A Change In American Plans On Iran?

As a post script to my Nov. 5 post on the web bot Oct. 26 tipping point date, there is another interesting development that fits with a turn around this date from peace to war with Iran. STRATFOR, the "shadow CIA" as Barron's calls it, published some intelligence on this exact date, Oct. 26, discussing vice-president Joe Biden's trip the previous week to several European countries. Biden made a critical departure from the cooperative moves with Russia being done up till now. The Obama administration had been going about revamping the missile defense shield in Europe in an attempt to gain Russia's help in trading sanctions on Iran, especially the ban on imported gasoline. Russia would have to be the major helper there. STRATFOR thinks the bombastic, unfriendly tone toward Russia in Biden's speeches tips off a change in the U.S. plans about negotiation with Iran versus the other options. It was a carefully vetted speech, not Biden's personal musings. In their words:

The American decision to threaten Russia might simply have been a last-ditch attempt to force Tehran's hand now that conciliation seems to have failed. It isn't likely to work, because for the time being Russia has the upper hand in the former Soviet Union, and the Americans and their allies -- motivated as they may be -- do not have the best cards to play.

The other explanation might be that the White House wanted to let Iran know that the Americans don't need Russia to deal with Iran. The threats to Russia might infuriate it, but the Kremlin is unlikely to feel much in the form of clear and present dangers. On the other hand, blasting the Russians the way Biden did might force the Iranians to reconsider their hand. After all, if the Americans are no longer thinking of the Russians as part of the solution, this indicates that the Americans are about to give up on diplomacy and sanctions. And that means the United States must choose between accepting an Iranian bomb or employing the military option.

So if the military option comes about, October 25, 26 may wind up being the turn point into that per the web bot's computations.

Oil vs Gold Shock Absorbers

Personally, I like air shocks the best, but we're not talking about pickup trucks here. Every long-term portfolio needs to have good shock absorbers. Shocks can come out of the blue and are difficult to develop hedges for. But some shocks are foreseeable, you just don't know the timing for them. Such an item is the current situation in the Middle East. As I have been noting in my posts, we're going through a danger period with Israel and Iran the next 2 months or so where there is a greatly higher chance of an Israeli strike. The further we go into 2010 with no strike, the more likely a deterrence strategy is going to be implemented.

Doing a pre-emptive bombing on Iran's nuclear plants poses many serious problems for Israel. Radioactivity from the aftermath could drift over the densely populated areas next to Iran and kill millions causing severe geopolitical and public relations problems for the Israelis for many years into the future. Recent polls, even in Israel, reveal that a majority think that even if Iran gets nuclear weapons, they won't use them. A strike would likely snuff out the fledgling global recovery we have worked so hard to get going making Israel public enemy #1, even though polls show most Americans would back an Israeli strike. That opinion could change as the complications of a strike wore on. On the other hand, if Israel were to allow Iran to build some nuclear weapons, they could simply wait for their first attempt to use them and respond, probably with some whole-hearted U.S. help, and pulverize Iran into oblivion with all the world cheering them on and designating not only Iran, but all of Israel's enemies as public enemy #1. But there is no telling how many cities and lives they may have to give up in the process.

I think pre-emption is the more likely of the two, but how do you design an investment portfolio until we know how this all plays out? All cash isn't a bad option, but for, say a mutual fund where you need to maintain an exposure to the markets, you need shock absorbers. Although the touchy situation with Iran has been well know by the markets for years, they have become a little desensitized to it with repeated cries of wolf. You hear or read little about it on CNBC or the other financial media, even though it perhaps is the most powerful market moving thing that should be being analyzed right now.

To take a stab at such analysis, let's take the 9/11 attacks as our sample shock inducer. These attacks had a lot shock value. It was the first time in history the U.S. suffered a military attack on its soil. The stock market had to be closed down for days. The next Sunday, churches were filled. We didn't know precisely what countries were to blame, but we knew there was gonna be trouble in the Middle East. The two big things that come to mind to guard against such shocks are oil and gold, in that order. So load the boat with oil stocks? No. Why? Look at the reaction: (click to enlarge)


Oil stocks tend to follow strong market moves too much, even though the oil price did go through a spike (that quickly normalized). It was a much different reaction with the gold stocks:


Gold and gold stocks reacted strongly in the opposite direction. Both these reactions were short lived before gold and oil returned to the bull, bear, or sideways markets they were doing before the attacks. We can thank our lucky stars if market reactions to an Iran strike are so brief.

Dueling Parabolas

The fractal long range forecast for gold is basically a parabola. A long while back, before gold was anywhere near $1000, David Nichols of the Fractal Gold Report drew this result of his fractal analysis for gold's future: (click to enlarge)


I have added the note about the resistance level we have just now broken smack dab centered on the parabola drawn when gold was at $734.50 an oz. This analysis is from pure geometry and physics, which know nothing of idiots in Washington or fools on Wall Street. But they have their parabola too!

I suppose a lot of the debt increase of the 80s can be blamed on Reagan's cold war deficits. But we won the cold war, and in peace-time, debt could have come back to sensible levels. Instead, a new war developed. We were invaded by an army of wiz kids on Wall Street creating and slicing and dicing mortgage debt, and peddling and juggling it to no end. They started their parabola in the early 90s. Gold started its parabola 10 years later in retaliation. Gee, I wonder if the two parabolas could be related?

Is Web Bot for October 25 a Hit or a Miss?

The October 25 "tipping point" date of the web bots (see my post here Web Bot Weirdness) has come and gone and no real obvious tipping - yet. So is this going to go down as one of their misses? Well, I wouldn't be so hasty to give it a final grade just yet. When they first started picking up strong vibes on this in the internet linguistics in spring of this year, they were about equally divided on whether it would be an Israel/Iran war or trouble with the dollar, not that these two issues would be unrelated. Lately, they have been leaning more toward banking/dollar as what is being tipped into trouble.

There has been some tipping on both issues as the dollar has been weakening and becoming a real concern as a holding by many nations. But perhaps a more dramatic tipping has transpired on the Iran issue. October 25 could be seen as a turn point from peace to war. It was on this date that the inspection of Iran's new nuclear facility took place, and it seems to be more a military facility than a peaceful one. And October 23 was the Friday deadline Iran was to give their answer at the Vienna talks on handing over their uranium stockpile for peaceful processing in France and Russia. Iran has essentially said "no" to a peaceful resolution, giving a late answer the next week that would allow them to hand over their LEU in stages so they could continue working on their bombs. This is a nonstarter at Vienna. It could be that we are tipping into war, which would make for more trouble with the markets and the dollar. From George Noory's radio show Coast To Coast on July 21 summarizing Clif High's work:

- When Israel bombs Iran (also around end Oct early Nov), they will use a nuclear-tipped bunker buster that will hit something unforeseen underground. As a result, a radioactive cloud will form that will pollute and sicken Southeast Asia. This will cause much of the world to turn against Israel.

- The “Death of the Dollar” will be a continuing trend, with a hyper inflationary period in 2010, and banking crises/confidence losses that will begin in August 2009 and escalate by November 2009.

Since the big "no" answer from Iran at the talks, the quiet on the subject has become deafening. Makes me worry.

Gold Fractal Update

A lot of predictions are being thrown out these days as gold surges and garners attention going above the $1000 mark. It seems like about half (well maybe 1/3) say it has run too much - short it. The rest are timidly stepping onto the train. It can be confusing listening to the arguments for and against gold because most of them make good sense. Shorters say gold is getting crowded. Longs say it's not too crowded. Have you seen any popular magazines lately with gold and silver cover stories?

There is a totally dispassionate way of analyzing gold that doesn't try to figure what bank may be selling or what government may want to buy or what the human psyche is on moving money into it. There is pure technical analysis that does all of that of course, but then there is the new dispassionate way - fractal analysis.

David Nichols is a pioneer in this developing science and has been incredibly accurate in calling the movement of gold. For an overview of fractal analysis, read the July 5 post here at my blog Is Gold at a Fractal Moment? where I summarize his call that early July would see a major turn begin out of the consolidation since March '08 and into the next hypergrowth phase. Look at a chart and see if that isn't exactly when the present run began.

There are many things Nichols uses to form a projection, one of them being the fractal dimension. This is a measure of energy level. Fractal theory says that anything fractal moves in repeating patterns with an ebb and flow of energy. An energy dimension can be computed that shows where a move is. The current (as of Oct 28) fractal dimension of gold is:

Here we see the big picture (monthly chart) for gold's fractal dimensioning including the 1 1/2 year consolidation since last March, whose end was called to the week. The 30 and 55 levels for the fractal dimension are important because they indicate when a significant move begins full of energy (55) and when a move is nearing exhaustion (30). The big move up in late '05 through May '06 began with around a 58 as did the big climb starting late in '07. As you can see, our current climb starts at 63 and is only beginning on a monthly basis.

Reading Between The Lines On Iran

Iran has thumbed its nose at the deadline last Friday for its answer at the Vienna talks to facilitate Iran handing over 80% of its uranium to Russia and France for peaceful processing. They are thought to be working on a new proposal whereby they get to keep about a ton of the LEU, just enough to continue their bomb making work. They will present this brainstorm tomorrow.

If you look between the lines of the published comments of European and American foreign ministers and generals, people who know a lot more than they can explicitly say, you can do a little informal intelligence gathering. An article out today on European angst over Iran's usual stalling tactics quotes some of the FM comments as "Iran cannot play and play and play with us" and "dialogue cannot last forever". They seem to have had a vision of a scheduled light at the end of the "talk" tunnel. The French foreign minister said "Iran is wasting time because now is the time for talking. One day it will be too late."

As for more formal intelligence gathering, nobody does it better than Stratfor. From their latest Iran report out today (Israel, U.S.: Negotiating Iran With Russia)

An Iranian state television report from Oct. 26 caveated that Iran would be demanding significant amendments to the proposal. Those amendments are unlikely to satisfy the P-5+1 negotiating team, and so the negotiations will continue -- or so Iran hopes.

Iran may be taking note of a critical meeting occurring in Moscow Oct. 28 between U.S. National Security Adviser James Jones and Russian Security Council Chief (and former Federal Security Service head) Nikolai Patrushev and Foreign Minister Sergei Lavrov. Patrushev is believed to have extended the invitation to Jones in the past week, and STRATFOR sources in the Kremlin have indicated that in this meeting, Lavrov will be trying to get a better read on U.S. intentions regarding Iran.

Before heading to Moscow, Jones said Oct. 27 that the United States will respond if the negotiations with Iran fail to produce concrete results. He reiterated that Iran "now needs to follow through on its commitments" and that "nothing is off the table" in terms of U.S. options in dealing with Iran. While maintaining an expected level of ambiguity, Jones is clearly signaling that the U.S. administration is prepared to take a tougher stance on Iran and will not allow this diplomatic phase to continue indefinitely -- a pledge that Obama recently made to Israel.

Israel, meanwhile, is keeping quiet, but is also busy laying the groundwork for more decisive action against Iran.

As for the published lines from the quiet Israelis to read between, well there are very few. But there is the considered view of Middle East experts, as noted in my previous posts, that "when the Israelis go really quiet, that's when you have to start worrying" (about a military strike, that is). The empty space being published seems to have a lot to say.

Iran Update

Today has been given to Iran for a decision deadline on the nuclear fuel enrichment deal being worked on in Vienna. An initial response by Iranian officials is a "no", but a final answer has not been rendered. This could sharply dial up the risk of the military option being used very soon, especially considering what's going on with the S-300s. In a news release just today, Tehran On The Brink Of Procurring S-300 Missiles , the deal is back on for Russia to ship the deadly anti-aircraft missile system to Iran to deploy around all its nuclear sites. Russia had agreed to stop the deal given the delicate nature of negotiation attempts. Currently, it would be relatively routine for Israel, even if acting alone, to successfully bomb Iran's facilities. How effective that bombing would be is another question. But the S-300s, if deployed, would mean serious damage to the Israeli air force if and when they were to do a strike.

The talks, as Israel claims, may be just stalling and deal making (and breaking) to give Iran both its nuclear bomb program and the S-300s to guard it with. Our optimistic impulse is to cheer the initiative being worked on now. It sounds good. It would have Iran hand over 75% of its low enriched uranium to Russia and France for higher enrichment and processing to a form suitable only for power plant or medical use but not for bomb making, then sold back to Iran. There would be no need for Iran's enrichment program with its possible bomb threat. But as the above news release says,

..., this apparent breakthrough may come at a grave price if in exchange for its “flexibility” Iran finally gets the S-300’s from Moscow. Washington is currently praising Tehran for finally responding to Barack Obama’s outstretched hand and will not be in a strong position to do or say much if Moscow rewards Tehran with S-300’s.

Together with the Tor M1 and the older super long-range S-200 (provided by Russia in 1994) and the S-300 missiles Iran could build a solid multilayer anti-aircraft defense shield that could defend its nuclear facilities against a possible U.S. or Israeli air attack and inflict serious damage on any attacking force. Without the S-300’s Iran does not have any credible air defenses and its nuclear facilities are vulnerable to such attacks (Interfax, October 21). The possible price for showing “flexibility” to get the S-300’s by sending 1.2 tons of low-enriched uranium abroad may not be as significant as it seems. In 2008, Russia shipped to Iran some 82 tons of low-enriched uranium as nuclear fuel for the Bushehr nuclear power reactor and it is stored under the protection of an IAEA seal (RIA-Novosti, February 25). Iran could dip into that source to easily replace the uranium it may agree to send to Russia under the IAEA draft deal as soon as its nuclear facilities are protected by a credible air defense system from a devastating outside attack. The over-enthusiastic Obama administration might face a nasty surprise.

The nasty surprise may come from the Israelis. In my September 3 post "Silence May Not Be Golden For Iran" I said:

consider the observation of Andrew Apostolou and other analysts interviewed a few months ago on Israel's willingness to strike Iran.

"But it's unlikely, they say, that Prime Minister Benjamin Netanyahu will reach that conclusion in the coming weeks or months...Israel is locked in a wait-and-see mode, planning to let U.S. diplomacy exhaust itself. Matthew Silver, a historian at Emek Yezreel College in the Galilee, agrees: "Netanyahu figures, "Okay, let Obama talk to the mullahs. It's a preordained failure." That the Israeli prime minister is making loud noises about a possible military strike, Apostolou says, suggests one won't come anytime soon. "If the Israelis really wanted to scare the Americans, they'd say nothing. When the Israelis go really quiet, that's when you have to start worrying.

As my chart shows in that post, the Israelis have gone quiet since he said that. So much so that you see it noted in headlines and in stories on Iran lately. In a NY Times piece out today "Draft Iran Deal Has Israel Worried" we have:

Thus far, officially Israel largely remained mum on the talks in Vienna and Geneva.

The only reaction from an Israeli government official so far came from Defence Minister Ehud Barak, who late Thursday criticised the International Atomic Energy Agency (IAEA) proposal as insufficient.

'The agreement, if it is signed, will postpone uranium enrichment in Iran by about one year. But if the enrichment is not halted, then the only end result is that Iran will have received legitimacy to enrich uranium on its soil,' Barak told a conference in Jerusalem.

'Therefore, a halt of enrichment in Iran ... coupled with immediate harsh sanctions free of any illusions and with eyes wide open' was needed, and without 'all parties taking any option off the table under any conditions', said the Israeli defence minister.

"Iran should know" they emphasized "that all options are on the table". Iran has been reported as vowing to continue enrichment even if they send the uranium to Russia. This does not sound like a peaceful resolution of the situation coming up. Russia processing Iran's bomb material just sounds too much like the fox guarding the hen house to begin with. If they decide to go ahead with the S-300 missiles, they would be delivered immediately. I get the impression the Israelis may not wait around until Iran gets a boat load of the new missiles ready to shred their planes before they do the air strikes.