Thursday, September 24, 2009

AWACS Prep In Iran Theater?

AWACS planes, as you are probably aware, with the funny looking big disk fitted on top of a Boeing airliner, are radar eyes high in the sky for directing major military operations. Putting these into an area is typically about the first step (after the spy drones) in any big military action.

So it was a seemingly jolting development this week when an Iranian AWACS reportedly crashed and burned during a military air show in Tehran. It was the only AWACS plane Iran had and fell on the mausoleum burial area of Khomeini, a national shrine. This has raised speculation that the plane may have been sabotaged by Israeli agents in preparation for an air strike. It's a strange coincidence that their only eye in the sky is blinded just as other things are indicating an Israeli strike coming soon.

However, Stratfor is of the opinion that the supposed loss of this plane is largely an embarrassment with limited overall strategic importance. This is simply because all of Iran's air force is poorly maintained with a lack of pilot training. Iran's air force is not their strong suit.

While Iran's eye in the sky has been removed, other AWACS are being placed into the area. In a September 17 article, Threat To Iran Grows As Black Sea Crisis Deepens:

The American Defense Security Cooperation Agency announced plans last week to supply Turkey, the only NATO member state bordering Iran, with almost $8 billion dollars worth of theater interceptor missiles, of the upgraded and longer-range PAC-3 (Patriot Advance Capability-3) model. The project includes delivering almost 300 Patriots for deployment at twelve command posts inside Turkey.

In June the Turkish government confirmed that NATO AWACS (Airborne Warning and Control System) planes would be deployed in its Konya province.

The last time AWACS and Patriot missiles were sent to Turkey was in late 2002 and early 2003 in preparation for the invasion of Iraq.

The whole Russia vs Georgia trouble in the region is largely because Georgia is the football in the geopolitical game between Russia and the U.S. It is an important staging area for any coordinated operation against Iran as the article states per Dmitry Rogozin, a Russian ambassador :

Russia seized control of two airfields in Georgia from where air strikes against Iran were being planned. The Russian forces also apparently recovered weapons and Israeli spy drones that would have been useful for the surveillance of possible Iranian targets.

The same newspaper, in quoting Dmitry Rogozin asserting that Russian military intelligence had captured documents proving Washington had launched “active military preparations on Georgia’s territory” for air strikes against Iran, added information on Israeli involvement:

"Israel had supplied Georgia with sophisticated Hermes 450 UAV spy drones, multiple rocket launchers and other military equipment... as well as modernised Georgia’s Soviet-made tanks that were used in the attack against South Ossetia. Israeli instructors had also helped train Georgia troops."

Rogozin was further quoted as saying, "What NATO is doing now in Georgia is restoring its ability to monitor its airspace, in other words restoring the whole locator system and an anti-missile defence system which were destroyed by Russian artillery.

[The restoration of surveillance systems and airbases in Georgia is being] done for logistic support of some air operations either of the Alliance as a whole or of the United States in particular in this region. The swift reconstruction of the airfields and all the systems proves that some air operation is being planned against another country which is located not far from Georgia....

That country would be Iran. If you have read my other posts on Iran, they've been suggesting a time frame for an attack as being in the next 2 or 3 months. The plan would seem to be to let the Obama initiative prove futile over the meetings of October, then go to either step 2 or 3 of the Gates/Jones plan presented to Israel in late July. This would involve blockading Iran, already hurting so bad from sanctions they can't run a decent air force, or an immediate air strike. The Wayne Madsen Report just came out this week with a piece saying Israel is intent on a November strike per their "deep in the Beltway" State Department sources.

Of course, they have laid plans for a strike before and aborted them. If per chance Iran should agree to a workable negotiated solution that Israel and everybody could live with, the scenario may change again. But with the behavior of Iran's leaders being so boorish that U.N. delegates are walking out of the meetings at the U.N. annual summit, and with them hatefully restating their religious duty to end Israel, they don't seem to be in a peaceable mood these days.

The implications of the Iran situation for stock investing are immense. Yet you hear virtually nothing being discussed on CNBC or anywhere else for that matter. Considering the mega-danger period we are passing through with Israel, an investor might want to give some thought to constructing a portfolio suitable for Iran getting hit.

Thursday, September 17, 2009

U.N. Report States Iran Now a Nuclear Threat

In a report released this afternoon , (well actually it was marked "confidential" and supposedly was not meant to be published) the United Nations states that Iran has likely been working on nuclear bomb detonation projects. While they are not yet able to make warheads to go on missiles, the report states:
The document also says Iran already could trigger a nuclear blast through "methods of unconventional delivery" such as in a container on a cargo ship or carried on the trailer of a truck.

"Could already trigger a nuclear blast"? This is what Israeli intelligence has been saying for years in warning that it would not allow Iran's program to proceed into 2010. Portfolio planning for a strike on Iran may be wise for the next couple months.

Wednesday, September 16, 2009

Washington's Iran Confusion

Does the White House know what it's doing on Iran's nuclear bomb threat? If you take a look at published reports since July, it's a comedy of errors that may end as a colossal tragedy of stupidity.

Back at the end of July, U.S. defense secretary Robert Gates and national security adviser James Jones went to Israel and met with prime minister Netanyahu and the Mossad chief and others outlining a three step plan for Iran. Step one was diplomacy up until September. Step two was the beginning of crippling bans on Iran's critical imports such as gasoline (they have little refining capacity) and such things as military blockading of their sea ports. Step 3 was the combined U.S. and Israeli air strike.

So Obama issues the September deadline for a meaningful response from Iran to the unconditioned overture he earlier extended to engage Iran in a negotiated solution. September has come and Iran has issued its response, which is a diatribe of how evil the whole world is other than Islam and how they have the right to make bombs. Journalists who have read the document call it a slap in the face of Obama.

The September time limit was not arbitrary. For years, intelligence agencies around the world, except for Israel's Mossad, have been of the mind that Iran would not be a bomb making threat untill around 2013. The Mossad, however, has been saying for about 3 years now that a red line in the sand would be crossed around the end of 2009 where they would have enough enriched uranium from their plants to start the relatively rapid process of assembling devices. Israel's officials have been warning that they would not allow Iran to go past this line. Well, in recent weeks, there has been a change in U.S. intel opinion and now they essentially agree with what Israel has been saying all along! The Israeli military knows where all the bomb material is being made and have drawn up plans to take out all these facilities, but the actual bomb assembly can be done at many new and unknown locations and the process cannot be as easily and completely stopped when it goes to that stage. "Now that Iran has got all the components for making a nuclear device at extremely short notice, as affirmed by U.S. intelligence, Israel can no longer delay a decision on pre-emptive action." DEBKAfile 9/10/09

Europe sees Iran as a clear and present danger and doesn't buy the line from them that they are only pursuing a peaceful use of nuclear power. On the bomb making intent, French president Nicholas Sarkozy recently said "It is a certainty to all our secret services."

Even the proverbially peace loving, war averse French want the maniacal gang in Iran crushed immediately. The three step process outlined back in July was when we thought there was the luxury of time for talking and blockading, etc. That has changed, and waiting many months for sanctions to make Iran's regime become more agreeable is not a solution Israel will accept. "By the end of the year, if there is no agreement on crippling sanctions aimed at this regime, we will have no choice..." Ephraim Sneh former brigadier-general and deputy defense minister of Israel.

So why, after receiving Iran's slap-in-the-face answer to the September deadline, constructed when we thought we had more time, and seeing Washington's bungled intel corrected to agree with Israel, is Obama saying to Iran and the world "OK, we didn't mean it. Let's take some more time to talk. Is October 1 OK?" This is being written about as a huge foreign policy blunder. "The longer the U.S. delays playing hardball with Iran, the sooner Israel is likely to strike." Bret Stephens, WSJ. The Bipartisan Policy Center published a piece on 9/15 "Meeting the Challenge - Time Is Running Out" by some former U.S. senators and the former deputy head of the U.S. Military European Command (includes Israel); it had this to say:
"Should we fail to act decisively to curtail Iran's nuclear program in the near term, or if it appears likely that Iran is about to obtain game-changing military technology, such as Russia's S-300 anti-aircraft system, Israel, more likely than not, will act."
"Near term" could probably be construed to mean by year end in view of other published opinion from Israel. The first shipment of the S-300 gear is reportedly in Syria awaiting setup around Israel's targets in Iran.

Outside of the usual troublemaker governments like Venezuela and Russia, all this puts Washington into the role of running interference for the thugs in Tehran. And there is no solidarity on Capital Hill on how to do this. Hillary Clinton, the Secretary of State, says sanctions are unlikely to work while an Iranian gasoline ban bill makes its way through the congress. If they do the blockade of Iran's sea ports, that would be tantamount to an act of war, and missiles may be flying soon thereafter - only without as much element of surprise. The Israeli's, who now must be thinking "with friends like America, who needs enemies", are being boxed into a corner where they will be forced to take matters into their own hands. Maybe all the apparent confusion is just disinformation for Iran's sake. Let's hope the team in Washington is that smart.

Sunday, September 13, 2009

Markets In Strengthening Trend

The brief, worrisome weakening of the market's leadership groups, retail and tech, seems to have resolved itself into the bigger trend, the strengthening trend: (click to enlarge)

Another problem for the bull case seems to have joined the positive trend - the behavior of the transports other than the rails. I've pointed out in earlier posts that the nice Dow Theory confirmation of this year's new highs by the Dow didn't exist if you left out the rails as the Nasdaq Transportation Index does (only 1 rail in the index) - a non confirmation of a new bull. That's worth watching because the rails are tied closely to whatever commodities are doing, and commodities these days seem closely tied to whatever confidence in paper currencies is doing, not as closely tied to the economy anymore. Well, even the transport index without the rails is now showing some vigor:

The TRANQ has busted a pretty well entrenched resistance level and is making new highs now since the March low - a pretty direct market rendering on the economy.

This all agrees pretty well with Jim Cramer's opinion on his technical analysis team (he thinks TA is silly himself). He sees a run by the S&P to around 1200 soon. However, the other day, when a viewer asked him about the out-of-control debt mountain, he confided that it worries him and that he thought it will result in a new bear market within 18 months if they don't get it under control.

I agree, but I think some geopolitical developments could derail our nice positive trend a lot sooner than that. More on that later.

Thursday, September 3, 2009

Silence May Not Be Golden For Iran

The holy spat between Israel and Iran is now passing through one of those high danger periods. But in this one, the gods of war may not cry wolf. Since 2006, there has been a high degree of consistency in the intelligence estimates on the time table for Iranian production of atom bomb material - sometime in 2010 they'll have enough to start making Israel busters.

In an article at back on March 31, 2009, Israel's Prime Minister Netanyahu said that Obama's team would have to make progress quickly on Iran diplomacy or Israel would have to go to the military option. "Neither Netanyahu nor his principal military advisors would suggest a deadline for American progress on the Iran nuclear program, though one aide said pointedly that Israeli time lines are now drawn in months, not years". That was 4 months ago.

Art Cashin has been talking about some geopolitical "events" cooking that would cause "historic trading" perhaps during Ramadan, the month long Musim fasting observance that began August 22. See my blog post Art Cashin's Strange Comments . So I did an informal survey of the threats and warnings being issued by the officials inside the Israeli government to see if we're building to a clash: (click to enlarge)

This isn't what you would expect from the saber rattlers if we are building to a blowup. But 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. But in the meantime, Israel will continue to match Iran's belligerent signals."

And ran a July 13 article titled "The U.S. Should Worry When Israel Gets Quiet". Well, Israel does seem to have "gone quiet". Lately, their pronouncements have been preferring diplomacy if the military option is even mentioned. And now they say things like what Michael Oren, Israel's ambassador to the U.S. recently said on August 16 - Israel is "far from contemplating" a strike on Iran. It's interesting that the quiet zones in the above chart for this year and last coincide with the optimal time window of the year for a strike, September to November, when the prevailing monsoon winds keep the radioactive fallout and dust primarily in Iran and out of neighboring countries. I suspect that they were on the verge of doing the strike last year, but the financial crisis may have aborted it.

Obama and the G8 have set a late September line in the sand for a negotiated solution, after which they will ratchet up sanctions. I have a feeling Israel may then ratchet up their F16s.

Tuesday, September 1, 2009

How Much Debt Is Too Much ?

Debt has been widely tarred and feathered as the chief villain in our current economic woes. Yet debt is continually looked to as our knight in shining armor to save us from a fall. If you look at a history of U.S. debt, it is associated with bad things. It goes up in the vicinity of each recession and way up near any depressions: (click to enlarge charts)
But is it fair to blame everything on debt? In the Great Depression, the chart shows the debt mountain came after it started as a result of the efforts to fight it. There are many who argue that the Depression was so bad because it should have been fought with more debt, not because there was too much New Deal deficit spending.

Well, we are certainly going to test that theory in our day. Since the mid '80s, we have been using debt to fight everything from a hangnail to a systemic collapse of the system. We have put the pedal to the metal and we will shortly see if more is better.

Is there any way to guage the effectiveness of all this debt we have been applying to the system's problems over all these years? There is a fascinating graph Dr. Marc Faber uses to show this. It was featured in a piece at Seeking Alpha 6/14/09 by Faisal Humayan. If you add some data points going back to 1954, when the current debt mountain began its build, and extend the current part to include Q1 of '09, you see this:

This chart shows a Y axis going from 0 to 1.00 tabulating the dollars of GDP growth we get from each dollar of added debt. You can see a larger scale version of this chart at the Cumberland Advisors site pdf (page 6). Marc Faber uses this data to show that we are getting weaker and weaker GDP growth for each new dollar of debt added to the mountain. He shows a straight line fitted through the data that goes to zero in 2015, "Zero Hour" when piling on more debt gives us nothing in return.

But if you add the data going back to the start of the mountain in 1954, you could also fit a curve that winds up going to zero sooner than the straight line fit. I hate to be even more of a kill joy than Doctor Doom, but I think the curve fits things better.

So is this what putting the debt pedal to the metal gets us? We are getting to a point where we get zero GDP growth for each debt dollar added, but we dare not lift our foot off the pedal or things will be even worse. Where is this joy ride going next? There is a limit to adding debt. Sooner or later something will break - a currency or something.