.

“Make no mistake, my friends, these are dangerous times,” Mr. McCain said. “But you should not count America out, and we should not count each other out.”

“In many respects, this administration is in disarray, and they’ve got a lot of work to do,” he said.

This is the sort of rhetoric that McCain has been disseminating since Trump got into office. He also challenged Mr. Trump on the issues that media is “the enemy of the American people.” On many subjects he comes down opposite to Trump.

This wouldn"t be so bad if Trump"s positions were horrible. But some of his positions are very good if you believer with Trump that globalists ought not to take over America. Overall, Trump abuses the presidency as much as previous presidents by taking powers that don"t belong to him. But in trying tov beat back globalist interference he has been better than any president since Reagan.

Right now McCain is the bigger problem because he so obviously believes in much of the globalist agenda. There is little he rejects though he doesn"t come right out and say he is an explicit endorser. But he is.

Trump could rebut McCain in a number of ways but the most convincing might indeed be via the prisoner issue. Many prisoners were probably left behind in Vietnam though many have probably died by now.

In 1990, Col. Millard Peck, a decorated infantry veteran of Vietnam then working at the DIA as chief of the Asia Division for Current Intelligence, asked for the job of chief of the DIA’s Special Office for Prisoners of War and Missing in Action. His reason for seeking the transfer, which was not a promotion, was that he had heard from officials throughout the Pentagon that the POW/MIA office had been turned into a waste-disposal unit for getting rid of unwanted evidence about live prisoners—a “black hole,” these officials called it.

Peck explained all this in his telling resignation letter of Feb. 12, 1991, eight months after he had taken the job. He said he viewed it as “sort of a holy crusade” to restore the integrity of the office but was defeated by the Pentagon machine. The four-page, single-spaced letter was scathing, describing the putative search for missing men as “a cover-up.”

Schanberg is right to raise the issues of the POW"s and McCain is wrong to continue his coverup. On the other hand, there are complicating issues. McCain himself was a POW and quickly and exhaustively cooperated with his captors. There may be personal issues as to why McCain does not want captives returned. He has termed the idea of POWs a "conspiracy theory."

Conclusion: McCain obviously has deep anger issues regarding POWs. He is also an advocate of globalism. He is consistently on the wrong side of issues as they occur on the biggest questions of the day. Whatever else Trump does or doesn"t do, taking on McCain and effectively removing some of his power would be a big favor. There likely will be an explosion between these two sooner or later, if only because McCain is so angry.

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Mattis "We're Not In Iraq To Seize Anybody's Oil"

In the latest distancing by Trump administration advisors from recent statements by the President, Defense Secretary Jim Mattis arrived in Baghdad on an unannounced visit on Monday to discuss the war effort against ISIS, and said that the US military is not in Iraq "to seize anybody’s oil."

Secretary of Defence, James Mattis, arrives in Baghdad, February 20, 2017

Speaking to a small group of reporters traveling with him, Mattis was quoted by Reuters as saying “I think all of us here in this room, all of us in America, have generally paid for our gas and oil all along and I’m sure that we will continue to do so in the future."

On his first trip to Iraq as Pentagon chief, Mattis is set to assess the war effort against the Islamic State as Iraqi forces launch a new push to evict ISIS militants from their remaining stronghold in the city of Mosul. In Iraq, he is likely to face questions about Trump"s remarks and actions, including a temporary ban on travel to the United States and for saying America should have seized Iraq"s oil after toppling Saddam Hussein in 2003. Trump told CIA staff in January: "We should have kept the oil. But okay. Maybe you"ll have another chance."

Trump later clarified his position in an ABC interview. The president said ISIS would not have become a global threat if it hadn’t taken over Iraq’s oil industry when the country was left weakened by the war.

“We should’ve kept the oil when we got out. And, you know, it’s very interesting, had we taken the oil, you wouldn’t have ISIS, because they fuel themselves with the oil. That’s where they got the money. They got the money… when we left, we left Iraq, which wasn’t a government.

“We created a vacuum and ISIS formed. But had we taken the oil, something else very good would’ve happened. They would not have been able to fuel their rather unbelievable drive to destroy large portions of the world,” Trump noted, while adding that Iraq’s oil could have been beneficial for the United States too, as the country’s budget has been drained by involvement in Middle East wars.

Mattis, however, flatly ruled out any such intent. "We"re not in Iraq to seize anybody"s oil," he told reporters traveling with him, although one wonders if the Bush presidential dynasty would have a strongly differing opinion.

His remarks are the latest example of his policy differences with Trump. Trump has acknowledged that Mattis did not agree with him about the usefulness of torture as an interrogation tactic but, in a sign of Mattis" influence, said he would defer the matter to his defense secretary.

The retired Marine general, who led American troops in Iraq, said he had sought an exemption from Trump"s travel ban for Iraqis who served with U.S. troops, including translators. He said he had not seen a new executive order which the administration is considering. "But I right now am assured that we will take steps to allow those who have fought alongside us, for example, to be allowed into the United States," Mattis said. Mattis has also been more critical than Trump of Russian President Vladimir Putin, and distanced himself from Trump"s labeling of the media as "the enemy of the American people," saying he had no problems with the press.

* * *

Mattis" visit comes one day after Iraqi Prime Minister Haider al-Abadi announced the start of the ground offensive on western Mosul, where Islamic State militants are essentially under siege along with an estimated 650,000 civilians. Last week, Iraqi aircraft dropped millions of leaflets in western Mosul, calling on residents to get ready to welcome the Iraqi troops, as the siege on the militants continues.  The insurgents were forced out of the east of the city last month after 100 days of fighting.

In October, Iraqi forces, backed by the US-led international coalition, launched a campaign to retake Mosul. Last month the US-led coalition admitted to “unintentionally” killing at least 188 civilians in Syria and Iraq since 2014, when the airstrikes against Islamic State began. As of February 14, 2017, the US-led coalition had conducted a total of 18,250 strikes (11,102 Iraq / 7,148 Syria), the US Department of Defense reported.

The U.S. commander in Iraq, Army Lieutenant General Stephen Townsend, has said he believes U.S.-backed forces will recapture both of Islamic State"s major strongholds - Mosul and the city of Raqqa in Syria - within the next six months. The defense secretary"s strategy review could lead to additional deployment of U.S. forces, beyond the less than 6,000 American troops deployed to both Iraq and Syria today.

Experts say the Pentagon may also look at increasing the number of attack helicopters and air strikes and bringing in more artillery, as well as granting greater authority to battlefield commanders fighting Islamic State.

Meanwhile, as Reuters adds, the future for U.S. forces in Iraq, and for Iraq"s fragmented society, is unclear once the hardline Sunni group has been expelled from Mosul. Mattis told the Senate last month that the top U.S. goal in Iraq should be "to ensure that it does not become a rump state of the regime in Tehran", which has close ties with the Shi"ite political elite ruling Iraq.

A power struggle appears to be taking root between Iraq"s Shi"ite leaders. Influential cleric Moqtada al-Sadr, who is openly hostile to Washington"s policies in the Middle East, has begun mobilizing supporters ahead of parliamentary and provincial elections.

Sadr on Monday said the government should demand the withdrawal of U.S. and allied forces after the battle of Mosul. "The Iraqi government has to demand that all occupying and so-called friendly forces leave Iraq in order to preserve the prestige and the sovereignty of the state," he said. Sadr"s main rival is former prime minister Nuri al-Maliki, a pro-Iranian politician re-emerging as a possible kingmaker or even for a return to the premiership itself.

With Mattis" star status in the international arena rapidly rising, and threatening to soon eclipse that of his boss, it is unclear if Trump will be content to hand over the reigns of foreign policy to his defense secretary even as Rex Tillerson seemingly struggles to decide if he is part of the Trump/Bannon or Pence/Mattis axis, or if Trump will seek to pressure the views of retired Marine Corps general into converging with his own.

Unprecedented Moves Towards War With China Would "Upend Supply Routes, Trigger Global Recession"

Submitted by Mac Slavo via SHTFPlan.com,

Economic tensions are tipping over into military ones.

Warships have sailed, aircraft have had close encounters, and the rhetoric of Trump’s officials has shifted dramatically from the previous era.

The larger threat to the petrodollar and the continuance of U.S. hegemony has been put face-to-face with a China gaining in power and confidence, and ready to depose American dominance. It has become bold enough to make fresh claims on territory, and the U.S. has taken it as a call to war.

How much more pressure will this situation take before it explodes into a deadly confrontation? And why is world war three suddenly back on the table?

The Trump Administration is starting off on a highly aggressive posture with China – with taboo calls to Taiwan, loose talk from President Trump (since the campaign trail) about a trade war with China, and now stern warnings from Secretary of State Tillerson about China’s activities in the South China Sea.

It might come off as just a scolding, if not for the huge military assembly surrounding the region, and the unprecedented level of ICBM missile testing and genuine threats/predictions of war to come. Someone clearly means business:

via London Independent:

China has accused Donald Trump’s administration of putting regional stability in East Asia at risk following remarks by the President’s defense secretary that a U.S. commitment to defend Japanese territory applies to an island group that China claims.

Foreign Ministry spokesman Lu Kang has called on Trump’s administration to avoid discussion of the issue and reasserted China’s claim of sovereignty over the tiny uninhabited islands…

[…]

Widespread alarm over how the region could shape geopolitical tensions was raised following the revelation that Steve Bannon, the chief strategist in Trump’s White House, said he believed the US would go to war with China within five to 10 years during a radio broadcast in 2016.

“They’re taking their sandbars and making basically stationary aircraft carriers and putting missiles on those. They come here to the United States in front of our face—and you understand how important face is—and say it’s an ancient territorial sea.”

Obviously, a hot war with China, if it ever came, would a world war of catastrophic proportions. The fact that the new administration is directly pushing for it is truly unsettling.

It seems that part of the testy call with the Australian Prime Minister may have related to fresh tensions with China, as Secretary of State Rex Tillerson has vowed to stop China’s activity in the South China Sea, and Australia has become something of a intermediary in attempting to calm tensions and avoid outright conflict.

via AFR.com:

[Chinese Foreign Minister Wang Yi] insisted the US and China relationship had defied all kinds of difficulties in the past 40 years …

“Any sober minded politician will recognise that there can not be conflict between China and the United States,” Mr Wang told reporters in Canberra. “Both will lose and both sides cannot afford that.”

[…]

Mr Wang’s comments, after lengthy talks with Foreign Minister Julie Bishop in Canberra on Tuesday, follow a period of aggressive rhetoric during which new US Secretary of State Rex Tillerson threatened to stop Chinese activities on reclaimed islands in the South China Sea.

Ms Bishop said she was reassured that both the Chinese and US governments have signalled they will work together and reiterated that Australia would maintain its current neutral stance on the issue.

Perhaps President Trump is eager to make his mark, and moving quickly to arrange the playing pieces according to his wishes, but the world is a powder keg, and there are those who are far too willing to set it off.

Iran, China, Russia and the entire middle east have been caught up in the threats and risks of global conflict week after week in U.S. foreign policy, and it seems that the Trump Administration will accelerate many of those conflicts.

In addition to the cost in lives and property damage that such the wide-scale, conventional conflict would bring, it would bring the global supply chain to a nasty halt, and create shortages, price hyperinflation and deeply damage trade.

Experts have told The Independent they believe such a conflict would be catastrophic… The United States would likely win […] but even a conventional military victory would be a strategic disaster. It would set off a global economic crisis and create a potential power vacuum inside defeated China “the like of which we can’t imagine”.

“It would, of course, totally upend supply routes, however, and probably cause a global recession. So it would, no matter who won in terms of military outcomes, be lose-lose and cut against the logic of self interest of both the US and China.”

If a conflict with China became real, became tangible, Americans would feel the repercussions in a very short span of time, even if the U.S. military won the conflict, as most experts predict.

The cost of such instability would be great to people everywhere.

Prepare as best you can; things are about to become unpredictable, and quite possibly unstable. There will be a lot of talk, but we will have to wait and watch to see if anything actually happens.

Time To Panic In Australia

Submitted by Mike Shedlock via MishTalk.com,

Australians’ private debt has soared to 187 per cent of their income. Debt is up from about 70 per cent in the early 1990s.

The jobless rate rose for the second straight month in December to 5.8 per cent, and underemployment, the number of workers wanting more hours, is near an all-time high. Wage growth is the lowest on record.

Australia has one of the world’s biggest property bubbles. In some sections of the country, prices are already under severe price pressure. The entire country will soon face that problem, at least in my opinion.

The Financial Review reports There’s $1 trillion of Australian Mortgages and Some Now Worry of What’s Next

The Reserve Bank of Australia frequently seeks feedback on the health of the economy. It might want to call the debt counsellors soon.

Homeowners, consumers and property investors around Australia are making more calls to financial helplines as three warning signs back up the spike in demand: mortgage arrears are creeping up, lenders’ bad debt provisions have increased and personal insolvencies are near an all-time high.

“It’s steadily out of control — I don’t know of too many financial counselling services where demand doesn’t exceed supply,” said Fiona Guthrie, chief executive officer of Financial Counselling Australia, who says the biggest increase in calls is from people suffering mortgage stress. “There are more people who have got mortgages that they can’t afford to pay.”

Australia’s households are among the world’s most-indebted after bingeing on more than $1 trillion of mortgages amid a housing boom that’s fizzled out in parts of the country, but still roaring in Sydney and Melbourne.

RBA governor Philip Lowe places financial stability at the forefront of monetary policy.

The concerns are understandable. Australians’ private debt has soared to 187 per cent of their income, from about 70 per cent in the early 1990s, encouraged by low interest rates. In a November speech, Lowe said that while most households are managing these levels of debt, many feel they are closer to their borrowing capacity than they once were.

Knocking out the wind

“There’s so much household debt that a couple of rate hikes here would completely knock the wind out of the housing market, and a lot of people would be impacted by it,” said Gareth Aird, economist at Commonwealth Bank of Australia, the nation’s largest lender. That’s partly why he doesn’t think the RBA will lift rates until 2018 at the earliest.

Lenders are watching these indicators as closely as the RBA. After a seven year bull-run, annual cash earnings at Australia’s big four banks fell last year for the first time since the financial crisis, said PricewaterhouseCoopers. At the same time, their bad debt expenses – which encompass both business and consumer lending – jumped 39 per cent to $5.1 billion, the highest since 2012.

But the hardest indicator to track may be borrowers worried about making their next repayment. Counsellors at the National Debt Helpline deal with such problems and are now even getting calls from property investors, said Guthrie. In the last quarter of 2016, phone calls to the service jumped 12 per cent on the previous year to an average 11,079 per month, she said. That’s double the rate of increase of the same period a year earlier.

Time to panic?

It’s not time to panic. Banks’ losses still remain small by historical standards and are largely confined to mining areas, according to PwC. Some 77 per cent of customers at Commonwealth Bank were ahead on their mortgage payments as at June; the lender is likely to update those figures next week. The RBA also noted in November that borrowers have set aside funds tied to their mortgages equivalent to 17 per cent of outstanding balances.

Key Phrase: “Not Time To Panic”

When credit stress starts, and central banks and media analysts say "it"s not time to panic", it"s likely a fine time to panic.

— Mike Mish Shedlock (@MishGEA) February 8, 2017

The #1 rule of panic is simple: Panic before everyone else does.

Those thinking of buying a house in Australia now are out of their freaking minds. Yes, I have been saying this for quite some time. And many can point to profits. But those profits are all on paper. Try selling. It’s impossible for everyone to cash out.

Those who place their homes on the market now, with aggressive below-market pricing, will likely be able to find suckers. Those who think it’s too early to panic will likely to be trapped down the road.

Home are illiquid. It’s seldom too early to panic.

When selling real estate, it’s a catastrophe to panic after the panic has already started.

Largest Retail FX Broker FXCM Banned By CFTC, Fined $7 Million For Taking Positions Against Clients

The CFTC on Monday fined Forex Capital Markets, parent FXCM Holdings LLC and founding partners Dror Niv and William Ahdout to pay $7 million to settle charges it defrauded retail foreign exchange customers and engaging in false and misleading solicitations. As part of the settlement, FXCM agreed to withdraw its registration and never seek to register with the CFTC again, effectively banning it from operating in the US. The CFTC found the retail FX broker had an undisclosed interest in the market maker that consistently won the largest share of FXCM"s trading volume, and was therefore taking positions opposite its retail customers.

The CFTC also found that FXCM willfully made false statements to the National Futures Association in order to conceal FXCM"s role in the creation of its principal market maker as well as the fact that the market maker"s owner had been an FXCM employee and managing director.

The commodity regulator said in a statement that "between Sept. 4, 2009 though at least 2014, FXCM engaged in false and misleading solicitations of FXCM’s retail customers by concealing its relationship with its most important market maker and by misrepresenting that its "No Dealing Desk" platform had no conflicts of interest with its customers."

Niv, FXCM"s chief executive officer, and Ahdout, its managing director, are also barred from future CFTC registration and acting for those who are registered for the agency.

FXCM is currently the largest Retail Foreign Exchange Dealer (RFED) in the US, with an estimated market share of approximately 34.0% in December. It is unclear what the fallout will presently be for the US FX market following the CFTC order. The shakeup could prompt a Jefferies/Leucadia takeover, given the company’s existing financial obligations and past deal with Leucadia in the aftermath of the Swiss National Bank (SNB) crisis. The news also comes during after hours trading in the US – prior to the enforcement action, FXCM’s share prices had already been trading close to its 52-week low of $6.65, having closed at $6.85 Monday.

According to Gretchen L. Lowe, Principal Deputy Director and Chief Counsel of the CFTC’s Division of Enforcement, in a recent statement on the order, “Full and truthful disclosure to customers and honest discourse with self-regulatory organizations such as NFA are vital to the integrity and oversight of our markets. Today’s action’s demonstrates that the CFTC is committed to protecting customers from harm in the markets it regulates.”

Following the CFTC order, the National Futures Association (NFA) also stipulated that the group’s founders William Ahdout and Dror (Drew) Niv as well as FXCM have been forced to withdraw from NFA membership, also facing a permanent ban. The effective date for these actions is February 21, 2017. The NFA has accepted the settlement offer of FXCM, and the aforementioned individuals neither admitted nor denied the allegations outlined in the order.

As for FXCM"s thousands of retail clients, they may soon have to find more creative ways of losing their money than "investing" in 50x levered, central-bank dominated, HFT-infested currency markets whose  only purpose these days seems to be to inflict the greater damage by stopping out the largest number of positions possible.

Iran To Name US Individuals Involved In "Helping And Founding" Terrorist Groups

Following the escalation on Friday morning, in which the US Treasury Department published a list of 13 Iranian individuals and 12 Iranian entities facing new restrictions following Iran"s recent ballistic missile test, Tehran promptly denounced the latest round of sanctions imposed by the US and said it would retaliate - something it has previously said it would do - however added a new twist when Tehran announced it would impose legal restrictions on American individuals and entities helping "regional terrorist groups", a Foreign Ministry statement read as quoted by TV.

For obvious reasons, this naming and shaming of US-based terrorists promises to be far more interesting than if Iran were to actually ban, say, the US national chess team. Such an action will quickly coalesce the world"s attention on a handful of US entities, putting under a microscope all of their offshore activities.

"The new sanctions ... are not compatible with America"s commitments and resolution 2231 of the U.N. Security Council that endorsed the nuclear deal reached between Iran and six powers," the Iranian Foreign Ministry statement said late on Friday.

Tehran said it will react accordingly to any U.S. measure aimed at the Iranian nation"s interests.

"In retaliation for the U.S. sanctions, Iran will impose legal restrictions on some American individuals and entities that were involved in helping and founding regional terrorist groups," the Foreign Ministry statement said. It said names of the entities and individuals would be announced later, although it was not clear when exactly that is.

As reported earlier, on Friday, the US Treasury Department blacklisted 13 individuals and a dozen businesses as part of the sanctions. The majority of the individuals in question are from Iran, as well as three Chinese nationals and two Arabs.

“Iran’s continued support for terrorism and development of its ballistic missile program poses a threat to the region, to our partners worldwide, and to the United States,” John E. Smith, acting director of the Treasury Department"s Office of Foreign Assets Control, said. He added that in countering what he called “Iranian malign activity,” Washington will not hesitate to put more pressure and restrictions “to address this behavior.”

Countering rising US rhetoric, Iran’s foreign minister, Javad Zarif, said in a twitter post that “Iran unmoved by threats as we derive security from our people.”

“We"ll never initiate war, but we can only rely on our own means of defense,” he stressed. Iran"s Defense Minister Brigadier General Hossein Dehqan noted that Tehran “will not allow foreigners to interfere” in the country’s defense issues and insisted “the test did not violate the nuclear deal or (UN) Resolution 2231."

The international agreement referred to by the Iranian Foreign Ministry in its statement on counter sanctions against the US, is the so-called P5+1 agreement. The pact was signed by six major world powers (Russia, China, the US, Britain, France, and Germany) and Iran in July 2015. Under the treaty, Tehran agreed to reduce the number of its centrifuges by two-thirds.

Late on Friday Paul Ryan said that despite the new sanctions, Iran"s Nuclear Deal, key to keeping the price of oil from spiking, the Iran nuclear deal is likely to stay in place. That however may change depending on what US-based names Iran drops as helping "regional terrorist groups." Once Iran unveils the list, we will update this post.

Central Bankers, Politicians, & Why Frank Zappa Was Right

Submitted by Paul Brodsky via Macro-Allocation.com,

Politics & Investing

Frank Zappa said politics is the entertainment branch of industry. We have noted that unprincipled centrists pose a threat to sustainability and have offended all by suggesting conservatives can be as economically impractical as progressives. That may not be how to win friends and influence people, but it does leave us free to objectively analyze political influences over economies and markets.

Central Banks

They say politics is about making choices, and so the debate about whether central banks are political is a non-starter. They are. Central banks ultimately exist to ensure the safety and soundness of banks by avoiding credit deflation. They are primarily charged with the task of maintaining economic liquidity, which all political parties endorse. The question of whether they have partisan leanings is less important.

Central bank policies are meant to steer broader populations towards popular perceptions they feel will sustain economies and asset prices – asset prices used to collateralize liabilities (i.e., bank assets). This modus operandi necessarily harms a portion of the population. For example, targeting inflation harms savers that do not want to risk their wealth in the markets and financial repression harms retirees living on fixed income. Crafting and executing monetary policy is a political act, choosing one constituency over another. Thus, central banks are political bodies and make choices that prioritize special interests over broad populations, in order of importance: 1) bank profits; 2) pleasing legislative authorities that maintain their charters; 3) abiding by economic mandates constructed to please the first and second priorities, and; 4) promoting the economic hopes, dreams and wherewithal of the broad population.

An apolitical central bank would not have economic policies or mandates, but rather would exclusively oversee bank soundness and safety. This would imply central banks would have to occasionally limit bank balance sheet expansion (facetiously, what used to be called “restricting credit”). As bank and non-bank balance sheets became chock full of debt, they discovered that falling asset prices contemporaneously threatens output growth, credit deflation and bank solvency.

The credit crisis forced central banks to execute the first two priorities to the limit by re-liquefying their banking systems and giving cover to politicians otherwise at risk of taking the blame for it. The third and fourth priorities could no longer be met by dropping interest rates further or by creating more base money, so they resorted to emphasizing “communications”. Countless econometric models published by behavioral political economists and central bankers are based on the idea that growth and inflation are mostly derived from the expectation of them. Accordingly, central banks sought to increase capital spending and consumption by targeting inflation, which in turn diminishes the propensity to save. This benefitted investors and widened wealth and income gaps. Again, choices. It all seems political to us.

Politicians

The most visible form of politics that affects economies and markets comes directly from elected officials through promises of fiscal and regulatory initiatives and, occasionally, actual policy follow-through. Given the waning efficacy of the Fed’s economic influence, Donald Trump’s election could not have been better timed for equity investors. Confidence stemming from his ability to reduce regulations and taxes and enact fiscal growth initiatives produced a stock market rally. Let’s look at perception and reality.

One of Mr. Trump’s stated goals is to increase the US manufacturing base. Yesterday, he met with CEOs of manufacturing companies and asked for suggestions to increase revenues and US jobs. The result of his efforts may ultimately be legislation that reduces corporate taxes and increases import tariffs, which could improve manufacturing conditions in the US. But would his success be enough to move the needle?

The graph below shows the growth of real output in the manufacturing sector since 1987. It grew in the 1980s during the first leg of the great secular leveraging period and even accelerated in the 1990s when emerging economies like China and the former Soviet bloc began participating in global trade. Two major dynamics brought about this growth: 1) the leveraging of household balance sheets, which gave US consumers increasing disposable income, and; 2) the ability of US manufacturers to use their rising stock prices and strong dollar as currency to buy cheap plant, equipment and labor abroad.

It is interesting that since 1999, and especially since 2012, US manufacturing growth has struggled amid extraordinary globalization. We would argue this is because it is bumping up against the global cost structure of production, which includes lower cost economies with which the US cannot compete.

The graph below puts a finer point on this. It shows the trend of US manufacturing as a percentage of US GDP. Since 2005, the contribution of manufacturing to the US economy has dropped from 13.1% to 11.7%. It is unclear whether we should be more concerned with the declining trend of manufacturing or the absolute low contribution level of manufacturing within the US economy.

US real GDP is about $17 trillion of which manufacturing is about $2 trillion. Doubling the manufacturing base to $4 trillion would be great on its own, but there are other considerations. First, total US dollar denominated debt is upwards of $60 trillion. Annual interest on that debt is about $3 trillion. Are we to believe that increasing the manufacturing base through deficit-funded fiscal initiatives and restrictive trade policies would increase real output? The excitement from renewing a sentimental part of the American narrative is politically compelling, but growing US manufacturing revenue and jobs would, at best, be small potatoes as an economic driver.

President Trump’s initial emphasis on renewing the US manufacturing base is largely symbolic. Even if his administration were to successfully use tax incentives, protectionist measures and immigration policies to re-patriate factories and labor, and even if government were to spend big on fiscal stimulus, it still would not solve the structural leverage problem facing the US economy.

In fact, we think the process of bringing the US manufacturing base back through job-centric policies would actually reduce global trade and lower US GDP over time.

Zappa was right, but a fresh approach to confidence-based politics that does not address major structural issues does not provide the basis for investor optimism.

OPEC Praises Production Cuts, Reveals No Penalties For Violators As Deal Skepticism Rises

After Sunday"s latest meeting between OPEC and non-OPEC countries in Vienna, energy ministers struck an optimistic note regarding the recent agreement to cut oil output as a committee set to monitor compliance with the deal meets for the first time. Oil producers said they are in "total agreement" on the mechanism for monitoring pledged output cuts, Kuwait Oil Minister Essam Al-Marzouk told reporters after the committee ended its meeting in Vienna.

"I am satisfied, I am optimistic and, as I said, the markets are on their way to rebalance and it"s happening," Saudi energy minister Khalid al-Falih said. He added that compliance with the agreement, which calls for cuts to begin this month, had been "fantastic", he said adding that "based on everything I know, I think it’s been one of the best agreements we’ve had for a long time.” The issue, however, is that what everyone else knows is largely sourced from word of mouth statements, at least until the first official reports of monthly production emerge, validating his optimism.

As a reminder, under the Vienna deal struck last December between OPEC and non-OPEC nations, producers agreed to lower production by nearly 1.8 million barrels per day (bpd) aiming to ease a global glut that has weighed on oil prices for more than two years.

Following Falih"s claim last week that 1.5 million bpd in production had already been taken out of the market, on Sunday the Saudi energy minister added that "usually non-OPEC would raise their production to compensate for voluntary cuts by OPEC. Now, we are seeing voluntary cuts by both sides."  Saudi Arabia, has already exceeded its target with an output reduction of more than 500,000 barrels a day, Al-Falih said, while Algeria and Kuwait have also cut to levels beyond their targets, according to ministers from those nations. Other OPEC members such as Iraq and Venezuela have not yet reached their quotas but say they are more than half-way there.

Al-Falih then predicted that "the other 300,000 bpd, for all I know, is still happening," and hoped for 100 percent compliance in February. Full compliance could take global oil inventories back close to their five-year average by mid-2017, lowering oil in storage by around 300 million barrels, Falih said.

Still, despite the elated promises of cooperation, it still remains unclear just how monitoring of compliance would take place. According to Reuters, Kuwaiti oil minister Essam Al-Marzouq, who chairs the five-member compliance committee, said it would examine how to best monitor compliance and what level of compliance would be acceptable.  The other members of the committee represent Algeria, Venezuela, Russia and Oman.

In other words, faith in "compliance" still remains largely a function of trust that OPEC is telling the truth, which in light of historic precedent, when numerous OPEC members complied with initial cut agreements only to defect shortly thereafter, can be a major leap of faith. Indeed, as Bloomberg notes, OPEC has often flouted its own target as member nations quietly tried to gain market share at their peers" expense.

Venezuela"s new oil minister, Nelson Martinez said his country has achieved more than half of its planned 95,000 bpd cut, although again there was no way to verify. 

"[There are] no surprises so far in terms of demand or supply from other sources so there is no reason for us to suddenly come in January and say we need a bigger reduction or a longer period," he said.

The biggest wildcard remains Russia. It Energy Minister Alexander Novak on Sunday said he was satisfied with the level of compliance shown. Russia has cut its oil output by around 100,000 bpd, Novak told Russia"s TASS news agency. Novak added Russian oil production has averaged around 11.15 million bpd this month. In his opening speech to the Vienna meeting, Novak said many countries had lowered their oil output by more than they had agreed to and added that Russia was lowering its production ahead of schedule.

He told reporters that oil output cuts had been positive for markets, adding it was too early to talk about extending the output-reduction deal beyond the planned six months but that remained an option. "Every one sees that the agreements on oil production cuts have already have a positive effect on oil markets. The market has become more stable and predictable."

“We are starting to see a shift in the momentum and the emergence of more bullish sentiment on the market,” Kuwait’s Oil Minister Essam Al-Marzouk said at the start of the monitoring committee’s first official meeting. “These are all encouraging signs that we are on the right track.”

Meanwhile, Saudi Arabia is reportedly producing slightly below 10 million bpd and has informed buyers of Saudi crude of substantial cuts scheduled for next month, he said.

How (non) compliance will be evaluated?

With January not yet complete, Bloomberg reports that the committee will focus mostly on how to assess compliance rather than produce any new data, said one person. As outlined in OPEC’s initial agreement, monthly production data known as “secondary sources” compiled by analysts in the group’s secretariat will be the principal tool for judging whether members are complying with the deal, said three people. Those figures don’t cover non-members such as Russia.

The committee currently has no plans to use external agencies, such as consultants that track oil exports by monitoring tanker movements, to verify that countries are implementing the pledged supply curbs, said three people familiar with the matter. It will meet every month, the Kuwaiti oil minister said. Additionally, the OPEC committee said it would not need export data, and will instead only focus on output data.

“Evaluation of conformity to the respective country production adjustment will be based on production data only,” according to OPEC statement on group’s website.  OPEC will present a report with monthly production data to Joint OPEC-Non-OPEC Ministerial Monitoring Committee, known as JMMC, on 17th of each month; report also to include non-OPEC producers’ oil liquid output. Furthermore, the monitoring committee would meet next on March 17, then for 3rd time in May before OPEC gathers that month; with the March meeting said to be in Kuwait.

Each of the 5 member countries comprising JMMC to nominate one technical contact person to form Joint Technical Committee (JTC), which will also include OPEC presidency.

These export obfuscations - the real variable in OPEC compliance - suggests that beneath the thin veneer of deal "compliance", the underlying production dynamics may end up being far different from the promised 1.8mm, if not greater, reduction.

But the clearest indication that non-compliance will be a major hurdle was a statement by the Russian energy minister Alexander Novak who told reporters that violators to the output cut agreement will not be penalized. Which means that without negative reinforcement, compliance may work as long as prices are rising offsetting volume losses, but the moments prices slip expect the agreement to be quickly violated by one or all member states.

“We started to trust each other better, which is just as important as the market re-balancing,” Russia’s Novak said. “One year ago not many believed in the success of this initiative.”

That said, when we check back one year from today, the skepticism of the "many" will be justified. Here"s why.

Why Only A Six Month Deal?

As OPEC has claimed before, there’s no indication that the cuts will need to be extended beyond the initial six-month term, Algerian Energy Minister Noureddine Boutarfa said in an interview, echoing comments from his Saudi counterpart earlier this week. “If we really comply by 80 to 90 percent, it may not be necessary to continue,” Boutarfa said. “We aren’t excluding it, but signals are positive.”

But why just six months? As Bloomberg"s Julian Lee writes overnight, "that seems a very quick and painless solution to an oversupply problem that has bedeviled the oil market for the past two years, brought several producers to the brink of collapse and tipped others over it."

We now may have the answer.  As Lee adds, "the latest numbers from the Joint Organisations Data Initiative offer a different, and compelling, narrative" from the widely accepted one, namely that "brimming supply had created financial difficulties for the kingdom, and also complicated the forthcoming IPO of a small part of Saudi Aramco."

This is what happened:

It turns out that, as the deal was being thrashed out, Saudi Arabia was enjoying a 35-year high in total oil exports. One big factor was a huge drop in the amount of oil the country needs to burn to generate electricity. The punishing Saudi summers boost demand for electricity -- mostly to run air-conditioners -- to a level that previously required vast amounts of oil-fired generating capacity to be brought into use. The direct burning of crude oil in power stations would roughly double to about 900,000 barrels a day at the height of the season.

Saudi oil usage has dropped as natural gas replaces around a third of what it uses for power generation.

But that changed last year. The start-up of the Wasit gas plant allowed the kingdom to slash the use of crude in power generation by as much as a third -- freeing that oil up for export. In addition, the kingdom cut fuel subsidies, pushing down oil consumption by 2 percent year-on-year in the first eleven months of 2016. That"s the first dip since at least 2003, when JODI records begin.

As a result, Saudi Arabia was left with "an embarrassment of riches as the OPEC negotiations were underway last year." So, unless it cut output, it would start flooding the market during the first half of 2017. Conveniently, t he stars were aligned for it to solve the problem by persuading others to share the burden in a way that has not been seen since the financial crisis of 2008, while at the same time restoring its credentials as a team player within OPEC.

"This new read on the Saudis" motivations for agreeing to the deal has the benefit of explaining why Al-Falih is looking for a six-month time line and why the kingdom has been prepared to make such a deep cut in its production. Its surplus will have disappeared by that time, at which point it can start to boost production again in order to get exports back to the level it wants to maintain."

Lee"s conclusion: "Such a move could easily be the catalyst for the whole deal to fall apart by June." Which, in turn, would explain why OPEC is repeatedly pointing out the "6 month" bogey as a successful deal deadline, after which OPEC members wil go their separate ways once again, pumping to the max. However, there"s no way the global backlog of inventory will be dealt with at that time.

Ultimately, "this seems a situation designed to antagonize the rest of the group and create a raft of bad feeling. If maintaining exports is more important to Saudi Arabia than balancing the market, then so is a willingness to back out on a hard-won deal that took the kingdom and its partners a lot of political capital to achieve."

In short, enjoy the OPEC "deal", with minimum surveillance, virtually no compliance markers and zero penalties for violators: the production cut "deal" relying entirely on "trust" between OPEC members, is anything but.

For now, however, oil will trade with each and every optimistic headline out of OPEC, likely pushing the price to a level where the recent surge in US shale production becomes a flood - recall on Friday Baker Hughes reported that the US oil rig count soared by 29, the most since April 2013...

... and threatens to cut deeply into OPEC"s own production levels, guaranteeing that the collapse of the OPEC "deal" is just a matter of time.

"El Chapo" Extradited To The US

The third time behind bars for Joaquin "El Chapo" Guzman may be the unlucky one: on Thursday, Mexico"s most notorious cartel kingpin who twice brazenly escape from prison and spent years on the run as the country"s most wanted man, was extradited to the U.S. on Thursday to face drug trafficking and other charges.

In a major victory for the US DEA, Mexico"s Foreign Relations Department announced Guzman was handed over to U.S. authorities for transportation to the U.S. on Thursday, the last full day of President Barack Obama"s administration and a day before Donald Trump is to be inaugurated.

The U.S. Justice Department issued a statement confirming that Guzman was en route to the United States and expressed gratitude to Mexico for its cooperation.

As reported by the AP, a senior U.S. official said the U.S. Drug Enforcement Administration took custody of Guzman in Ciudad Juarez, which is across the border from El Paso, Texas, and a plane carrying him departed for New York at 5:31 p.m. EST.  The convicted Sinaloa cartel boss has been held most recently in a prison near Ciudad Juarez.

El Chapo was recaptured a year ago after escaping from a second maximum-security prison through a tunnel dug to his cell. He had fought extradition since then.

Upon return to the US, Guzman faces the possibility of life in a U.S. prison under multiple indictments in six jurisdictions around the United States, including New York, San Diego, Chicago and Miami.

A federal indictment in the Eastern District of New York, where Guzman is expected to be prosecuted, accuses him of overseeing a trafficking cartel with thousands of members and billions of dollars in profits laundered back to Mexico. It says Guzman and other members of the Sinaloa cartel employed hit men who carried out murders, kidnappings and acts of torture.

He was first indicted by a U.S. federal grand jury in July 2009. A superseding indictment was issued in May charging him and Ismael "El Mayo" Zambada with a variety of drug, gun and money laundering charges as part of an ongoing criminal enterprise.

A Mexican Foreign Relations Department statement said a court had ruled against Guzman"s appeal and found that his extradition would be constitutional. Obama"s White House, which was down to a skeleton staff hours before Trump takes office, said it had no immediate comment.

Who Beat Hitler? USA, Britain, Or Russia

In 1945, most French people thought that the Soviet Union deserved the most credit for Nazi Germany"s defeat in World War II - even though the Soviets did not play much of a role in France"s liberation, relative to the US and Britain.

By 1995 and 2004, however, the French had changed their minds, and were crediting the US as the biggest contributor to victory in Europe (survey data from the French Institute of Public Opinion)...

Source: Olivier Berruyer at Les Crises blog

Assessing the "biggest contributor to victory" in a rigorous way is exceptionally difficult. They tend to devolve into comparisons of counterfactuals, and the truth is that nobody has any strong idea how the war would have turned out absent US involvement, or if the German-Soviet non-aggression pact had held, etc. Soviet Union"s successful resistance of Nazi invasion and subsequent reclamation of Eastern Europe was the most important of many factors in defeating Germany. As historian Richard Overy Explains In His book Why the Allies Won :

If the defeat of the German army was the central strategic task, the main one was the conflict on the eastern front. The German army was first weakened and then driven back, before the main weight of Allied ground and air forces was brought to bear in 1944. Over four hundred German and Soviet divisions fought along more than 1,000 miles. Axis divisions between 1941 and 1945. The scale and geographical extent of the eastern front dwarfed all earlier warfare. Losses on both sides far exceeded anywhere else in the military contest. The war in the east was fought with a ferocity almost unknown on the western fronts. The battles at Stalingrad and Kursk, which broke the back of the German army, drew from the soldiers of both sides the last ounces of physical and moral energy.

If you are looking at the human toll of the war, the Soviets clearly incurred the heaviest losses. Tony Judt"s Postwar cites Estimates Suggesting There Were 8.6 million Soviet Military Deaths and over 16 million civilian Deaths in World War II. The US lost 418.500 Military and Civilians in all theaters of the war - still a staggering figure, but not on the scale as Sami Soviet Losses. Of course, it"s possible - and highly preferable! - to contribute to the success of the process. But it"s worth reflecting on just how massive the sacrifice the Soviet people made was.

Source: Olivier Berruyer at Les Crises blog

"The victors are those who write History. It is this one that is written in our school books, not the true History as it unfolded, but a History that caresses the camp of the winners. History has ceased long ago to be the sum of the humanities today it belongs only to a handful of individuals. "

[Maxime Chattam, The mysteries of chaos ]

Florida Shooter Had Been Sent To A Mental Hospital Over "ISIS Ties", Was Investigated For Child Porn

As more details emerge about the Ft. Lauderdale airport shooter, Esteban Santiago-Ruiz, 26, who on Friday afternoon opened fire at the baggage claim area at the airport, killing 5 and wounding 8, we start to get a detailed glimpse not only into his past, but his numerous recent interactions with authorities.

Esteban Santiago, the suspected shooter at Ft. Lauderdale Airport on Jan. 6, 2017

According to law enforcement officials, Santiago was found with an active military ID and is an American citizen, born in New Jersey. Previous known addresses include Penuelas, Puerto Rico and Anchorage, Alaska.

They add that in November 2016, just two months ago, he walked into an FBI office in Anchorage claiming that the government had "forced him to watch ISIS videos" and to fight for ISIS. According to a slightly different narrative presented by CNN, source said that Santiago was hearing voice telling him to join the Islamic State. Ultimately he was sent to a psychiatric hospital.

AP confirms that Santiago"s brother said the suspect had been receiving psychological treatment while living in Alaska. Bryan Santiago told The Associated Press that his family got a call in recent months from 26-year-old Esteban Santiago"s girlfriend alerting them to the situation.

Bryan Santiago said he didn"t know what his brother was being treated for and that they never talked about it over the phone. He said Esteban Santiago was born in New Jersey but moved to the U.S. territory of Puerto Rico when he was 2 years old.

He said Esteban Santiago grew up in the southern coastal town of Penuelas and served with the island"s National Guard for a couple of years. He was deployed to Iraq in 2010 and spent a year there as a combat engineer with the 130th Engineer Battalion, the 1013th engineer company out of Aguadilla, according to Puerto Rico National Guard spokesman Maj. Paul Dahlen.

Sen. Bill Nelson of Florida said that the gunman was carrying a military ID that identified him as Esteban Santiago, but that it was unclear whether the ID was his. Nelson gave no further information on the suspect.

As CBS adds, in 2011 or 2012, Santiago was investigated by Homeland Security Investigations for child porn. Three weapons and a computer were seized, but there was not enough evidence to prosecute, according to law enforcement sources. Santiago also has a record for minor traffic violations and was evicted in 2015 for not paying rent.

Furthermore, AP notes that according to a  military spokeswoman Santiago received a general discharge from the Alaska Army National Guard last year for unsatisfactory performance.

Lt. Col. Candis Olmstead did not release details about 26-year-old Esteban Santiago"s discharge in August 2016. Olmstead said that he joined the Guard in November 2014.

Puerto Rico National Guard spokesman Maj. Paul Dahlen said that Santiago was deployed to Iraq in 2010 and spent a year there with the 130th Engineer Battalion, the 1013th engineer company out of Aguadilla. Olmstead also said that Santiago had served in the Army Reserves prior to joining the Alaska Army National Guard.

Previously, a spokeswoman from the Canadian Embassy says the suspect in the shooting at the international airport in Fort Lauderdale has no connection to the country and did not fly to Florida from there. Embassy spokeswoman Christine Constantin said in an email to The Associated Press that the suspect did not travel from Canada and was not on an Air Canada flight. She says the suspect has no connection to Canada.

The shooting happened at the airport"s terminal 2, where Air Canada and Delta operate flights. Five were killed and eight wounded. Constantin"s email says, "We understand from officials he was on a flight originating in Anchorage, transiting through Minneapolis and landing in Ft. Lauderdale."

Meanwhile, authorities are looking into what event may have set off the unstable Santiago.

Law enforcement sources said the suspected gunman in a deadly attack at Fort Lauderdale-Hollywood International Airport got into an argument during his flight from Alaska to Florida. They’re now investigating whether that’s what set off a shooting rampage CBS reports.

Esteban Santiago-Ruiz, 26, took a flight from Alaska to Florida Friday with a stop in Minnesota, officials said. Somewhere along the way, he got into an argument.

According to Broward Commissioner Chip LaMarca, Santiago-Ruiz arrived from a flight with a gun that he checked in. “He claimed his bag and took the gun from baggage and went into the bathroom to load it. Came out shooting people in baggage claim,” LaMarca said.

Earlier reports claimed Santiago-Ruiz came in on a flight from Canada. On the company’s Twitter account, Air Canada confirmed that no one by that name was on their flight. Air Canada flights arrive to Terminal 2, where the shooting took place.

Police were able to apprehend the suspect without having to fire their own weapons when he apparently ran out of bullets.