Portugal, and Yields, and Iran . . .

Portugal, and yields, and Iran - oh my! None of these are new stories. Portugal is bigger than Greece - but we knew that. Moreover, we knew Portugal was in dire straits. We knew Germany was already hesitant to provide more assistance and would demand higher guarantees.Viewing the remainder of this article requires a Subscription

All eyes should be on Iran

Last year I started writing about the divergent forces working on oil: global slowdown vs. geopolitical unrest. So far, geopolitical unrest has been winning.Viewing the remainder of this article requires a Subscription

More on Stuxnet

This is a must watch video for people interested in cyberwar.

Energy – by the time you read about it…

When the BP spill occurred, I wasn’t able to blink without energy being mentioned. Every article, every economist, and every politician wanted a piece of the PR feeding frenzy. The problem was that the focus was completely misplaced; I said it then and I’ll say it now – a spill was not surprising!

Given our energy dependence, the fact that oil is getting harder to find and extract, and the lax government regulations, it was only a matter of time before some major spill happened somewhere. So it happened to be BP and it happened to be in the gulf. Immediately, everyone wanted a piece of BP’s massive cash hoard. I get it and I’m happy to fine them, but there are bigger issues at stake. No effort has been made to analyze the underlying issues of energy – but a bigger issue is looming and the rest of the world is aware of it more than the US.

Iran is going nuclear, and whether we like it or not, energy dependence will once again take a front row seat, with no one to pay any fines, as we face a massive squeeze in oil prices.The front page of The Atlantic Monthly brings to light one (of numerous) scenarios that might drive this squeeze:

The rest of the world is more aware of it that the US, and is taking the appropriate actions – investing in domestic energy supply through alternatives and nuclear. By far, nuclear energy offers the best option to gain long term energy independence. Even Finland, with its strong environmental and bureaucratic structure has found a way of burying nuclear waste, so how come we can’t?

The geopolitics of energy are about to trump the global slowdown.

Geopolitics…

Does anyone remember Iran? The oil markets do. They’re back pushing $80. At some point, sounds like it might be in the near future, the geopolitics in the area will once again come to the front burner. I guess once Tiger is off the air.

http://www.latimes.com/news/nation-and-world/la-fg-iran-nukes19-2010feb19,0,4731330.story

Look who’s back in the spotlight: Ahmadinejad

As we have been noting, with the Obama administration failing to make a strong stand on any international issue, and with Europe as weak as ever, there is room for Ahmadinejad to maneuver. And now with Dubai World scaring Europe (especially) even more of any instability in the region, the game theorists in Iran figured it was time to make some bold statements. Iran vowed to develop 10 new enrichment sites: http://www.washingtonpost.com/wp-dyn/content/article/2009/11/29/AR2009112900992.html.

We are now left with the prospect of a nuclear Iran, which will lead to a nuclear region as Saudi Arabia, Egypt, etc. will be forced to go nuclear, or have Israel make a move against US public officials (although probably favored behind the closed doors). Either way, there’s a base for oil prices here.

Obama to Iran: It’s OK if you go nuclear, just make sure its peaceful

Obama campaigned on talk and now he is delivering, on the “talk” that is. This is the headline from cnn.com: “US to Iran: Prove your nuclear program is peaceful”. In yesteryear, the US stated that we will not allow a nuclear Iran. Sadly, the US has made a huge turn. We wrote on this was coming when Hillary Clinton mentioned that the key to stability was a defense shield in the region. This implied to us that the US stance was one that was OK with Iran developing nuclear capabilities while at the same time developing a defense strategy. At the time, we were suprised that the US was taking such a reactive stance, and disappointed that we weren’t pursuing an aggressive, multi-faceted approach to ensure that Iran did not reach nuclear status. So by now, I can’t say I’m surprised that what Obama wants is just to send in monitors after Iran goes nuclear.

Most of the current administration are alumni of the Clinton team. They are using the same blueprint they used for North Korea. Monitor, let some things slide, and hope the  problem is not as serious as analysts predict. Of course, North Korea now has nuclear weapons, the monitors are long gone, and our ability to stand up to North Korean aggression, human rights violations, etc. are forever diminished.

What does this mean? For starters, it means Israel might be forced to act alone. The ramifications of that are unknowable. Certainly the world will cry out and criticize. However, most of Iran’s neighbors hope Iran doesn’t go nuclear for fear of changing the balance of power. Second, most of the west nations hope they don’t need to deal with a nuclear Iran and the prospect of nuclear terrorist organizations it supports. So all in all, everyone will probably be happy but act mad. I hope, that’s the worst of it.

http://www.cnn.com/2009/POLITICS/09/27/us.iran/index.html

Connect the Dots 6-28-09 Part I

Connect the dots for this week will be in two parts. Part I, will be our usual weekly monitors and a some thoughts from me on how we’re positioning some portfolios and our considerations. Part II will be posted by Thatsabet and will provide a top down view of the market, including some major charts to consider and actionable ideas.

Connect the dots 6-28-09 Part I:

We’ll start with the monitor. Green shoots. Brown shoots. Who knows? The answer…no one. We are at a point where the markets can go either way and I wouldn’t be surprised. Why? They can go down easily as the economic recovery is not realized. Fear can grip this market in a heartbeat. On the other hand, we can have a liquidity generated pop that will force cash into equities, and squeeze any shorts. Which means, if you are going to play, now more than ever, choosing your spots is critical. We’ll see it more when we look at the relative returns, but even looking at the YTD numbers, the interesting numbers are not the ones in green, they’re the ones that are in the red or flat.

The SPX and DOW Industrials are flat for the year. Utilities and transports, negative. The next most interesting mover is UNG, down 36%! In the meantime, we see Treasuries going down significantly, with yields rising 56% (10-year) while emerging markets EEM up 30%. Does this continue? Hmmmm. I’m now looking at the laggards for opportunities: utilities, water, Japan, and natural gas for starters. I’m staying away from currency bets, although there seem to be significant opportunities there. The reason I’m staying away is because I doubt I’ll be able to take a position and hold it with the recent volatility we’ve seen and the large players involved. Every government is now trying to bolster exports with a weaker currency and they are all losing. To me, the beneficiary will end up being Japan…they’ve already gone through the domestic cleansing and equity fallout while still maintaining the manufacturing capacity.

The relative view tells us an interesting story. YTD the SPX is flat, but that is not the whole picture. By looking at the sectors, we can see that there have been significant movers underlying the flat facade. The story of the week (on a relative basis) was definitely energy. Yet, I can’t help but feel that the fact that oil has held up and gone up in the face of a severe recession will signal positive news for the associated stocks. Natural gas is trickier. Speaking to funamental guys, I’ve heard both stories, and don’t hear a concensus at these levels. Some are pointing to reserves and long contracts as the investment opportunity, not UNG. I think there is something to it, since UNG is forced to buy the current contracts.

In my mind, the story of the week is the changing face of Iran and now the coup in Honduras. Iran is The Soviet Union before the fall. Very soon there will be a choice forced on the leadership: close up or open up. They will not be able to stay in between any longer. If they choose to close up, they will go the way of North Korea, Cuba, China circa mid-1400′s, and an array of others from history. It will be incredibly painful for their citizens, but the only way for the ruling class to maintain power. On the other hand, if they open up, the ruling party will go down and probably go down quickly. They will not be able to manufacture a quasi opening such as China and will lose control. In the chaos, anything can happen, probably, net good. Obama need not do anything right now. It’s a lose-lose situation for him, but I worry that he will become complacent.

Separately, there was a coup in Honduras, and contrary to the limited coverage on CNN (http://www.cnn.com/2009/WORLD/americas/06/28/honduras.president.arrested/index.html), I think it does not bode well for the US relations in the region, albeit in a twisted way. Follow me here: the coup was led by militants against a president that was anti-American. There are rumors that the US was aware and tacitly approved of the coup. Hopefully, this will have no lasting impact on the way the US is viewed in the region, but I tend to think that it will have a net negative impact on US-Latin American relations.

Lastly, I can’t NOT mention Michael Jackson, since everyone else is…on second thought…that’s precisely the reason to leave it off there.

Stay tuned for Part II from Thatsabet.

Israel cautions against Obama dialogue with Iran

JERUSALEM (Reuters) – Israel said Thursday U.S. President-elect Barack Obama‘s
stated readiness to talk to Iran could be seen in the Middle East as a
sign of weakness in efforts to persuade Tehran to curb its nuclear
program.

 

“We live in a neighborhood in which sometimes dialogue — in a
situation where you have brought sanctions, and you then shift to
dialogue — is liable to be interpreted as weakness,” Foreign Minister
Tzipi Livni said, asked on Israel Radio about policy change toward
Tehran in an Obama administration.

http://www.reuters.com/article/topNews/idUSTRE4A52J920081106?feedType=RSS&feedName=topNews

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