Saturday, February 26, 2011

The Big Picture: Oil Curtain Meets Domino Theory
We're off on the road to Morocco
This camel is tough on the spine
Where they're going, why we're going, how can we be sure?
I'll lay you 8 to 5 we'll meet Dorothy Lamour
Living under a rock and listening to swing music isn't a bad way to go. Get yourself some root beer, a tall glass and vanilla ice cream, drop in a couple scoops and let it fizz. Put on some WWII-era classics like Billy Strayhorn's "Take the 'A' Train" or Jimmy McHugh's "Comin' in on a Wing and a Prayer." Garand-damn-teed, you'll start feeling bright-eyed and bushy-tailed in no time. It's way more scientific than scientology, more meditative than meditation, and takes even less effort than Methodism. But sometimes a rock just isn't thick enough, or worse, is equipped with a wireless network.

Empires do not sensibly retreat or reduce expenditures, but follow a repeating, well-established pattern of symptoms:
"One symptom is widespread public concern over cultural and economic decay, with its many corollaries. The second is a growing religious fervor, church-state relationship, or crusading insistence. Next comes a rising commitment to faith as opposed to reason and a corollary downplaying of science. Fourth, we often find a considerable popular anticipation of a millenial time frame: an epochal battle, emergence of an antichrist, or belief in an imminent second coming or Armageddon. Last, these empires are prone to a hubris-driven national strategic and military overreach, often pursuing abstract international missions that the nation can no longer afford, economically or politically."

Kevin Phillips, American Theocracy
The West's inflatable, indispensable clown punching bag, Moammar Qaddafi, has fled from Libya. The largest tribes there, ones sitting on petroleum reserves which make their dust storm farm one of the world's 10 largest oil exporters, called for his departure. Said tribal chieftains also threatened to cut off oil exports to whoever was responsible machine-gunning protestors, by which they mean said West. From there it has devolved to civil war, and oil and gas exports from Libya have stopped. Germany, Italy, and China are sending warships. Add this to the 20 or so other South Vietnam-type US-funded regimes that are coming down, and I'm frantically searching the living room for back issues of People magazine. I'm hoping to find one from no later than 1996.

Regimes in Tunisia, Algiers, Morocco, Egypt, Yemen, Somalia, Iraq, and Iran are either toppled or teetered by waves of revolt ignited by skyrocketing food prices and no prospects. Bahrain, home of the US 5th Fleet, also looks like it's toast, and I've probably forgotten a few others like Oman. Food protests are now spreading across India and China. (Note: The Federal Reserve Bank is a primary cause of the rampant commodities inflation after a massive and continuing policy of money supply creation. The conversion of this money supply to things of actual value is known as Gresham's Law.) Saudi Arabia's sclerotic sheikhs won't last the summer, and the bin Laden family, the country's largest employer, is poised to serve as kingmaker.

In other news, Obama's State Department seems bumblingly oblivious, and it even continues to insist a CIA assassin caught red-handed in Pakistan should enjoy diplomatic immunity, effectively ending a crucial alliance over one thug's incarceration. Obama's minions appear to be consuming far more powerful anti-depressants than root beer floats, and they grasp neither the simplest repeats in pattern of outcomes, nor the enormity of their scale. This President has instead chosen to frame the collapse of dictators hand-picked by the US, skillful enforcers who have provided decades of brutal stability and oil exports, as healthy "democratic reform." This must be a lot like watching a man being torn to death by pit bulls and hearing him repeat, "I really love dogs! I really love dogs!" Yes, maybe the earth is just going through one big fit of democracy right now. Maybe the new Mid-East governments will only put up a few Twitter feeds and Facebook group pages while we continue to pump out all their remaining oil.

As Vincent commented on the earlier Oil Curtain piece, the Muslim Brotherhood seems well positioned to take over in Egypt and elsewhere. The structures of the current host nations for these mutinies simply don't favor near-term reform by any democratic process, and the global economic system is now rapidly destabilizing. Whereas the Koran was conceived as a road map for social justice, stability, equity, and charity, the precise improvements desired by the protestors. What is more likely to win: parliamentary democracy, or shared authoritarian tradition? While the Muslim Brotherhood isn't driving the bus yet, they and the chimerical "al Qaeda" can position themselves near the steering wheel and ready themselves to provide governing bodies with practical reach, or what I call waste management services. Whoever can keep the streets clear of garbage in these countries will end up running them, and the mosques are already organized by neighborhood. At minimum, religious thought leaders will have powerful seats at the bargaining tables, ones not well disposed to US, UK, or NATO interests as currently configured.

Whatever political spots you choose to sport, I think we can agree that Domino Theory, when applied to the cradle of crude, sounds expensive. My spots are known, and if a tree falls in the forest and no one's there to hear it, I may ask, "What did the state of Israel have against that tree?" But the problems in these forests and deserts are far bigger than Israel, and even I can't pin 2010's 70+% increase in the price of wheat on one hyper-paranoid enterprise in deviousness. In fact, purely from a stress level perspective, i
t's a great time to not be an Israeli. (When asked a couple weeks ago what effect the revolts in Tunisia, Algeria and Egypt are having on the collective psyche of America's land-based aircraft carrier in the Mid-East, Hassaf, the considerate former citizen of Jerusalem replied immediately, "Hysterical fear.") The UK, and later the US, went to extraordinary pains to arrange Israel and the Mid-East just the way it was circa November 2010. That arrangement is gone.

Sucking vanilla ice cream and root beer up a straw to the tunes of Glenn Miller means you choose not to experience hysterical fear. But it doesn't stop you from pondering the effects of your fellow citizens paying $5 per gallon gasoline this year. That roughly equates to oil at $150/bbl. Every 1 penny increase in the price of gasoline means 1 billion consumer dollars is removed from the US economy. $5 gasoline means a gross domestic product reduced in the neighborhood of 10-15%. At the micro level, many people already have to make choices between getting to work or eating well, or between eating and freezing. At the macro level, $5 gasoline is the sword of hyperinflation and the shield of demand destruction beating each other to smithereens. $5 gasoline may not even be possible, as $125 per barrel oil might take out the whole global economy before that happens. Like it did in 2008. One way or the other, oil is going to be a lot harder to get out of the Mid-East, and I'm frantically searching my living room for copies of People Magazine, hoping to find some from no later than 1996.

Empires don't reduce and they don't retreat borne on reason's wings. Empires collapse. Don Quixote was written by Cervantes many years after the effective fall of the Spanish Empire, one that was based on the most bloodthirsty forms of gold extraction, silver collection, and which was increasingly subject to the dictates of a religion completely disconnected from all semblance of sensible statecraft. In other words, it was just like this one. But at least the Alzheimer's-riddled old Don had some windmills to tilt at. The United States now devotes 54% of its annual budget to paying for current and previous wars. Offer this empire solutions, offer it alternatives, and it declines. It doesn't believe in windmills, it thinks they're only for wooden clog-wearing wusses. It doesn't want solar panels, rather the internal revenue service gives businesses tax breaks for using oil and gas. The empire's government is going to shut down this next month, its credit rating should have been cut in 2008, and public workers are beginning to strike across its states. Federal, state, and municipal debt are at a higher level than when they were singing "Don't Sit Under the Apple Tree (With Anyone Else But Me) at the end of 1945.

NATO is going to invade Libya unless someone kills its punching bag clown over the next few days. Once again, that sounds expensive. So here's a rhetorical question, and a serious one, meaning I don't know the answer: what do you think it would take for the US to give up control over Saudi Arabia's oil?

Thursday, February 17, 2011

China Shifting Orientation

Pun intended, and this is important. If you've been watching, the overall impression you get is of a ship listing over because it's turning as fast as it can. There's a frenzy of activity observable above deck, you can see the proverbial fire drill, and hopefully it will hold together for a few more months. China's ship of state is clearly preparing for a heavy impact and is out of fiscal policy maneuver room. Their huge dam of saved foreign exchange dollars is flooding even more quickly into world equities and commodities. I expect its government to announce a currency liberalization soon, now that it's inflating anyway.

China's money supply increased 53% over last 2 years.

"The latest numbers show inflation is soaring out of control in China. The CPI is up 4.9% year-over-year, up from 4.6% in December. The PPI clocked in at 6.6% compared with 5.9% last month."

Producer price inflation index crests 6% in China.

China's inflation statistics clouded by data reporting changes

China a net seller of US Treasury holdings for second straight month.

Must be a coincidence, Mr. Treasury Secretary.

The world's largest gold producer, China, imports as much gold in January 2011 as the first six months of 2010.

China crude oil imports up 27% in January

The appetite for gold and diesel, physical delivery thereof, has hit the insatiable button. The entrepreneurial elites have either direct or familial memories of the Cultural Revolution, and fear something like it may happen again.

Cotton prices up by 44% so far in January and February of 2011; Chinese textile makers cornering supply, amid 95% cotton price increase since September 2010.

China hoarding grain in response to drought and global supply squeeze, imports running 9x higher than 2010.

Yes, that wheat import number is really 9 times higher. The current drought may have wiped out a third or so of their winter wheat crop, as well as Russia's. Cotton prices have so far averaged up by 1% per day this year.

China hoarding food staples, world food prices continue to rise

They're hoarding corn, wheat and rice supplies. Adverse weather across the globe has already hit grain production, and futures contracts are now on steroids. They like not starving, and they vote (with dollars).

Chinese passenger car sales plunge 10.3% in January.

Automakers who dreamed of selling tens of millions of cars there probably never traveled much in the lesser cities where they play Whack-a-Scooter. General Motors did sell more cars there in 2010 than in the US, but the government has rolled back its previous tax incentives on passenger vehicles.

China-based hackers knock Canadian government agencies offline.

This Digital Journal article does not sensationalize the attack, and explains why it may not be government a.k.a. signals intelligence hackers as the Canadian Broadcasting Corporation accused. However, I've been seeing a definite increase in the number and target values of similar attacks, which have recently included successful server hacks on the Pentagon, utilities, and oil exploration companies. Militarily, even simple Denial of Service is an ideal asymmetric weapons, being cheap and effective if well-timed.

China's power output growth slowed dramatically in the latter half of 2010.

The chart from this article is above the title, comparing claimed yearly quarter-on-quarter GDP growth against power demand. In the 4th quarter of 2010, power consumption was only 5.5% higher compared with 2009, a time of relative contraction, while claimed GDP growth remained at a 9.8% growth rate. In other words, the low Q4 demand for power and the overall downward trend makes the growth claim implausible. The power side of this chart looks very much like a double-dip recession. The relaxed power consumption figures would seem to indicate a global structural recession, if not depression or systemic failure. If these power figures are valid it means foreign marketing and design companies cut back on orders to their lowest-cost manufacturer of widgets on the planet.

Monday, February 14, 2011

Behind the Oil Curtain: Why Egypt is America's Poland
For one so long prepared, and still possessing courage,
as must be so in a prince granted such an estimable city,
steadfastly grip a port-hole now and force yourself to listen,
forswearing any plaintive or coward-wrought entreaties.
Dwell instead on these reveries, dwell on their sweet choruses,
dwell on dazzling tunes borne aloft by strange and fantastic processions.
Dwell mightily, and give proper farewells to the Alexandria you're losing.
It was in center of the shipyards in old Danzig where the Soviet Union first felt its Warsaw Pact herniate. A young trouble-making electrician from Chalin came to work there in the late 1960s and founded the USSR's first and only trade union. The emergent union promptly struck in 1970, just after the government decreed an increase in food prices; their strike was put down in the traditional Soviet manner and 30 of its members were killed.

Suppressing the shipyard union then became the secret police's top priority. Despite a standard arsenal of techniques, they failed to quell Solidarity's membership or expunge its widely circulated underground weekly newsletter. When the next food-price hikes occurred in 1980, the shipyard's strike rippled across Poland, inspiring the government to officially recognize Solidarity and cave to their demands. Moreso, the government soon fell, martial law was declared, and interim rule passed to General Jaruzelski. I and others sent the Poles bars of soap, that being their most common aid request. Lech Walesa, Solidarity's founder, won the Nobel Peace Prize in 1983. He later became Poland's president following its first free elections in 1990.

The regimes in remaining Warsaw Pact nations either experienced revolts or simply sued for divorce, collapsing the Soviet Union. The Soviet defeat in Afghanistan is widely perceived as a primary catalyst of disintegration, but consistently wasteful, inflexible, inequitable and incompetent policies that generated determined internal resistance may well have had much stronger influenced on the demise's timing. Determined internal resistance is hereby mentally noted, as illustrated in the pic above the title.

Egypt's narrative arc may differ from Poland in aspects. Its ongoing revolt can genuinely be argued to spring from generational, technological, ideological, demographic and unemployment angles; but Egypt revolted because of high wheat prices, not the existence of Twitter. It's the same desperate anger that began to blaze under the keystone of Russia's Cold War strategy against the West, Poland, and heat and gravity pulled down the Warsaw Pact like dominoes. They were the Poles, Czechs, Serbs, Rumanians, Estonians, Ukrainians, Estonians, Albanians, and Cossacks who were second- or third-class subjects of the Kremlin, or even its designated enemies. This same exact process of too much heat and gravity on populations, on peoples denuded by predatory centrally planned regimes, who are now contemplating even grimmer futures than they became accustomed to, and whose leaders have long answered to foreign powers giving less than a toilet flush about them, is now resounding throughout Egypt and the rest of the countries shrouded behind the Oil Curtain.
Hopefully world history will not remember this time very well, as that will mean it didn't devolve into a major war.

The Oil Curtain. That phrase has been ringing in my head for awhile, soon after Obama inhabited the White House, and it became immediately clear his main goal was not to "change the culture in Washington" but to simply keep the plates spinning and the vomitoreum going. Obviously I'm drawing a comparison between the Soviet Union and the United States some readers or family members may not be comfortable with. Unfortunately, the analogy fits all too well, and it won't take very long to fit even better. In a Part II I'd like to discuss why the US is not likely to intervene directly in Egypt, but will feel forced to nearby.

Saturday, February 05, 2011

Crude Awakenings

A natural gas pipeline to Israel blew up Saturday in Egypt. This would appear to support a possible Oil Shock scenario I floated in my last post, Why Israel May Abandon Zionism. A follow-up post on that theme could also be titled, "Why It Might Not Do Any Good."

Port workers who keep the Suez Canal running went on strike today:

"Suez Canal Company workers from the cities of Suez, Port Said, and Ismailia began an open-ended sit in today. Disruptions to shipping movements, as well as disasterous econmic losses, are expected if the strike continues. Over 6000 protesters have agreed that they will not go home today once their shift is over and will continue their in front of the company's headquarters until their demands are met. They are protesting against poor wages and deteriorating health and working conditions.

In a bout of synchronicity or purposeful timing, Wikileaks published 4 memos today quoting Sadad al-Husseini, a Saudi oil exec, as stating their reserves in the ground have been overstated by 40%, or 300 billion barrels. He began making these disclosures in 2007. The US Embassy in Riyadh acknowledged the validity of Husseini's statements in a later cable:

"Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period."

This is no surprise here at the world headquarters of Adored by Hordes. Back during the oil shocks of the 1970s, the oil export limits of oil-producing member nations were based upon their stated reserves, thus providing powerful incentive to inflate said reserves in order to bank more dollars during the embargoes. The reserve estimates were never subsequently written down by any OPEC member country, and have been treated as state secrets ever since.

Which is why I've assumed Iran's regime has continued to pursue nuclear energy production despite knowing that Israel or the US would bomb whatever plants they build. To Israel, an Iran with a nuclear power plant is equal to an Iran turning Tel Aviv into fluffy black powder. The Iranian regime sees the pressure readings coming back from their fields, and tailors the cloaks and daggers of their diplomacy with available materiel. Almost all of Iran's revenues come from oil sales, yet they rescinded gasoline subsidies 3 weeks ago in a time of rising prices and a context of unrest in Tunisia, Egypt, Sudan, Saudi Arabia, Yemen and Sudan. Its oil exports seem to have been shrinking by 10-12% per year since 2007.

Finally, a regiment or so of Marines are presently being dispatched to Egypt. US warships are already near the Suez Canal. Since the families of high-ranking Marines only got notice of upcoming foreign deployment on Sunday, the grunts will have to be airlifted onto their ships. The stated mission: get US citizens out. Kind of a tall order while parked in the Suez Canal, ey?

In terms of global trade, the Suez Canal is disruptive, but fairly minor. Next stop? The Straits of Hormuz, where @20% of the world's oil sails through, and it's not too hard to predict that Israel be sorely tempted to seize some big fat oil tankers. Sorry for skipping over last Wednesday's informative meeting with Hassaf the Informative Dissident, but things have been hopping around here.

Tuesday, February 01, 2011

Why Israel May Abandon Zionism
"We will not be silenced! Whether you're a Christian, whether you're a Muslim, whether you're an atheist, you will demand your goddamn rights, and we will have our rights, one way or the other! We will never be silenced!"
Cairo Protester, January 25th, 2011
Last Wednesday Lord Wife and I went to meet an Israeli dissident for an evening. His name is Hassaf and we know him from our kids' co-op school. The school's annual auction was our reason for being there, having bid on and won "Understanding the Palestine-Israel Conflict." Because a couple of other co-op school parents were there, both of whom had traveled across the region in their youth, in addition to two local peace-active scholars, the main focus of dialogue was the region's history of conflict following Israel's formation.

Hassaf is a deeply thoughtful, fair-minded, and forthcoming man who decided to leave his country rather than run afoul of the Shin Bet (the secret police), so I did my best to shut up and learn something while the others questioned and commented. I failed the first objective and said far more than I intended, but it was hard not to succeed on the second, since Hassaf is the perfect perch on which to have one's thoughts provoked.
The elephant in the room, the current tsunami of pan-Arabic civil and economic unrest, waited patiently in the wings, its trunk peeking out occasionally.

Obviously what's going on in Tunisia, Egypt, Jordan and soon to be Syria and Saudi Arabia is huge from Israel's perspective, because it spells d-o-o-m. (Note: a handy Barometer of Badness for the tsunami's strength is the price of oil, which has already crested $100/bbl.) To me, of course, what's happening is expected. The equation is child's play. You take Western client states with decades of stability achieved through brutal repression, a strong and largely homogeneous religion, a young unemployed demographic, then you add rampant inflation in food commodities and top it off with a wheat crop failure in Russia. Take away bread and sugar and this is what you get. Really, what else could you expect?

What's not child's play is the immediate and long-term effects on Israel, aka "US interests in the region." That's what I was brooding on last Wednesday night. It's had time to percolate and its coming out right now despite it being in the middle of my workday, perhaps because we'll be meeting with Hassaf again this Wednesday night. A lot of commentary or causation could be laid out here. But there's no time so here's the deal. Every single day that Mubarak, Egypt's military dictator for the past 30 years, stays on is bad for everybody. Every day he stays, support for the Muslim Brotherhood swells.

Mubarak must be convinced to step down at once, with safe haven assured for his family and the metric tons of gold they got out last week. The longer he attempts to stay, the higher anti-Israel sentiment of succeeding governments will be, as well as its cohesion and duration across them as a group. It's already too late, but fast action in Egypt and ginger diplomacy with the replacement(s) would ameliorate the effects of a possible, and probably a likely, near-term oil shock. Two words nobody in our media is mentioning: Oil Shock. The Happy Chatter I've heard most out of the twittering heads is about democracy breaking out in the Mid-East. Democracy in the Mid-East? Give me a fucking break! Democracy in the Mid-East is about as useful as a refrigerator of ping-pong balls. Nitroglycerin-filled ping-pong balls.

[ed. note: Some very smart analysts see voting democracies as a positive way forward. Whereas I see them as quick paths to majority rule by Islamists. My opinion is formed by having seen my own government taken over by religious radicals, ones who still effectively set its policies, and by having been a young eyewitness to the formation of their plans.]

The Obama Administration is, unfortunately, too locked into its own foreign policy ass and damage control processes to accomplish anything like fast, effective action. Therefore, Israel will find itself in a truly interesting position: having aggressively settled the hell out of Palestine and boxed its bothersome inhabitants into a tiny fraction of the available land mass, generating pan-Arabic enmity, it can now turn around and make concessions, very soothing concessions. Such as would provide the next Western client state successors, such as probably El Baradei in Egypt and the bin Laden family in Saudi Arabia with quick victories and credibility. This means stabbing its own Zionists from the front, and from the back or the side will do just as well. If it can stab them down, Israel can reestablish a semblance of stability.

I see that opening, at least, and will allow myself a wallow or two in my own optimism, even for at least one more sentence. Implementing concessions may not deflect all the existential problems coming for Israel, not least its own neuroses and habits, but giving up its Zionist political strategy (adopted in order to generate immigration) buys more time. More time is a good thing, right? (Wow. That wallow felt really nice.) One must admittedly recognize the solution verges on the politically insufferable, and if so that's too damned bad. Again, the equation is pretty easy here. Over time, a reunified pan-Arabia defeats Israel via mere copulation, and there are already just too many Arabs to kill. The biogenetic weapons Israel has tried to come up with, ones which could selectively attack only Arab populations and spare Jews, haven't materialized. Trouble is, Arabs are every bit as Semitic as ancestral Jews, much moreso than European Jews, having all come from father Abraham.

Pacifying the anger is now a far more fruitful course, since the opposite tack manifestly failed as of Sunday, January 30th, 2011. Now, as a gloomer and doomer, it would be remiss of me to not repeat that it's probably too late. Many things have changed, human nature isn't among them. Peoples do change when they've exhausted other options. Well they're exhausted, baby, and leadership's inattention to and denial of bad fundamentals on the ground went on far too long. It's out of control now and no known countervailing force exists which can contain the Mid-East's grievances. Except maybe, just maybe making a half million or so hostile, entitled, crazy-ass-racist religious radicals move out of settlements built with US foreign aid. Oh and until that happens, as an aside, anyone reading this would be well advised to go buy at least 50 gallons of gasoline...and browse Craigslist for a moped.