March 10

Bank of America says nearly half its mortgages are bad. WBJ Morning Call.

Saudi foreign minister warns against protests. The Independent.

Saudi Arabia's foreign minister said today that dialogue — not protests — is the way to bring reform and warned that the oil-rich nation will take strong action if activists take to the streets..... Prince Saud al-Faisal... said his regime would cut off any finger raised against the regime

Saudi Arabia is losing its fear. Guardian UK.

It's very difficult to predict what will happen on Friday. My guess is that there will be protests. The larger protests will be in the eastern region and mostly by Shia Muslims. I also expect smaller protests in Riyadh and Jeddah. What tactics the security forces use will greatly influence not only the demonstrators but also the people watching from their homes. If undue violence is used against the demonstrators, it could possibly ignite the same fuse that led to full-blown revolutions in Tunisia, Egypt and Libya.

Erste Oil Special Report: "Force Majeure - Middle East". zerohedge.

Exclusive: Ex-CIA Chief Says Saudi Arabia Is Vulnerable. Plug-in Cars.

Could the political unrest spread to Saudi Arabia?

It’s quite possible. Yemen is in flames. Bahrain is at least seriously shaken. And they’re both right on the borders. And the Saudis in the eastern province have a huge population of Shia that they’ve treated very badly. And Iran is almost certainly using Hezbollah and Al-Quds [Iran’s revolutionary guard] to stir things up in the Gulf, in Bahrain, in Yemen, and quite possibly soon in Saudi Arabia. We just don’t know.

Will the U.S. work to quell those movements in Saudi Arabia, considering what would happen to oil markets?

If we will not even criticize Ahmadinejad in the mildest terms when a year and half ago he stole the election and there were millions of Iranians in streets risking their lives, and the most we could say is “Hmm,” then how in the world does anybody think that we can affect something in that part of the world? How are we going to keep Iran from funding Hezbollah and the Al-Quds force from creating disruptions and problems in much of the Gulf, when we won’t even criticize them?

IEA confirms peak oil was in 2006. (according to Energy Watch Group).

For Big Oil, Libya is just another fix it's in. Foreign Policy.

No end to the Tunisian contagion and $100-plus oil prices. Foreign Policy.

There's a presumption out there that things look tough in the Middle East, but that soon enough -- maybe by summer -- they will sort themselves out, and becalm the volatile prices of oil and gasoline. Not so, says veteran oil analyst Edward Morse, a student of history who correctly called the 2008 oil bubble while everyone else was still throwing money into the pot. "This is not a one-off disruption," Morse says. Instead, we're in a new age of geopolitical risk that threatens to disrupt the region for a decade or even longer.

Lurching toward the peak. Marc Brodine.

The old American dream is a nightmare. interview with James Howard Kunstler, Grist.

The end of growth. Richard Heinberg, Post Carbon Institute.

6 energy experts address the economic impact of Middle East unrest. Post Carbon Institute.

The coming misery that Big Oil discusses behind closed doors. Foreign Policy.

Demanding cheaper oil is disastrous. Johann Hari, The Independent.

What would the world be like today Jimmy Carter had been listened to by the Western world, instead of being demonized by Big Oil and booted out of office as a "whiner"? With the U.S. no longer backing Arab petro-tyrannies and occupying Arab territories, there would probably have been no 9/11. There would have been no Iraq War. There would have been no BP oil spill. We would not be facing an oil price shock today that could cripple our economies and leave backing some of the worst dictators in the world. The Copenhagen climate summit could well have established a path to dealing with global warming, rather than burying it. If we pursue Drilling As Usual, what unnecessary disasters will they curse us for 30 years from now?

Joseph Tainter: talking about collapse. Cassandra's legacy.

Former Goldman Sachs analyst Charles Nenner joins Marc Faber and Gerald Celente in predicting major war. Washington's blog.

March 9

What does QE2's end mean for various asset classes? Part I & The end of QE: Part II. Barry Ritholtz. Part III to come.

Richard Koo: the strange world of a balance sheet recession. interview posted on Economist's View.

The seven immutable laws of investing. James Montier, GMO.

Slowing China. Barry Eichengreen.

It's pretty obvious how China can achieve its top economic priority of price stability. Rebecca Wilder.

More on China. Mish.

What will Saudi Arabia do? Jim Hamilton.

If all of Libyan production gets knocked out, we'd need 1.8 mb/d to replace it. If the Saudis weren't able or willing to go above those production levels in 2008 when oil was selling for over $140 a barrel, why would you expect them to do so now with West Texas only at $106? My answer is, I don't.

other fare:
What scientists believe. The New Atlantis.

March 8

Un-American Revolutions. Niall Ferguson, Newsweek.




Are Middle East Revolutions a Prelude to Armageddon?

America had best prepare itself for a long haul and reorganization of our hold in the oil-producing world. The Middle East and North Africa revolution has only begun.

Oman riots increase fears for Saudi Arabia. UPI.

Arab unrest and the 'End of the Oil Age'. UPI.

Libyan Ides of March? UPI.

Both the Spanish civil war (1 million killed 1936-39), which divided both Europe and America between pro-Nazi and pro-Soviet camps, and the 1992-95 Bosnia war that killed about 100,000 civilians and displaced 2.2 million, found the United States on the side of the Muslims. Both are models of how quickly such conflicts can escalate into global crises.

Bahrain key to Persian Gulf power struggle. UPI.
Bahrain and the battle between Iran and Saudi Arabia. Stratfor.

Iran has another, more challenging strategic interest, one it has had since Biblical times. That goal is to be the dominant power in the Persian Gulf.


For Tehran, this is both reasonable and attainable. Iran has the largest and most ideologically committed military of any state in the Persian Gulf region. Despite the apparent technological sophistication of the Gulf states’ militaries, they are shells. Iran’s is not. In addition to being the leading military force in the Persian Gulf, Iran has 75 million people, giving it a larger population than all other Persian Gulf states combined.

Outside powers have prevented Iran from dominating the region since the fall of the Ottoman Empire, first the United Kingdom and then the United States, which consistently have supported the countries of the Arabian Peninsula. It was in the outsiders’ interests to maintain a divided region, and therefore in their interests to block the most powerful country in the region from dominating even when the outsiders were allied with Iran.

With the U.S. withdrawal from Iraq, this strategy is being abandoned in the sense that the force needed to contain Iran is being withdrawn. The forces left in Kuwait and U.S air power might be able to limit a conventional Iranian attack. Still, the U.S. withdrawal leaves the Iranians with the most powerful military force in the region regardless of whether they acquire nuclear weapons. Indeed, in my view, the nuclear issue largely has been an Iranian diversion from the more fundamental issue, namely, the regional balance after the departure of the United States. By focusing on the nuclear issue, these other issues appeared subsidiary and have been largely ignored.

March 7

Saudis mobilise thousands of troops to quell growing revolt. The Independent.

SocGen's Three Scenarios For Oil See Crude Price Between $110 And $200. zerohedge.




Growth and renewal in the U.S.: retooling America's economic engine. McKinsey.

for an executive summary, see: Why the American economy will stay slow. Big Think.

Royal Bank of Scotland investigation: the full story of how the 'world's biggest bank' went bust. Telegraph.



Is Canadian housing the next domino? Business Spectator.

March 4

A long way to go. FRBSF.

How to kill a recovery. Paul Krugman, NYT.

The madness of Jean Claude Trichet. Krugman.

Dead nation walking. Richard Russell.

Why the maven is morose. interview of Stephanie Pomboy in Barron's.

Why real estate will hold the economy back. The Daily Capitalist.

Commercial real estate loans and residential housing will continue to be a significant drag on economic performance. Until the mass of over-built homes and commercial properties are liquidated credit will remain tight and unemployment will remain high.


The unfortunate fact remains that credit for most of America is still tight, banks are still trying to repair their balance sheets, and the overlying problem is real estate, the detritus of the Fed’s reckless monetary policy. Credit expansion fueled by the Fed’s easy money policy of the early 2000′s drove private debt to fuel housing over-production, and drove commercial debt to fuel commercial real estate (CRE) over-production. It was the greatest such expansion of money and credit the world has ever seen and it went primarily into real estate. We are now facing the consequences of that expansion and boom: the bust.

includes much more on the FDIC Q4 banking report

Banks face more loan write-downs. WSJ.


Game changers? Tim Duy's Fed Watch.

Saudi Arabia contagion triggers Gulf rout. Ambrose Evans-Pritchard, Telegraph.

latest sell-off was triggered by the arrest of a Shi’ite cleric in the Kingdom’s Eastern Province after he called for democratic reforms and a constitutional monarchy. The province is home to Saudi Arabia’s aggrieved Shi’ite minority and also holds the country’s vast Ghawar oilfield, placing it at the epicentre of global crude supply. "Unrest in this region can have fatal consequences for the world," said JBC Energy. "The plunge on the Saudi stock exchange can be interpreted as a sign of waning trust."

re: Bahrain

protesters have "the right to appeal for help from Iran" if Saudi military units interfere in the struggle. Tanks were seen crossing the 17-mile causeway from Saudi Arabia to Bahrain on Tuesday

Religious tensions in Bahrain on edge. zerohedge.
concludes:

And once religion is involved, which of course means Iran, then all bets are off especially if Saudi sends reinforcements to support the Bahraini status quo.

German-Irish brinkmanship raises EMU stakes. Evans-Pritchard, Telegraph.

The EU's band-aid on a bullet hole. Daniel Gros, Project Syndicate.

March 3

Some Prices Are Up, but Is That Inflation? FRB of Cleveland.

The flexible CPI is intriguing in that, by design, it is likely to show evidence of pricing pressure ahead of the sticky CPI. However, the series is very volatile relative to its sticky-price counterpart and likely dominated by relative price changes. As a result, inflation forecasts based on the flexible CPI perform rather poorly.

While rapid price increases in a few categories seem to have pushed up the headline CPI lately, underlying measures of inflation are relatively low and have only ticked up slightly in the past few months.

Perspective on the copper/oil divergence. Pragmatic Capitalism.

Excerpts from Seth Klarman's 2010 Letter. My investing notebook.

Revisiting the Shiller P/E. Pragmatic Capitalism.

The complexity of Persian Gulf unrest. Stratfor.

Energy Talking Points Series, #1: Three Signs the end of oil exports is coming. American Society of Mechanical Engineers.

Australian debt update. Steve Keen.

Extend and pretend practices attracting SEC scrutiny. Barry Ritholtz.

Budget forecasts, compared with reality. NYT interactive graphic.

What happens if there is no QE3? David Rosenberg responds. zerohedge.

Cash and credit; implications for the markets. John Hussman.

the gap is still too wide between the credit that has been extended and the productive capacity that we have accumulated. Much of that gap has emerged because we continue to punish saving by depressing the rate of return available to investors, while at the same time pursuing policies aimed at consumption rather than real investment, research & development, and other activity that would add to the productive capacity of the nation. Stimulating consumption and speculation have been the life-blood of government policy interventions over the past two years, yet they are exactly the approaches that got us into trouble, and are likely to fare no better in producing better outcomes in this instance. Our problem is not with debt itself (much of which represents productive past investment), it is with imbalances, misallocated resources, distorted financial markets, bad debt held on the books as if it is good, and the quiet reliance on the public to bail out losses that should be borne by the private sector.


I strongly believe that part of the gap between total credit market debt and cumulative gross investment is literally thin air, in the sense that assets are being held on the books of banks and other financials that are not worth the sharpened pencils that are needed to perpetuate the illusion of value. On that subject, we've received a number of notes from observant shareholders pointing out that the Chief Financial Officer of Wells Fargo has inexplicably resigned. I observed several quarters ago that we could observe a wave of fresh risk aversion "at the point where the first bank CFO resigns out of refusal to sharpen his pencil any further," but as I've noted below, the FASB appears intent on preserving the existing set of accounting rules allowing financial institutions to value their assets with "substantial discretion," with no necessary link to market values. So it remains unclear what the true state of the banking system is, and the extent to which further bailouts will ultimately become necessary down the road. It will be important to keep watch on how this develops.