Global Systemic Crisis, World Geopolitical Breakup By End of 2011

By: LEAP

With this issue our team is celebrating two important anniversaries in anticipation terms. Exactly five years ago, in February 2006, the GEAB N°2 suddenly encountered worldwide success by announcing the next "Triggering of a major global crisis" characterized especially by "The end of the West as we have known it since 1945”. 

And exactly two years ago, in February 2009, in the GEAB N°32, LEAP/E2020 anticipated the start of global geopolitical dislocation phase by the end of that same year. In both cases, it is important to note that the undeniable interest aroused by these anticipations at international level, measurable particularly by millions of people reading the related public announcements, has been matched only by mainstream media silence over these same analyses and the fierce opposition (on the internet) of the vast majority of economic, financial or geopolitical experts and specialists.

Official unemployment rates (12/2010) – Source: BMGBullion, 01/2011

However, in early 2011, most of the world has no doubt that we are engaged in a process of historic proportions which is seeing the world after 1945 collapse before our eyes, the US in the lead, while the international community breaks down a little more each day, like the social and economic fabric of most countries in the world (1). But the current evidence didn’t, of course, prevent “decision-makers and experts” (2) to be sure in 2006 that there was no risk of a serious crisis on the horizon and, in 2009, that it was absurd to imagine the slightest risk of breakdown in the existing world order, let alone the social order. Alas, today, the elite’s intellectual capacity to cope with the changes currently taking place doesn’t seem to have improved since the same “decision-makers and experts” never imagined it possible just two months ago that Tunisia and then Egypt would shortly see their regimes overthrown. Blind governments and international institutions (3), outdated experts and media (4) ... the Western elite and their clones in different regions of the world continue to sink in the “holzweg” of history, those forest trails that lead nowhere, or more precisely as Heidegger pointed out, that lead somewhere only if you have the humility to be constantly listening to the forest and its signals (5).

However, whilst the signals become real warning sirens, our elite seem to have decided to do anything and everything to ignore them. Take a very recent example: the comparison of events affecting the Arab world with the fall of the Berlin Wall. Our team has been very interested to note that this image which we have used since 2006 to help understand the ongoing process of the disintegration of US power, has now blithely been taken up by the political leaders (led by Angela Merkel (6)) and experts of all kinds. Yet today, even those who make this comparison abstain from continuing their intellectual journey to the end, until it leads to an understanding of the dynamics of events. They settle for describing, without analyzing.

Yet this "wall" which is collapsing has been built by someone, or something, and for a specific purpose. The "Berlin Wall" was built by the East German government in the broader context of the "Iron Curtain", which the USSR wanted in order to separate the Communist bloc from the West as tightly as possible. And it was mainly to avoid any questioning of the power held by the single party in each communist country to perpetuate Moscow’s control of the East European countries; in return, Moscow guaranteed full support and stipends of all kinds to the leaders of Eastern European countries. The fall of the "Berlin Wall", challenging these monopolies of power and therefore the purposes that they served, thus caused, in a few short months, the successive fall of all the Eastern European communist regimes, ending two years later with the dissolution of the USSR and the end of seventy years absolute power of the Russian Communist Party.

Unemployment rate in the Arab world and Iran - Source: Le Temps, 02/11/2011

So if it's also a "wall" that’s falling before our eyes in the Arab world, in order to hope to anticipate the subsequent events it is essential to be able to answer these questions: who built it? for what purpose? And the answers are not that difficult to find for those who don’t watch the news with ideological blinkers:

. this "wall" was built by each Arab dictator (or regime) of the region to ensure their continued monopoly on the power and wealth of the country, avoiding any calling into question of their single party or dynastic legitimacy (for the kingdoms). In this sense, there is very little difference between the cliques in power in the Arab countries and those which led the communist countries.

. this "wall" was part of the broader system set up by Washington to preserve their preferential access (in US Dollars) to the region's oil resources and protect Israel’s interests. The forced integration of the military and security apparatus of these countries (except Syria and Libya) with the US defence system ensures (ensured) unwavering US support and allows (allowed) the Arab leaders involved to receive all kinds of stipends without being called into question by internal or external forces.

So, in thinking a little more about her comparison with the fall of the Berlin Wall during the Munich Security Conference, the German Chancellor could have turned to her neighbour in the discussion, the US Secretary of State Hillary Clinton, and asked her: "Don’t you think that current events in Tunisia and Egypt are the early signs of the fall of all the regimes that depend on Washington for their survival? And that, in particular, they can lead to a rapid collapse of the system supplying oil to the United States set up decades ago? And thus the global system for oil billing and the central role of the Dollar here (7) ? Whilst the Munich Security Conference audience would have suddenly realized that they were finally discussing something serious (8), Angela Merkel could have added: "What about Israel? Don’t you think that this fall of the "wall" will involve the need to reconsider the entire US-Israeli policy in the region very quickly (9) ? And then miraculously, the Munich Security Conference would have regained a foothold in the XXIst century and the Euro-American debate could recharge its batteries in the real world instead of rambling in the transatlantic virtual world and the fight against terrorism.

Sadly, as we all know, this exchange didn’t take place. And the ramblings of our leaders are, therefore, likely to continue with the effect of accentuating the shocks of 2011 and its ruthlessness as GEAB No. 51 anticipated.

Annual relative performance of 40 asset classes (in %, expressed in USD) (in green: profit / in red: loss) - Source: Chris Martenson, 02/04/2011

Yet LEAP/E2020 is convinced that the current events in the Arab world, of which we had correctly anticipated the mechanics, are above all the regional translation of fundamental trends of the global systemic crisis, and in particular global geopolitical dislocation (10). As such, they are evidence of major shocks in the coming quarters. We consider, in particular, that the end of 2011 will be marked by what our team calls the "Fall of the petro-dollar Wall" (11) that will immediately generate a major monetary-oil shock for the United States. It is also one of the main topics of this issue with the broader anticipation of more developments in the Arab world (including an accurate country risk indicator for the region). Also, our team analyzes the current acceleration of the Eurozone emergence process and its implications for the Euro and the situation in Europe. Finally, we give our recommendations regarding all these events.

Notes:

(1) Even the IMF, with the little imagination it possesses is now evoking the specter of civil wars throughout the world as the Telegraph reported on 02/01/2011, whilst The Onion of 01/24/2011 successfully uses black humour in a surprising article, yet indicative of the current atmosphere, that calls the designation by the World Heritage Foundation, sponsored by Goldman Sachs, of the "Gap between the world’s rich and poor" as the 8th Wonder of the World because of its now unparalleled size.

(2) In quotes because we believe a decision maker who does nothing and an expert who knows nothing are, in fact, impostors.

(3) The CIA and the French government provide two outstanding examples of this trend: they didn’t see it coming in Tunisia and Egypt, even though one spends tens of billions of dollars a year spying on the Arab world and the other walked (the Prime Minister and Minister of Foreign Affairs) in the highest corridors of power of the countries concerned. The simple reading of our expectations for 2008 (GEAB N°26 on the subject would, however, have put them on the track since it is exactly the trends then described that have led to the events in Tunisia and Egypt of these last few weeks. Summarized sharply in the Spiegel of 03/02/2011, "Revolution isn’t good for business" ... especially when one didn’t see anything coming, one could add.

(4) Here, investors and market players who were satisfied with these analyses now find themselves in serious difficulties since the "El Dorados" smoothly promoted by news reports and "well-informed" glossy articles have been suddenly turned into capital traps in volatile areas whose future cannot be forecast with any certainty. The "tremendous competitive advantages" have for them, almost overnight, become "countries with unmanageable risk". Outsourcing, sub-contracting, tourism, infrastructure construction, ... for all these activities, the whole social, legal, economic, monetary and financial context of the countries involved is pitched into the unknown.

(5) A brief philosophical and methodological comment: without premeditation, our team once again subscribes to a particularly Franco-German approach as our anticipation work not only draws on the concept of "listening" and the unveiling of reality so dear to Heidegger, but also the approach advocated by Descartes, namely the definition of a rational method. Here, moreover, is a synthesis that should inspire those who are currently working to define the future characteristics of Euroland governance. To learn more about this issue of Heidegger and Descartes’ "way", it is worthwhile reading this page on the Digressions website. And to better understand the method used by LEAP/E2020 and to try to apply oneself at first hand, we recommend the Handbook of Political Anticipation published by Anticipolis.

(6) Source: Bundeskanzlerin, 10/02/2011

(7) We have already witnessed some sizeable changes over oil since the US is about to abandon its own WTI oil index to go by the European Brent index to which Saudi Arabia already converted in 2009 in abandoning the WTI. The price divergence between the two indices culminated with the Egyptian crisis. We will return to the oil issue in another chapter of this issue. Source: Bloomberg, 02/10/2011

(8) This conference, like the Davos Forum, has a delightfully retro air about it. Organizers and participants do not seem to have realized that the world to which they belong has disappeared, that their discussions don’t actually interest anyone in the "real" world and that the many hours of programming devoted to them by international television are the inverse measure of the very small number of spectators who watch them. With more than 1,500 US and UK participants versus 58 Latin American and less than 500 Asian ones, Davos undeniably embodies the typical forum of the "world before the crisis”, confirmed by its linguistic signature, just English (even on its website). Indeed, monolingualism or multilingualism is, according to LEAP/E2020, a first sign, very simple to assess, of whether a project or an organization with international ambitions belongs rather to the world before the crisis or, on the contrary, is already partially adapted to the world after.

(9) On this subject, one should read Larry Derfner’s outstanding editorial in the Jerusalem Post of 02/09/2011.

(10) Washington has thus demonstrated a complete lack of preparation, then obvious indecision, confirming not only the end of all US leadership internationally, but the acceleration of a process of paralysis at the heart of US government. To understand the importance of the event, remember that Egypt is one of the countries in the world that has been the most directly funded and supervised by the United States since the late 1970s. Moreover, the New York Times of 02/12/2011 summarizes the situation very well, whilst trying to present it as a strategy whereas it’s only a lack of strategy, describing the management of the crisis by Barack Obama as the "straddle;, a market technique of trying to cover both sides when one feels that something important will happen but with no idea of what direction it will take. Incidentally, the article illustrates the divide between "ancient" and "modern" that this crisis has brought to the surface at the heart of US power. But we return in more detail to all these aspects and their consequences in another part of this issue.

(11) Which is a strategically essential block of the « Dollar Wall », like the « Berlin Wall » was for the whole of the “Iron Curtain”

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The Fed is Wrong – Inflation Has Arrived!

By: Sy_Harding

Fed Chairman Bernanke says inflation is still benign and not a concern. He’s wrong! And he’s behind the curve, dangerously so!
Inflationary pressures have been rising and recognized in many major global economies for quite some time, which has had their central banks raising interest rates and tightening monetary policies in efforts to bring rising prices under control. So far without effect, thanks to the intensity of the inflationary pressures.

China began raising interest rates and tightening policies almost a year ago, and has become more aggressive recently as the efforts so far have had no effect whatever. Similar inflationary concerns and efforts to cool off rising prices in India have spread through the rest of Asia, into Russia, over to Brazil and the rest of South America, and into Africa.

This week in Europe, the United Kingdom reported that its annualized rate of inflation jumped to 4% in January, up from an already worrisome 3.7% in December. The 4% level is double the Bank of England’s stated ‘comfort zone’ of 2%, which by the way is the same as the Fed’s stated comfort zone.

The Fed looks out the rear view mirror and says that the ‘core rate’ of inflation, that is with the cost of food and energy removed, is up only 1.6% over the last 12 months, well within the Fed’s comfort zone.

The Fed needs to look out the windshield at what’s coming down the road, not through the rear window.

Yesterday in the U.S. it was reported that the Producer Price Index (PPI), measuring inflation at the producer level, jumped an unexpected 0.8% in January from December, and the ‘core rate’ jumped 0.5%, more than double the consensus forecast of economists, and the fastest monthly pace of increase in two years.

And it looks like it’s moving on from producers to consumers. This morning it was reported that the Consumer Price Index (CPI) was up 0.4% in January. The Fed will take comfort that the core rate was only up 0.2%, an annualized rate of 2.4%. It was however, also double the consensus forecast of a rise of only 0.1%.

Meanwhile, the World Bank president warned yesterday that global food prices have hit “dangerous levels” that could create political instability in many parts of the world. The bank reported that global food prices have jumped 29% over the last 12 months.

Commodity futures, particularly in the areas of corn, soybeans, cotton, are pointing to still higher prices ahead. And agriculture experts say there is not enough global growing capacity to bring prices down any time soon.

Yesterday, CitiGroup CEO Vikram Pandit warned that “Many emerging markets are operating at or near capacity and are therefore at risk of overheating – and must deal with the possible consequences of inflation.”

The release of the minutes of the Fed’s last FOMC meeting revealed that some Fed governors suggested last month that the Fed scale back the remainder of its QE2 program on concerns that the continuing easy money policy could create an inflation problem. Countries around the world have complained since the Fed’s QE2 announcement that it would worsen already worrisome global inflationary pressures.

But the Fed Chairman is fixated on trying to fix the high unemployment problem in the U.S. by pumping up an already recovering economy, and in the process has his head in the sand regarding inflation.

It looks like once again the Fed will be dangerously behind the curve on a bubble, as it was in the stock market and housing bubbles. This time it is the inflation bubble, particularly in commodities.

The historic hedge against inflation – gold!

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U.S. Dollar on the Edge of the Abyss

by Toby Connor

The dollar is now poised on the edge of the abyss.

The current intermediate cycle has rolled over and is making lower lows and lower highs. The current daily cycle has formed a swing high and is in jeopardy of rolling over into a left translated cycle. If the dollar breaks below the November intermediate bottom of 75.63 it will be an incredibly bearish sign as not only will the current intermediate cycle have topped in only 4 weeks but the larger yearly cycle will also have topped in only 4 weeks.

If that happens there is little chance the dollar will be able to hold above the March`08 lows as the crash down into the three year cycle low begins in earnest.

This will not only drive the final leg up in gold's huge C-wave it will also drive a huge spike in inflation in all other commodities. Food riots worldwide will intensify. The rest of the world will be in an uproar over the collapsing dollar. Spiking commodity prices will collapse discretionary spending just like it did in `08 and `09.

The phony economy driven by Ben's printing press will roll over when he's forced to turn off the presses to halt the dollar collapse. (Just like it started to do last summer when QE ended and the stock market started to collapse).

The dollar's rally out of the three year cycle low should correspond with stocks beginning the next leg down in the secular bear market and the next brief deflationary period just like the bounce out of the `08 three year cycle low drove the second leg down in the secular bear market.

The rally out of a three year cycle low usually lasts about a year to a year and a half. The next 4 year cycle low in the stock market is due in 2012. I expect that year long rally out of the coming three year cycle bottom to drive stocks down into the next major 4 year cycle trough and drive the CRB into its next major cycle bottom. 

A lot is riding on the next 2/3 weeks. If the swing high in the dollar yesterday does signal the top of the dollar's daily cycle then the November low will almost surely be broken and the chain of events I laid out will be set in motion.

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HAVE WE REACHED MAX BULLISHNESS?

by Cullen Roche

From a sentiment level we’ve been maxed out on bullishness for a while now.  Based on analyst’s expectations you can also make a convincing case that broad economic strength is widely expected and largely priced in.  And finally, from a technical perspective it looks like we’re finally approaching max bullishness.  One indicator I like to keep an eye on is the Bullish Percentage Index.  It tracks the breadth of the market and gives a broad overview of whether a market is oversold or overbought.  What’s remarkable about the current reading on the S&P BPI is that it has only occurred ONCE in the last 15 years.  On January 26th, 2004 the S&P Bullish Percentage Index peaked at 88.8%.

Reviewing this data shows some remarkable similarities.  The market was in the early portion of a substantial bull market.  After an August low the market had rallied 20%+ into the early portion of 2004.  The market moved from an extreme bearish level to an extreme bullish level in this 6 month rally.  What happened next?  In the near-term this proved to be a headwind for the market as the S&P peaked almost to that exact day and ultimately traded 7% lower within the next 3 months.  Within 6 months it traded 9% lower.   It did not spell doom in the longer-term, however.  After digesting this max bullishness the market traded in a range and then resumed its uptrend.  12 months following this unusual reading the market was 4% higher.

Obviously, this lone indicator is meaningless when looked at by itself, however, given the unusual reading and the other confirming signs of extreme bullishness this is worth taking into consideration.  On the other hand, this could prove to be another indicator that needs to be thrown out the window as the market powers higher knowing that good news is bullish and bad news means more Bernanke Put.

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Cotton to lose buyer which helped it to record top

by Agrimoney.com

Cotton, which surged above $2 a pound in New York for the first time, could be about to lose a large source of buying power - although even then, it is not clear that the fibre is in for a fall, yet.

Part of the reason behind the surge in the spot cotton contract to a record high 204.02 cents a pound on Thursday has been buying by smaller US mills who purchased through the so-called "on call" mechanism, Hightower Report analyst Terry Roggensack said.

Cotton bought on call, typically from larger mills, is priced later, with a deadline of the first notice day of the relevant futures contract which kicks off the expiry process.

"You have mills which bought in December, January, early February, who have been waiting for a break to fix the price. But it hasn't come," Mr Roggensack said.

"Now they are having to price at these levels. They're screwed."

'Relieve the pressure' 

Mills' scramble to cover positions was part of the reason why cotton futures rose the exchange maximum for a second successive session on Thursday, Mr Roggensack said.

The Ice exchange halted trading in cotton options, after prices hit twice the maximum rise of 7.0 cents a pound allowed in the fibre's futures.

The performance took the gains in cotton futures in the last three sessions to nearly 10%, and its jump over the last year to 170%, as measured by New York's near-term contract.

And the coming of first notice day on Friday would "relieve that buying pressure" from the on-call purchasers.

US vs world prices 

Nonetheless, that did not mean cotton's rally was over, he added, noting that world prices were still higher than New York futures prices.

The Cotlook A index, based on a basket of physical prices, stood up 7.0 at a record 226.50 cents a pound. On the Zhengzhou exchange in China, the top cotton consumer, importer and producer, futures rose nearly to 35,000 a tonne, equivalent to 240 cents a pound.

"As long as world values stay above US values, there will still be demand for US cotton," Mr Roggensack said.

Indeed, official data on Thursday showed US cotton exports totalling nearly 290,000 running bales, including both the current season and 2011-12, at the top end of market forecasts.

They have now reached 96.9% of the total that the US Department of Agriculture has forecast for the whole year, to July, implying that the official estimate for American inventories at the end of the season will need to be revised lower again.

At the current estimate for year-end stocks, at 1.9m bales of 480 pounds apiece, is already the lowest for at least 50 years.

Correction ahead? 

However, Commerzbank analysts issued a warning that the rally was sowing the seeds for its own destruction, by prompting a surge in cotton growing and rebuilding supplies.

"Given the expected substantial expansion of acreage this year, the supply outlook should brighten significantly in the coming months," the bank said.

"This should contribute to a sharp fall in prices over the year."

US sowings are expected to rise by roughly 15%, with the China Cotton Association pegging the rise in China at 9.8%.

Brazil, where sowings in Mato Grosso state have surged by an estimated 60% to 671,100 hectares, is forecasting a 64% jump to 2.0m tonnes in domestic production.

 
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Soybean seedings to set US record, says Deere

by Agrimoney.com

Deere & Co entered the furore over preliminary official estimates for US spring plantings by coming out with its own forecasts – pegging sowings of soybeans even larger at a record high.

The tractor maker agreed with the US Department of Agriculture's forecast on Monday that domestic corn sowings will hit 92.0m acres this year.

However, it raised the bid on soybean acres by 1.0m acres to 79.0m acres, easily surpassing the record 77.5m acres set two years ago.

The extra area would come at the expense of wheat, for which seedings were estimated at 55.5m acres, 1.5m acres below the USDA figure, and the lowest – excluding last year's historically low total – for nearly 40 years.

Factoring in the high rate of winter wheat sowings, this figure implies a fall of 1.8m acres in spring seedings – or a rich rate of replanting with other crops of winter wheat areas struggling with a dearth of rainfall.

'Every available acre' 

Overall, Deere concurred with a USDA estimate of an extra 9.3m acres being allocated to the major four crops, including cotton.

Deere & Co 2011-12 US seeding and yield forecasts Corn: 92.0m acres, 163.4 bushels per acre Wheat: 55.5m acres, 44.8 bushels per acre Soybeans: 79.0m acres, 43.8 bushels per acre Cotton: 13.0m acres, 830 bushels per acre

"Obviously it's early – too early to know the ultimate outcome," Susan Karlix, manager of Deere investor communications, told analysts.

"That said, our base case calls for planted acres to increase, driven by strong global demand and historically low carryover stocks.

"Good profitability creates an incentive for farmers to plant on every available acre."

However, unlike USDA officials, Deere appeared to back ideas of cuts to sowings of more minor grains, highlighting that its consultants, Informa Economics, had estimated total plantings to major crops expanding by 7.4m acres.

Christmas wish list 

Indeed, it is the USDA's estimate of a total US sowings rising by 10m acres that has caused particular doubt among analysts, and is being blamed in part for a sell-off in crops that continued on Wednesday for a third day.

USDA baseling US seeding and yield forecasts Corn: 92.0m acres, 162.0 bushels per acre Wheat: 57.0m acres, 43.8 bushels per acre Soybeans: 78.0m acres, 43.5 bushels per acre Cotton: 12.8m acres, 820 bushels per acre

"Most in the trade are anticipating acres to be up 6m-7m acres," US Commodities said.

At Market 1, Mike Mawdsley said: "It is like plugging in your Christmas list, waking up and all the acres you want have come out."

And at Benson Quinn Commodities, Brian Henry said that while "78m acres of soybeans isn't out of the question, a 10m-acre increase in total planted acres is in question".

While some 4m acres of land has been released from conservation programmes over the last three years, only about 1m acres of that was suitable for corn or soybeans, Jerry Gidel at North America Risk Management said.

Yield question 

He also took issue with Deere's forecasts of bumper yields, with the forecast for corn pegged at 163.4 bushels per acre, 1.3 bushels per acre below its record high, and for soybeans 0.2 bushels per acre from its all-time high.

Estimates of corn yields of 163-64 bushels per acre were "ridiculous" this early in the season, when regression analysis suggested lower figures.

"An estimate of 161 bushels per acre you can defend with your life," he said.

 
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