2,040: The Only Battle That Matters

What we were mentioning the past couple of weeks to our Peoplenomics™ subscribers could show up today, or this week, as the S&P 500 does battle royal at the 2,040 level.

My friend Robin Landry and I talked about this at some length when we flew up there to huddle weekend before this one.   Here’s part of what Robin had sent out to his managed account clients:

“Once the MACD has crossed the signal line and begins to drop sharply, in the past it has paid to get defensive and raise cash. The 2040 level is also about to be tested as well as the trend line from the low last October which I referenced above was broken earlier today and then the market rallied into the close to the underside of that trend line.

I call this the Kiss of Death, when it happens, because of the high percentage of times when this happens the decline resumes and accelerates.

There are also a number of other technical indicators, not shown, which are supporting my concern of the potential for a large decline.

The following support level are ones, which if broken on a closing basis, would cause my concern to rise further. This is a time when the know your client rule really becomes even more important and the risk profile of each client needs to be reviewed. “

While our Peoplenomics Trading Model has continued to be positive, I’ve been reiterating that “cash is a position, too.”

I have to say, with the futures down nearly a percent in the earliest going today, the softening of auto sales and the sadly sucky jobs numbers Friday, this week promises to be…er…interesting.

For those of us who look at the market in the longer view, failure at the 2,040 level could be setting up the first leg down of a larger move.  Dropping below 2,040, rebounding and then a much, much larger decline, would only be the start of it.

Ideally (at least in my work – and this is not financial advice) I’d like to see a decline under 2,000 on the S&P, a run back up to 2,040-2,100, and then a drop to 1,740 before June, say.  Then, a strong rally – up to maybe 2,100 over summer, and then the whole bottom falling out this fall.

If that fall decline were to coincide with the September Blood Moon, that’d sure be mighty graceful, too.

Except for some minor import-export data Friday, which we already expect to be soft, the real “news” won’t come until a week from tomorrow.  That’s when retail sales will be out.  And that could be a tumultuous moment.  The question that will answer is “How much mostly useless crap can 200-million couch potatoes buy?” My guess?  Not enough.

Then consumer prices come out on April 17th.  Somewhere around there, things could become entertaining.

The Fed’s Preemptive Strike

One month worth of data does not a trend make. 

But let me run out the month-on-month change of M1 and M2 for you. 

If you take the latest H.6 money report (preliminary Feb data) you’ll see the most recent increases in print rate annualize to 29.7% for M1 and a somewhat more modest 12.9% for M2.

I suspect that Fed numbers for March, which may begin dribbling out as prelims late this week, will give a real solid indicator of what the Fed’s worried about.  Of course we know the answer:  Deflation.

The Fed minutes Wednesday will spark speculation, of course, but if the “throw money at the problem” of deflation continues long enough, eventually prices will rise.

They’re already doing that, of course.  You may simply not notice since you should have a half dozen zero-down, zero percent interest new cars lined up in your driveway.  More distractions to wash.

Ure’s Analysis of the Iran “Deal”

A couple of readers have asked me where to get a copy of the unadulterated (e.g. unspun) Iran framework that was a big deal last week.  The answer is here.

Next, my personal take on how to read it because it will reveal, I think, much about the future that both sides are lining up for us. 

This is NOT an agreement, first and foremost.  It is a Joint Comprehensive Plan of Action.  Think of it the same way you would jot down the major items to be worked out in a Prenuptial Agreement.  The screwing part will come later.

The Statement language is inset, my thoughts are not:

As Iran pursues a peaceful nuclear programme, Iran’s enrichment capacity, enrichment level and stockpile will be limited for specified durations, and there will be no other enrichment facility than Natanz.

The premise of the West is that Iran’s nuclear program is peaceful.  The CIA World Fact Book lists Iran as the 4th largest holder of proven petroleum reserves in the world.  Ahead of Iraq, Kuwait, Qatar, and Russia.

What’s more, Iran has the second-largest natural gas reserves of any country on the planet, save Russia. 

Given that – and given my “other way” of looking at things (proven energy reserves per capita), I have a difficulty with the assumption that Iran needs to pursue nuclear power at this time, whatsoever.

Development of their internal energy resource would not be controversial and would enable them to operate whatever level of industry they desire without increasing the global production of dangerous nuclear fuels.

Call me a natural-born skeptic, but if they were “up against the wall” to power their country, that’d be one thing.  This?  Sorry, to me it looks like something else.

As to the “no other enrichment facility than Natanz, this is something that would be subject to inspections.  And there’s no doubt in my mind that the Persian mind could foil the best of the Western minds when comes to playing hide the centrifuges. 

Iran’s research and development on centrifuges will be carried out on a scope and schedule that has been mutually agreed.

Again, the crafty weasel-wording here is important.  “that has been mutually agreed” could be negotiated for 2,000 years – and maybe longer.  The effect is to “run the clock.”

Fordow will be converted from an enrichment site into a nuclear, physics and technology centre. International collaboration will be encouraged in agreed areas of research.

This is going to cost what? (Money!)  As if the faltering European and American economies need another rat hole to pour money into, we’re talking about International collaboration in areas of research that we’re supposed to agree can be worked out between now and the end of June?

It all begins to fit a pattern here.  Best guess is we will see a falter in the market now, rebound over summer, failure to work out all the details required by the framework, an extension into September, and then a move toward war in the Middle East this fall, which could collapse global markets.

No, I’m not putting a lot of money on that scenario, but I think you can see how that play would come to mind.  So be watching short side (put) option premiums over coming months for hints about how the big players will shade their bets on this eventuality.

There will not be any fissile material at Fordow. ??

Of course not!  It will be hidden elsewhere.

An international joint venture will assist Iran in redesigning and rebuilding a modernized Heavy Water Research Reactor in Arak that will not produce weapons grade plutonium.

Again, this is a very long-term outcome.  Redesigning and rebuilding a reactor isn’t something that will happen overnight.  Very long term.  And in the meantime, it doesn’t say anything about shutting the doors of Arak now and sending people home, does it?

There will be no reprocessing and the spent fuel will be exported.??

I’ll believe it when I see it.

A set of measures have been agreed to monitor the provisions of the JCPOA including implementation of the modified Code 3.1 and provisional application of the Additional Protocol.

There is a concept in law called “Clean hands.”  In other words, the West already knows Iran has “dirty hands” when it comes to compliance with monitoring and promised disclosure.

In 2009. James Acton, writing for the Carnegie Endowment for International Peace pointed out that Iran has already violated international agreements on its Qom nuclear facility. 

 

“There can be no doubt that since February 2003 Iran has been bound by the modified Code 3.1. It was therefore required to report on its new centrifuge facility as soon as it had decided to build it—before construction had even begun.

Iran’s report to the IAEA, which arrived on Monday, clearly violated this requirement.”

What’s the old saying?  Fool me once, shame on you.  Fool me twice, shame on me.

The International Atomic Energy Agency (IAEA) will be permitted the use of modern technologies and will have enhanced access through agreed procedures, including to clarify past and present issues.??

Iran has already demonstrated a ability to “make up procedures” in order to delay international compliance (as Acton points out in the 2009 analysis).  So here’s where we get into the “devil is in the details.”  And that, I’m predicting from out here on a limb, won’t again by the latest “deadline.”  In the meantime, the Iranian centrifuges will be spinning merrily away…

Iran will take part in international cooperation in the field of civilian nuclear energy which can include supply of power and research reactors.

Yawn.  This is the West trying to make it sound like it’s a big deal.  The Iranians already know they can play “The Exciting Game Without Any Rules” so Modified 3.1 will be re-interpreted down the road as requiring the approval of some other (new/or made up group) and Iran will disavow reporting at its convenience.  All the while playing us for time.

Another important area of cooperation will be in the field of nuclear safety and security. The EU will terminate the implementation of all nuclear-related economic and financial sanctions and the US will cease the application of all nuclear-related secondary economic and financial sanctions, simultaneously with the IAEA-verified implementation by Iran of its key nuclear commitments.

This is the whole reason for playing along with the West:  End the sanctions, rally their economy, stockpile like crazy and do what they did with Qom and hide their intentions better.

A new UN Security Council Resolution will endorse the JCPOA, terminate all previous nuclear-related resolutions and incorporate certain restrictive measures for a mutually agreed period of time.

That’s because Iran has violated past resolutions and no one wants to make a big deal about it.  It’s the West wanting to believe that recidivism isn’t necessarily true.  Ure’s truly looks at the numbers:  One DUI ticket often leads to another.

There’s only one sure cure:  Quit drinking – and quit enriching.  But hey!  Don’t take my word for it – let’s see what happens at the deadline.  June 30th, is it? 

Very seriously:  My consigliore asked me point blank “Are you in favor of war?  You know if Israel goes into a ground war, we already have legislation that will drag us in, right?”

No, I am not in favor of war.

But, when dealing with a ruthless enemy, one must be at least as ruthless and more so.  Yes there are surgical strike options and remember (how to put this delicately?) If you remove the leadership of a country, there will be no one to lead a war.

In reading as much as I have about war, I’ve always been struck in Gwynne Dyer’s remarkable books about how there has been a persistent “code of honor” in war that clearly didn’t exist among some of the more successful military strategists of history.

America’s enemies have made no secret of perpetrating war against the US civilian population through acts of terrorism.

The reasonable US/Western response would be to strike not the civilian population of an opposing country in general (that’d qualify as genocide).  But how about attacking at the very top?

Here’s a little thought experiment for you.

The US used two nuclear weapons in WW II:  One over Hiroshima and one over Nagasaki.  Let me ask you:  Would one bomb have done it if detonated over the Imperial Palace? 

Or would a puddle of molten glass in Berlin have lopped off the head of Hitler’s efforts, had the technology evolved more quickly?  I believe it would, in either case.

I don’t like to “think the unthinkable” although I’m pretty good at it.  Besides, it does help prevent stupid mistakes of history.

Like Qom.

Yes, it’s horrific to contemplate, but so is convert or be killed.

Benefit:  Every other country on the planet would have serious second thoughts about support of international terrorism thereafter.  It draws a glassy line in the sand.

Cost: Decisive policy ain’t free.   If DHS and half the military would be disassembled, we’d have 15% unemployment…so you see why this goes on, of course?

While an aggressive approach would all work out nicely, the “other fallout”  would be economic collapse because the other side of any future conflict would know we’re just crazy enough to come to a knife fight with an Uzi.

That’s not the guy to pick on.  Ever.  Principles of effective economic decision-making are clearly extensible into other areas.  But particularly illustrative is the matter of foreign policy and making war to make up work.

Maybe tomorrow morning, we should have a discussion about full-rationalized decision-making?

Brits Worrying About YAB-YAC

Oh-oh.  I’m not the only one worried about ‘Merica turning into Land of the Simpletons, Home of the Fools.

Why here it is in the prestigious Financial Times“There is something profoundly disturbing about the prospect of another Clinton or Bush presidency

I do declare!  There must be an echo among clear-headed thinkers on both sides of the pond.

News of the News

Rolling Stone has retracted its frat-house gang rape story.  Besides a report coming out showing this as a breakdown in reportorial checks and balances, the big question is how many millions is this going to cost RS anyway?

Ah…here’s what you need:  Just the thing to watch the End of the World on…or the huge earthquake later this month if dreams predict future correctly…

Comments

2,040: The Only Battle That Matters — 19 Comments

  1. “when dealing with a ruthless enemy, one must be at least as ruthless and more so”

    I bet that nugget isn’t in the teachings of Lao Tsu.

  2. I have always thought that Carter should have picked a day, 3 days out, and shut down America for a national day of mourning for the brave Americans that died in the destruction of Tehran. And televised the loading of the B52 with 6 200KT bombs.

  3. Dropping the A-bomb on Hirohito would have, if anything, given the Japanese more incentive to resist, in that perverse way that people pull together when confronted with a pitiless enemy. Killing him certainly would not have ended the war. The emperor was weak, a figurehead, and basically a hostage of the military regime.

  4. ” . . . but if the “throw money at the problem” of deflation continues long enough, eventually prices will rise.” Prices will not rise – oh yes – it will take more of the green stuff from your wallet/bank account/or slapped onto your credit card – but it’s not the price that will increase – it’s the value of the $$ that will decrease.

  5. If looking at history and extrapolating possible outcomes is neocon koolaid, Tumbleweed, you need a dose. Thanks, George. Futuring is fascinating.

    • Read up on Operation Ajax as well…

      http://www.thelatinlibrary.com/imperialism/notes/operationajax.html

      “Operation Ajax (1953) (officially TP-AJAX) was an covert operation by the United States CIA in collaborating with the Pahlavi dynasty, to overthrow the elected government of Iran and Prime Minister Mohammed Mossadegh and consolidate the power of Shah Mohammed Reza Pahlavi. . .

      Operation Ajax was the first time the Central Intelligence Agency orchestrated a plot to overthrow a democratically elected government. The success of this operation, and its relatively low cost, encouraged the CIA to successfully carry out a similar operation in Guatemala a year later.

      Widespread dissatisfaction with the oppressive regime of the reinstalled Shah led to the 1979 Islamic Revolution in Iran and the occupation of the U.S. embassy. The role that the U.S. embassy had played in the 1953 coup led the revolutionary guards to suspect that it might be used to play a similar role in suppressing the revolution.”

  6. Sir, you are expressing the narrative found in the MSM, the foreign policy followed by the US has resulted in endless wars, if the planet is to survive we need to start working together, this can be best accomplished by a complete change in foreign policy, further more, to enrich a few through the military industrial complex supports only the 2 party system and their corporate masters, apparently you support these folks…

  7. I agree with Tumbleweed. You get hit on the head a few month back? What’s wrong with you?

  8. Israel AND Saudi Arabia would like nothing better than for the US to fight a War with Iran. That is what the leading Neo-Cons (many of whom are dual passport holders) and those who look at the Middle East through Religious Armageddon Glasses WANT …. no CRAVE. The PR effort they are putting out to try to “influence” the mass media in the US is immense, and for business reasons ($$$$) no one in the mass media in the US is willing to try to counter that effort with even handed reporting.

    Unfortunately those who want War for Religious Reasons usually get it since they will bully bully bully everyone until finally they can achieve their goal of pushing forward their Religious Dictated Agenda via War.

    It will amaze me if the US does NOT get involved in a War with Iran during the next 36 months since the Republican Party is now virtually 100% in favor of such an endeavor.

    If the US does get involved in a War with Iran it will not only turn out just as badly as the War in Afghanistan and Iraq is turning out to be, but it will have the likelihood of convincing many of the world’s Muslims, yes even Sunni’s, that the US is just another colonial power trying to shove it’s control down their throats by force (which will cause a HUGE backlash over time).

  9. George,
    I hate to beat a nearly dead horse, but . . . Iran is a signatory nation to the Non-Proliferation Treaty. They allow inspections. Israel is NOT a signatory nation to the NNPT. It does NOT allow inspections. It has finally been acknowledged by the West that Israel currently has nukes and has had them for some 40 years — some 300+ nukes. Seriously, who is playing hide the sausage here? “By way of deception”. I must be a filthy anti-Semite for seeing the glaring double standards at play here.

    Jimmy Carter put a stop to our potential energy independence with his bone-headed EO back in ’77 banning breeder reactors. Iran is probably not so dumb or mercenary. These smart Iranians are probably pragmatic and forward-thinking enough to realize that “clean” nuclear energy from breeder reactors would free them from dependence upon even the petroleum that sits beneath them so abundantly. Nuclear technology has more applications than just bombs and electricity.

    Dog and pony show aside, Iran is merely the last domino standing in the way of complete Israeli hegemony in the ME. Iran is their regional “rival” in Zbigniew-speak.

    Bravo3

  10. Hey George,

    I hate to disagree a little on the assessment of the Iran framework, but I’d ask you to consider a few things:

    1. Reducing the centrifuges is a very big deal. It lengthens the time required to produce highly-enriched fissile material by many months. And by only leaving them with the old IR-1’s, it makes it tougher as they don’t get to “practice” on modern centrifuges. This concept of dramatically reducing the likelihood of a “nuclear breakout” has a lot of technical merit.

    2. You were right to key in on the core redesign at Arak. That will need to be watched closely. The “when” of the removal the existing core is key, but let’s also be clear that reprocessing for weapons material takes a lot of infrastructure and a lot of target material, and it can be monitored. Reprocessing gives off tell-tale gas signatures that even buried facilities have a tough time masking (yes, our detection methods are that good, they were designed to sniff out buried Soviet sites back in the day and have gotten only better since then). Reprocessing is “easy” to stop. A few cruise missiles and Arak will cease functioning immediately. Plus, a Pu-239 bomb is a much tougher route to a weapon, just ask the North Koreans who have continued to struggle to create a weapon that even matches the power of Timothy McVeigh’s truck bomb.

    3. It gets inspectors back in Iran. Yes, they have not abided by the rules as written by the Big Powers in the past, but having people on the ground gets you all kinds of benefits for the intel guys to evaluate.

    4. Should Iran actually follow-through with the agreements, the Saudis will, uh, defecate a brick. This could be a huge turning point in potential allegiances in the Middle East if Iran is allowed to come in from the cold and you can rest assure that the homeland of the majority of 9/11 attackers doesn’t like that one bit.

    5. The idea that they will hide some fissile material is probably spot on, but this agreement calls for the removal of the vast majority of the enriched material we do know about. Starting from 0.7% enrichment is a much longer path to 90% than starting with even 5% or 20%.

    6. As for the economic argument, sorry to disagree here as well, but in a Peak Oil world, generating electricity using nukes and having more of your gas to sell to energy-starved Westerners and Chinese in the coming years makes a lot of sense.

    Now, lot’s of assumptions there, right? Well, there is the old concept of giving someone enough rope to hang themselves with. There is also the time-tested path of goading a country into a fatal first move (see Fort Sumter, bombardment thereof by the armed forces of the Confederate States of America).

    Look at it this way, if Iran does this deal, then a few months or years later kicks everyone out – they won’t magically have a functioning, deployable nuclear weapon in right off the bat. The second they renege on the deal, the War Party will finally get its wish and the bombs will begin falling on Tehran.

  11. With all due respect for your otherwise great blog, lately you’ve appeared to be drinking neocon kool-aid. What’s up?

    • I think George calls it as he sees it. remember the Jews eventually get driven out of Jerusalem and land in the town of Petra which is in modern Jordan

    • Tumbleweed, I’ve been having similar thoughts myself. And I thought it was just me.
      Bravo3

    • @Tumbleweed

      I guess I’m not the only one that noticed. If we’re looking for someone that attacks foreign countries and is very warlike maybe we need to look within. I’m more worried about the dual-citizen cabal that runs DC than I am Iran. The War Party is right here at home.