Category: US & Canada

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What If Everything You Know About Terrorism Is Wrong? | The XX Committee

Great insight into the murky relationship between various government intelligence services and terrorist groups. This goes far beyond provision of weapons and money and includes founding and direction of some terrorist groups which act as covert arms of the intelligence service while providing the sponsoring state with “plausible deniability”.

…One happy by-product of the current American-led war on the Islamic State is that some people are now more willing to state that Iran does in fact possess ties to various terrorist groups, among them AQ and the Islamic State. Yet it’s still a struggle to get many people to see what’s obvious here.

Part of this willful disbelief is due to simple ignorance. Most “terrorism experts,” and virtually all of them possessing academic credentials, have exactly zero personal interaction with operational counterterrorism; therefore they are ignorant of the fact that many intelligence services — and all of them in the Middle East — play a wide range of operational games with terrorist groups, AQ very much included, encompassing everything from placing agents inside terror cells to actually creating terrorist fronts like Tawhid-Salam…..

The appearance of the Islamic State as a major force in Iraq and Syria, with threats of terrorist attacks on the West, has concentrated minds again to a degree. But unwillingness to ask difficult questions persists in many quarters. Despite the fact that we have more than circumstantial evidence that the Islamic State is being manipulated by Syrian intelligence, and Iran’s too, these notions are dismissed out of hand by too many Westerners who study terrorism. Yet if we want to defeat the Islamic State, it would be wise to actually understand it. That Washington, DC, continues its bipartisan blocking of release of the full 9/11 Commission Report, which includes troubling details of Saudi misconduct regarding Al-Qa’ida, is not an encouraging sign.

Read more at What If Everything You Know About Terrorism Is Wrong? | The XX Committee.

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The risks in a galvanized Nato | Business New Europe

From Mark Galeotti, Professor of Global Affairs at New York University:

…Of course, Nato still has a role, not least to ensure there is no temptation for rather more robust pressure from Moscow on Europe. But to think that it can or even should try to respond to the full range of challenges of the new age of conflict is foolish — and even dangerous.

First of all, the task of inoculating bordering states from potential Russian mischief — whether stirring up disgruntled minorities, subtle destabilization or unsubtle economic pressure — is more properly handled by other agencies. National governments, obviously, need to pay more attention to what, in military terms, would be called “target hardening.” Those minorities need to be integrated, due diligence should identify flanking Russian buyouts, political finance regulated. The trouble is that this means not just taking action now that Russia looks problematic, but sustaining it — turning away potential investment, alienating a neighbor and so on — even when things look quieter.

Of course, the EU could also play a positive role here, but to date the EU’s capacity to mobilize and maintain this kind of action is also questionable. But the second serious concern is that the more Nato eases itself comfortably back into its role as the defender of the West from the Russian hordes, the more it consolidates the current dangerous and zero-sum confrontation. It also plays to a nationalist, even xenophobic constituency within the Russian elite, especially strongly represented within the security agencies and the Orthodox Church, who actually appreciate any opportunity to cut themselves off from the West and its dangerously infectious notions of egalitarianism, transparency and rule of law. This faction is currently in the ascendant, but it need not be so, especially given the evident concerns of many within the Russian business community at the prospect of being locked away from the West.

This is the challenge. Nato patently still has a role. But it is far too blunt an instrument to be able to deal with the range of subtle, deniable or downright devious tactics Russia would deploy. Instead, the West will have to develop new, more appropriate defenses — and try to avoid playing into the hands of the ultra-nationalist wing in the Kremlin happy to find excuses to see their country surrounded and beleaguered.

Read more at STOLYPIN: The risks in a galvanized Nato | Business New Europe.

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Canada: TSX 60 correction

Canada’s TSX 60 broke short-term support at 890, warning of a correction. Respect of support at 865 would confirm that the primary trend is intact, while failure would indicate weakness. Reversal of 13-week Twiggs Momentum below zero is unlikely, but would warn of reversal to a (primary) down-trend.

TSX 60

* Target calculation: 900 + ( 900 – 865 ) = 935

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Quarter-end turbulence

We are now approaching the September quarter-end, normally a volatile time for stocks. Investment managers tend to re-balance their portfolios after month-end, selling off poor performers and increasing cash balances to later take advantage of new opportunities. The result is that stocks tend to dip in October. If the fundamental under-pinning of the market is strong, they soon recover and continue on its merry way. But if there are serious flaws, the sell-off can turn into a rout — as in 1987 and 2007.

At present the market outlook appears sound and the bull market is likely to continue. I often use transport stock Fedex as a bellwether for the US economy. If the economy is robust, you can expect Fedex to display a solid up-trend. If weak, Fedex tends to lead the market lower. In November 2007 for example, on the monthly chart below, Fedex signaled a bear market several months ahead of the major indices. The present situation is quite the opposite, with the Fedex in a strong bull-trend, having recently respected support at $145. A 13-week Twiggs Money Flow trough above zero also suggests buying pressure. Economic activity is clearly improving.

Fedex

* Target calculation: 145 + ( 145 – 130 ) = 160

The S&P 500 break above 2010 proved to be a false break, with the market headed for a re-test of support at 1980. Breach would indicate another correction. Declining 21-day Twiggs Money Flow now indicates medium-term selling pressure; a fall below zero would warn of a primary down-trend.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) remains low, however, suggesting continuation of the bull market.

VIX Index

Dow Jones Industrial Average also retreated, testing its new support level at 17150. Reversal below 16950 would indicate a correction, while respect would suggest another advance. Declining 21-day Twiggs Money Flow also suggests medium-term selling pressure.

Dow Jones Industrial Average

* Target calculation: 16500 + ( 16500 – 15500 ) = 17500

My conclusion is that the bull market is sound, but likely to encounter some turbulence over the quarter-end. There may be a secondary correction, but respect of recent support levels would indicate a fresh advance.

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Amir Sufi: Who is the Economy Working For? The Impact of Rising Inequality on the American Economy

Amir Sufi, professor of Finance at the University of Chicago, testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Economic Policy. His statement titled “Who is the Economy Working For? The Impact of Rising Inequality on the American Economy” makes interesting reading.

“Only 76% of Americans aged 25 to 54 currently have jobs, compared to 80% in 2006 and 82% in 1999…..How did we get into this mess?”

The gist of his argument is:

“Richer Americans save a much higher fraction of their income, ultimately holding most of the financial assets in the economy: stocks, bonds, money-market funds, and deposits. These savings are lent by banks to middle and lower income Americans, primarily through mortgages.”

…And collapse of the housing market caused disproportionate harm to the middle and lower-income groups.

It is true is that middle and lower-income groups have a higher percentage of their wealth invested in their homes and are also far more exposed to mortgages than richer Americans. The source of funding for these mortgages, however, is not the wealthy — who are primarily invested in growth assets such as stocks — but the banks who create new credit out of thin air. The collapse of the housing market caused disproportionate hardship to middle and lower-income Americans because their wealth is concentrated in this area. The rich suffered from a collapse in stock prices, but the market has recovered to new highs while housing remains in the doldrums. That is one of the causes of rising wealth inequality.

Where I do agree with Amir is that credit growth without income growth is a recipe for disaster.

“A tempting solution to our current troubles is to encourage even more borrowing by lower and middle-income Americans. This group of Americans is likely to spend out of additional credit, which would provide a temporary boost to consumption. But unless borrowing is predicated on higher income growth, we risk falling into the same trap that led to economic catastrophe.”

The graph below compares credit growth to growth in (nominal) disposable income:

Credit and Disposable Income

The ratio of credit to disposable income rose from 2:1 during the 1960s to almost 5:1 in 2009.

Credit to Disposable Income

There is no easy path back to the stability of the 1960s. A credit contraction of that magnitude would destroy the economy. But regulators should aim to keep credit growth below the rate of income growth over the next few decades, gradually restoring the economy to a more sustainable level.

The worst possible policy would be to encourage another credit boom!

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Piketty’s Missing Rentiers by Jeffrey Frankel | Project Syndicate

From Jeffrey Frankel:

It is true that capital’s share of income interest, dividends, and capital gains rose gradually in major rich countries during the period 1975-2007, while labor’s share wages and salaries fell, a trend that would support Piketty’s hypothesis if it continued…..

But interest rates have been at all-time lows in recent years – virtually zero. And the claim that in the long run the interest rate must be substantially greater than the economic growth rate is absolutely central to Piketty’s book.

That said, Piketty’s vision is focused squarely on the truly long run….Three century-long movements constitute the essence of the book: a rise in inequality in the nineteenth century, a fall in inequality in the twentieth century, and a predicted return to historically high inequality in the twenty-first century.

To me Piketty started with a preconceived idea and selected data to support this. He seems to ignore the impact of industrialization in the 19th century and technological advances in the late 20th century as sources of wealth creation, as well as access to low-cost labor through globalization during the latter period which has eroded manufacturing jobs and real wages.

Read more at Piketty’s Missing Rentiers by Jeffrey Frankel – Project Syndicate.

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How To Inoculate Angry Teens Against Islamic Extremism

Maajid Nawaz used to be a recruiter for an extreme Islamist group in the United Kingdom. NPR’s Scott Simon speaks with Nawaz about how the recruiting process works, and how it can be thwarted.

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Trouble in the East

Poland, Ukraine and Lithuania plan to form a common brigade:

Ben Judah, author of Fragile Empire: How Russia Fell In And Out Of Love With Vladimir Putin observes:

“This emerging military alliance between Ukraine and Poland/Lithuania is a sign that the US/EU ability to control it allies decreasing fast.”

Lack of leadership from their Western allies is forcing Eastern NATO states to form their own alliances, which could drag NATO into a conflict with Russia. Garry Kasparov in an interview with Maria Bartiromo sums up the situation:

“If you try to lead from behind no one will follow you….Obama shows unwillingness to engage the challenges that are there.”

Garry Kasparov on Putin

Click on image to play video

Obama is no Ronald Reagan and his reluctance to confront Putin is encouraging further risk-taking. As Petro Poroshenko told the House:

We appreciate the blankets and night-vision goggles that you sent us….but we cannot fight a war with blankets.”

The ceasefire in the East is tenuous and likely to collapse at any time.

If the ceasefire does collapse, Putin will continue to escalate, destroying Obama’s and NATO credibility with their allies in the East. Sanctions have not worked as a deterrent. Brent crude is falling

Nymex and Brent Crude

But the impact on Russia is cushioned by the falling Rouble.

RUBUSD

In the long-term this will cause inflation. But the immediate deterrent effect is negligible.

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S&P bullish but Asia, Europe weak

Weekly highlights:

  • Scotland votes “No” and the Pound rallies
  • Treasury yields (long-term) are rising and the Dollar strengthens
  • Gold and crude oil fall
  • European stocks remain bearish
  • Asian stocks also remain bearish despite Hong Kong/Shanghai breakout
  • US stocks still reflect a bull market

Stock markets

Dow Jones Europe Index is retracing after a weak rally that reached 335. Failure of support at 320 would signal a primary down-trend. Follow-through below 315 would confirm. A 13-week Twiggs Momentum peak below zero strengthens the bear signal.

* Target calculation: 320 – ( 340 – 320 ) = 300

Dow Jones Asia Index is testing primary support at 3200 despite bullishness on the Hang Seng and Shanghai Composite. Bearish divergence on 13-week Twiggs Momentum warns of a test of 3100. Breach of 3200 would signal a primary down-trend, while follow-through below 3100 would confirm.

* Target calculation: 3100 + ( 3100 – 2800 ) = 3400

The S&P 500 recovered above 2000 to signal a fresh advance. Follow-through above 2010 confirms a target of 2100*. Reversal below 1980 is unlikely. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) remains low, typical of a bull market.

S&P 500 VIX

The ASX 200 correction found support at 5300/5350. But 13-week Twiggs Money Flow below zero, after a long-term bearish divergence, warns of further weakness. Breach of 5300 would indicate a test of 5000. Recovery above 5550 is unlikely, but would suggest a fresh advance.

ASX 200

* Target calculation: 5650 + ( 5650 – 5350 ) = 5950

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Dow, S&P 500 make new highs

Dow Jones Industrial Average followed through above 17150, confirming a primary advance to 18000*. Rising 21-day Twiggs Money Flow suggests buying pressure. Reversal below support at 16950 is most unlikely, but would warn of a correction.

Dow Jones Industrial Average

* Target calculation: 17150 + ( 17150 – 16350 ) = 17950

The S&P 500 similarly followed through above 2010, confirming a primary advance with a target of 2070*. Reversal below support at 1980 is most unlikely, but would warn of a correction.

S&P 500

* Target calculation: 1990 + ( 1990 – 1910 ) = 2070

CBOE Volatility Index (VIX) is now back at 12, continuing to indicate low risk typical of a bull market.

VIX Index

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