History Suggests “We Are Due For Another Global Conflict”

Just the other day the deep state trotted out Immortan Joe Biden in an interview with Chuck Todd to let the world know it was planning a “covert” cyber attack on Russia and Putin for their alleged involvement in holding U.S. government officials responsible for their corruption, via Wikileaks:

This is interesting commentary. As it turns out, just two days later Julian Assange’s internet connection has been severed along with RT’s access to its UK-based bank accounts.
In reality, the US is waging outright war against Russia, much like it did in Iraq, with absolutely NO hard evidence – at least none that it has presented to the public – that Russia is actually responsible for the drip-drip-drip of the Wikileaks/Podesta emails.

That it is willing, as Gorbachev suggested over the weekend, to bring the world to the brink of renewed conflict as a means of ensuring its own personal electoral victory (all while claiming Russia is doing the same) is terrifying.

 

Potentially more frightening is the financial market history context in which the events above are unfolding.

As I type, we stand a full 91 months away from the March 2009 GFC equity lows in the U.S. Prior the the GFC, the U.S. had experienced two previous full-stop financial panic crashes – the Banker’s Panic, which bottomed in November 1907 and the Great Depression, which bottomed July 1932.

Importantly, both of these previous financial panics created the conditions for subsequent world wars – WW1 began in early July 1914, 80 months after the end of the Banker’s Panic, and WW2 began in September 1939 when Hitler invaded Poland, 86 months after the end of the Great Depression.

In other words, at +91 months post-GFC, we are due, so far as history is concerned, for another global conflict.

2016-10-17-bankers-panic-gd-gfc-lows-world-wars

I would also add that the recent events with respect to Wikileaks’ Podesta/Clinton emails and America’s subsequent, war-mongering antagonism helps to prove beyond a shadow of a doubt that my original thesis regarding the collapse in crude and RUB from July 2014-February 2016 was ENTIRELY driven by U.S.-induced financial warfare against Russia, with the help of its friends at the Federal Reserve and various Sunni Arab oil-producing states!
For those that care to revisit that thesis, I present it below again in its entirety. In concluding, the U.S. has turned into a relentless menace to global security and peace, one that has the potential to create a new global conflict.

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How the Fed Abdicated its Independence to White House Geopolitical Strategy on Russia For Nearly Two Years

In the chart below I plot crude, the Russian Ruble (RUB) and OPEC production.

From 2012 through mid-2014 all three print sideways.

However, to the day beginning on 7/29/14, crude and RUB begin to collapse while OPEC production soars.

Why such an abrupt reversal and why so vividly in lock-step, highly correlated fashion together?

Because on 7/29/14 the US and EU announced new, expanded sanctions on Russia designed to tighten the economic vice on the country for its involvement in the annexation of Crimea from Ukraine.

In other words, while the US publicly announced the latter sanctions, it simultaneously and surreptitiously initiated another, non-public sanction, namely crushing the price of crude oil to hurt Russia where it feels it the most.

How could the Obama administration accomplish such a challenging goal with crude prices being dynamically set on global markets on a daily basis?

The chart makes that answer fairly obvious.

The Obama administration asked demanded that the Federal Reserve abdicate its monetary policy independence to a higher calling, namely White House geopolitical strategy, by shifting to a tighter, more hawkish stance that began to intimate future rate hikes, thereby creating the conditions necessary for a major USD rally, which could in turn drive USD-denominated crude prices lower.

Luckily for the White House, the Fed had an FOMC meeting the day after Obama and the EU announced their expanded sanctions on Russia, a meeting it used to begin pivoting hawkishly. This pivot was accomplished via a planted dissenting vote from Charles Plosser as follows:

“Voting against was Charles I. Plosser who objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for “a considerable time after the asset purchase program ends,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.”
But a USD rally alone would not be enough to inflict the desired damage to crude prices. Crude production would need to soar with a USD rally. Thus, concurrent with its demand to the Fed, the US pushed its Sunni Arab allies in OPEC to ramp crude production. Like the Fed, they obliged. And, why not? While they could survive a temporary collapse in crude prices, their US-based, debt-ridden shale competitors were unlikely to fare as well.

How did all of the above ultimately turn out? Swimmingly – over the ensuing 18 months the USD more than doubled vs. the RUB while rallying 25% more broadly as crude plunged 75%.

However, all of a sudden beginning on 2/11/16 all of the above began to change; after bottoming around ~$26 on that day crude has soared to $40 while the RUB has risen to $68 against the USD from below $80.

Why?

Because on 2/11/16 the US and Russia announced they had come to terms on a cease-fire agreement in Syria.

In effect, Putin used  a military intervention in Syria as a masterstroke of geopolitics, crushing the US-backed rebel forces there in the process, thereby turning the tables against Obama and horse-trading himself out of the pinch he had been in by getting the Americans to let up on crude price pressure if he agreed to pull-out of Syria and leave Assad to fend for himself alone on human rights issues in the process.

With the latter agreement in place, the Federal Reserve, once again able to get back to the business of conducting the monetary policy we all know it always wants to conduct, concluded its FOMC meeting this week by back-tracking on 18 months worth of hawkishness and intimating via its dot plots that fewer rate hikes were likely on the table for 2016.

2016-03-17 Fed - Dot Plot

And with that retreat, we can return to our regularly scheduled programming of bubble creation.

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