|Swenson Trends Archive|
SepPRN: Vol. 1, Num. 5 | September 5, 2011
Good Night Irene, Good Riddance August
I step away for a month to finish a book and look what happens. The weirdness keeps piling up. Send in the clowns.
My thesis throughout these newsletters is that the world is behaving strangely. History has morphed and no longer plays by the rules. The math continues its dysfunctional, unpredictable, and almost incomprehensible ways. Volatility and soft-anarchy remain unchecked. Peering into the crystal ball reveals only fog, and metrics suggest the fog is moving at the speed of light.
We might have expected the usual dog days of August, but instead news surged in all directions. Actually, that's a mathematical statement according to Factiva: "There were far more news articles published in August 2011 than in August 2010."
Earthquake - August 23, a 5.8 magnitude quake shook the east coast, from Georgia to Canada. The epicenter was 90 miles SW of DC, where the Washington Monument-the world's tallest stone structure-cracked at the top and is shut down indefinitely. Unusual? This was the largest earthquake east of the Rockies since a 1897 quake also centered in Virginia whose magnitude was a similar 5.8 or 5.9. Damage estimates are $200-300 million. Animals at the Washington Zoo (no, not Congress, the other zoo) began acting strangely 15 minutes prior.
Hurricane - Four days later, August 27, Irene made landfall, jumping in at North Carolina and running the table all the way up the eastern seaboard. It seemed eerily to track along the geography reporting the most shaking from the earthquake. Who could have imaged such hurricane devastation in Vermont, the worst in centuries? Water roared around entire cities, surrounding them, cutting them off. Rivers in six Northeastern states reached hundred-year flood levels. Over seven million homes and businesses lost electricity. Unlike anything since the 1950s, this bizarre hurricane killed 55 and caused an estimated $10 billion in damage.
With Irene, the US has now experienced a record ten weather catastrophes each costing more than a billion dollars this year: five separate tornado outbreaks, two different major river floods in the Upper Midwest and the Mississippi River, drought in the Southwest, a blizzard that crippled the Midwest and Northeast, and Irene.
Dictator - Muammar Gaddafi, 69 years old and the unopposed fashion icon of greater Arabia, was the longest reigning dictator in the world: 42 years. But his days are numbered-in days. As of this report, he's surrounded in his home region (or maybe not?). It looks to be all over but the shouting/ shooting. What lies ahead? Libya is 2.5 times the size of Texas, but instead of people (only 6 million), it's home mostly to sand and oil. Lots of oil. When you have such a small population living under autocratic rule for nearly half a century, democracy and rule-of-law do not appear overnight-especially when trying to divvy up such oil revenues.
While NATO supplied the firepower to put the Libyan rebels over the top, there is a back-story to the alliance's involvement. In June, outgoing Defense Secretary Robert Gates lectured NATO leadership face-to-face: "The mightiest military alliance in history is only 11 weeks into an operation against a poorly armed regime in a sparsely populated country, yet many allies are beginning to run short of munitions, requiring the U.S., once more, to make up the difference." He predicted NATO would lapse into irrelevance unless they implement serious changes.
London Riots - From August 6-10, England saw the worst rioting in nearly twenty years. It began in Tottenham, North London when police killed a 29 year-old black man during an attempted arrest. Within days, rioting, looting, arson, and wanton destruction of property "ripped the heart out of Tottenham" and other cities. Five people died, three thousand arrested, and property damage exceeded $300 million. Why? No one seems to know. No distinct ethic group was identified. Many youth posed for pictures while looting, then posted them on Facebook. Blackberries texted time and place for the next wave of destruction. Prime Minister David Cameron blamed it on a "broken society" and "moral collapse." A London paper lamented "with the Olympics less than a year away, our reputation is being damaged at the worst moment ... This is anarchy, pure and simple."
Markets - This past month was the worst August in ten years, and trading bounced around like a bobble head doll on a rodeo bull. One commentator called the first two weeks of August "the ghastliest few weeks since 2008," specifically referring to September '08 when our economy fell off a cliff. Here are some of the more remarkable days for the Dow: Aug 2, -260; Aug 4, -520; Aug 8, -630; Aug 9 +430; Aug 10, -510; Aug 11, +420; Aug 15, +210; Aug 18, -420; Aug 23, +320; Aug 29, +250. In case you are unfamiliar with market behavior, this ain't normal. It's not even in the same solar system as normal.
The downdrafts seen in the US markets indiscriminately dragged down the entire system of global markets. France's markets dropped 20% in two weeks. Greek markets fell 25% in August. Of the 45 world markets tracked by S&P, only Morocco and Peru finished up for the month. I guess the decouplers aren't working so well.
Economies - Growth has slowed (think glacier) across the globe, and US consumer sentiment dropped in August to the lowest level since 1980. Citi slashed its forecast for 2011 US growth to 1.6%-below stall speed. (This after first and second quarter growth of only 0.4% and 1.3%.) Citi also predicted next year, Europe-afflicted by never-ending sovereign debt and banking woes-will grow only 0.6%. This is not yet double-dip recession territory, but you can certainly smell it from here. Fears of European sovereign debt contagion, especially in Spain, and Italy, as well as worries over France's current triple AAA rating, ricocheted back to our own shores. The trans-Atlantic panic needs better baffle plates. Gold continues to rocket upward, breaking records every week, now nearing $1,900/ounce. The Wall Street Journal published a leaked Goldman Sachs memo that the U.S. is in bad shape, Europe is in worst shape, and China is unsustainable.
Jobs - Total payrolls for August were unchanged, the first time since 1945 that the government has reported a net job change of zero. (The same report also issued a downward revision for the previous two months.) Unemployment continued glued to the floor at 9.1%. One economist stated the obvious: "Underlying job growth needs to improve immediately in order to avoid a recession."
Business News - HP announced they would stop selling computers, which currently bring $40 billion in revenue. While, granted, this is their least profitable sector, when have we ever heard of a corporation deciding to jettison $40 billion in revenues? While for most of us this is ironic, workers dumped on the street will be using a different adjective. Borders announced the closing of its remaining 400 stores and the layoff of 11,000 employees. This leaves only Barnes & Noble with its struggling 700 stores.
Israel, Turkey, and Palestine - I've saved the heaviest news for last. Israel and Turkey (NATO member since 1952) have been on friendly terms for decades, with military exchanges, peace agreements, and treaties. Their relationship has been a cornerstone of regional stability. This exploded May, 31, 2010, when the "Gaza Freedom Flotilla" attempted to run Israel's maritime blockade of Gaza. Six ships reportedly carrying aid (a few carried aid, all carried mischief) to the Gaza strip were stopped by the Israeli navy. Israel claims the right, supported by Maritime law and the UN, to maintain a blockade because of the de facto state of war between Hamas and Israel. Hamas, officially recognized as a terrorist organization, controls Gaza.
When the navy boarded the flotilla, they were met by stronger than expected resistance. Nine Turks were killed. The government in Ankara erupted. Erdogan, their popular Prime Minister since 2003 and an Islamist, seethed. He demanded an Israeli apology and many other concessions, some highly unrealistic. Israel offered regrets and reparations, but no apology and no end to the blockade.
The UN Palmer report, released Sept 2, has seemingly worsened the problem all around. The report maintained that 1) Israel had the right of a naval blockade, 2) had the right to intercept vessels trying to break the blockade and 3) there was no humanitarian crisis in Gaza. (Israel allows materials into Gaza but only through its port city of Ashdod after searching for weapons.) But the report also said that, even though the boarding party was met by premeditated violence from activists, nevertheless, the commandos used "unreasonable" and "excessive" force.
Turkey took this finding as proof of its grievance. They expelled the Israeli ambassador and all high-level diplomats, downgraded diplomatic relations, suspended military agreements, and will bring the case before the Hague International Court of Justice. Erdogan announced his intention to visit Gaza within weeks. Most alarmingly, the Turks say that the eastern Mediterranean will no longer be a place where Israeli naval forces can push around civilian vessels. "A more aggressive strategy will be pursued," one Turkish diplomat said. "Israel will no longer be able to exercise its bullying practices freely."
Does this mean Turkish warships will accompany aid vessels to Gaza? A confrontation between the two navies would have serious negative consequences for the region. "It is a very serious crisis," one Turkey specialist said.
These are the two most powerful militaries in the Middle East. A shooting war is unthinkable. For several years now, Israel has been expecting a regional war involving multiple fronts. In the past, it was 6 million Jews in Israel surrounded by 300 million Arabs who did not necessarily wish them well. Then it was 300 million Arabs plus 73 million Persians (Iran). Now it is 300 million Arabs, 73 million Persians, and 75 million Turks. Bad math in the extreme, in a location where a single errant match could burn down the entire world.
The Arab spring has not proven helpful to Israel. They are now surrounded on all sides by increased peril. Two weeks ago, terrorists from Gaza slipped into the Sinai then across at Eilat, killing nine Israelis. In the ensuing chase, three Egyptians soldiers were killed. This led to anger in Cairo, with calls of expelling the Israeli ambassador. Since the overthrow of Mubarak, Egypt no longer regards itself as a friend of Israel, nor does it accept the peace treaty as binding. There have been border incursions in the north as well, even as Syria continues its own destabilizing uprising. Neighboring Lebanon quakes over the UN report concerning the 2005 assassination of prime minister Hariri. The conclusion: Hezbollah did it (clear to even kindergartners). Hezbollah, however, says the report is American/Israeli propaganda and will not permit any arrests, on pain of civil war-a war they would win.
Meanwhile, Mahmoud Abbas in the West Bank promises to bring the Palestinian cause to the UN in a few weeks. His intention of statehood cannot pass the Security Council, so he will instead introduce it in the General Council. It will certainly pass. President Obama is vigorously lobbying Abbas to relent, that this is the wrong path and that it will not lead to peace but an escalation of conflict.
As if this were not enough, Israel has internally experienced widespread demonstrations, sit-ins, and tent encampments in Tel Aviv and other cities. These culminated in 400,000 participating this last weekend. They want lower rent, to close the economic gap, and various other social issues. Israel has enjoyed 5-6% economic growth and has not been besieged by the global economic downturns. That, however, is the only thing they're not besieged with.
In a world filled with conflict, this is the most volatile area. The current risk of war-from a dozen directions and sources-is significantly higher than the recent past.
Always remember: everything is connected to everything else. Earthquakes and hurricanes are connected to the economy is connected to unemployment is connected to the stock market is connected to the dictator of oil-rich Libya is connected to the Arab Spring is connected to Israel is connected to the Palestinian plight is connected to Gaza is connected to the Freedom Flotilla is connected to Turkey. In a tightly coupled world, cascades happen rapidly. One serious misstep and we'll be waist deep in WW III.
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