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2-22-15: Greece and Peace!
by Mark Lawrence

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Markets made all new highs on the Greek solution and the Ukraine cease fire. Unfortunately, the Greek solution isn't a solution, and the Ukraine cease-fire isn't a cease-fire.


S&P 500 September 1 2014 to February 20 2015

Greece and the EU agreed to a 4 month extension on bailout funding for Greece, subject to Greece presenting an austerity plan tomorrow. Then they'll have four more months to spit at each other. Greece has been offered $3b in emergency bank loans, far less than then $10b they had asked for, and the Germans insist that all loans must be paid back in full. I can't see how they can ever pay back these loans. Greek GDP is down by 25% in the last seven years, and their unemployment is 27%. Tsipras was elected on a platform that Greece would determine their own economic future without "the humiliation of foreigners dictating Greek economic policy." The Greeks are still having to submit plans for approval. The Greek voters are said to be furious at Syriza for selling them "illusions," but they're happy they're still in the Euro. I can't see a path to Greece recovering economically while in the euro zone, and they have people more than smart enough to see this same thing.

Germany, France and Russia agreed to a cease fire in Ukraine. Russia never stopped fighting, and bragged that Russian forces had captured Debaltseve. There's also a puch near Mariupol, which obviously would be intended to join up with Crimea. Obviously what the cease fire means is that Germany and France have no stomach for a fight, and Putin correctly read this. Rumors fly fast and furious that he'll invade the Baltics next - Latvia, Lithuania and Estonia. Will he? Why not? Who's going to stop him? Dr.Doom? (oh, sorry, he lives in Latveria.) The truth is this is a ground war on Russia's borders and I don't believe any combination of NATO forces can stop him unless we attack Russia directly, most likely starting WW III. Russia has been building up their army for several years and it's really quite impressive compared to NATOs ground forces. I think it's bad policy to threaten if you're not willing to back it up.

A nuclear deal with Iran is taking shape - apparently we've tentatively agreed that they can have 6500 centrifuges, which is enough to make a bomb a year or perhaps a bit better. The US doesn't have any centrifuges - if we want enhanced uranium, we buy it from Russia. It's not at all clear that there will be a deal with Iran; it's not at all clear that congress would ratify any deal Obama negotiated; it's not at all clear that Iran would honor a deal. I think we're being played. It seems more and more clear that Iran is working with N.Korea, and every N.Korea nuclear test has Iranian help and scientists and is a joint test. Basically Obama thinks he can negotiate that they will be a year away from a bomb forever and that he'll know when they start building one; I think they already have a bomb or two. If I were president these negotiations would have ended a couple years ago; I would have said "In a month you will have no capabilities to build a bomb. Would you like to agree to that, or would you like me to take care of that for you?" Well, that sounds nice but if they already have bombs in N.Korea I don't know what I would do about it. If you attack N.Korea, you lose Seoul. In about 24 hours. Seoul is about 80% of the economic activity of S.Korea. China seems to think it's perfectly ok for all these nutcases to have bombs. I think they're making a huge mistake - a nuclear war affects all of us. But then the Chinese put poison in their own children's milk, what do they care if a bunch of Europeans die of fallout? Or Chinese, for that matter. I'm confident they have a plan for the "important" people to survive a couple bombs on the Korean peninsula.

After attacks on Jews in both France and Belgium, Israel is calling for European Jews to immigrate. If I were a European Jew, perhaps I would leave Europe; especially the Scandinavian countries. But I don't think I'd go to Israel, 'cause I'm not sure Israel will still be around in ten years.

In December investors started dumping Canadian securities and bonds, withdrawing $13.5B from the country. Two-thirds of that money was bonds. Canadians also started moving money across the border, buying nearly $15b of US bonds. The Bank of Canada has warned about a Canadian housing bubble and what an implosion would do to the banks. Then in January, oil-and-gas data provider CanOils said "less than 20%" of the top 50 Canadian oil companies would be able to sustain operations with oil at US$50 per barrel.

Apparently ISIL has a new trick: after they cut people's heads off, they have doctors remove kidneys and livers to sell to the transplant market. Bodies are turning up in mass graves with incisions and missing pieces.

Obama refuses to call ISIL an islamic nation, saying they're just a bunch of terrorists. Yet thousands are gathering to ISIL from all over the world - Europe, US, Australia, S.America. What's the attraction? The koran says that if a devout muslim gets control of some territory and starts a true islamic republic, then he must declare he's a caliph and all muslims world wide owe him allegiance. This has happened in ISIL. Furthermore their territory includes the Syrian city of Dabiq - the place where the prophesied muslim apocalypse will happen. The prophecy maintains that after a battle in Dabiq, the caliphate will expand and sack Istanbul, then cover the entire Earth. An anti-Messiah, known in Muslim apocalyptic literature as Dajjal, will come from the Khorasan region of eastern Iran and kill a vast number of the caliphate's fighters, until just 5,000 remain, cornered in Jerusalem. Just as Dajjal prepares to finish them off, Jesus — the second-most-revered prophet in islam — will return to Earth, spear Dajjal, and lead the Muslims to victory. As you see, Jesus is going to be a very busy guy, what with killing off both the anti-christ and the Dajjal and then apparently ruling both a christian and a muslim paradise on earth. Curious that Jesus would be the chosen executioner by so many.

India just dedicated a multi-billion dollar plan to modernize their navy to counter Chinese presence in the Indian Ocean. They're intending to build six nuclear powered submarines ($8b), and a whole mess of frigates. There can't be a WW III until everyone is ready, and we're a few years away from that. You can't have a proper party until everyone has bought their party dress.

Thailand just bought an aircraft carrier for much the same reason. Unfortunately, Thailand has no jets than can land on a carrier and no pilots that are trained. Perhaps you can rent it out for a birthday bash / touch football game.

Oil and gas prices are up in the last couple of weeks. Have we seen the bottom? I don't think so. We're still producing more oil each day than the world is using, and oil storage facilities are 80% - 85% full. Some hedge funds are renting oil tankers to hold oil in hopes of a price rebound. When the storage facilities are completely full then either oil production or oil prices must drop. As of right now, oil production is continuing to increase. Goldman says oil will bottom at $39. Citi says $20. Gary Shilling says $10. Expect to see gas prices back below $2/gallon soon. Perhaps much lower, possibly approaching $1 in some places.

Walmart announced that their minimum wage in 2015 would be $9, rising to $10 for current employees in 2016. This is putting pressure on McDonalds to raise wages if they want to continue to have their choice of employees. And it means the Fed now has some concrete evidence that the labor market is tightening, raising the chances of an interest rate increase this year.

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Revised Monday, 23-Feb-2015 05:51:50 PST
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