25 Eylül 2014 Perşembe

Legal Basis for War in Syria? Amazing Three-Point Logic!

The hypocrisy of the US is on full display. We have imposed preposterous sanctions on Russia following its takeover of Crimea.

Given that Crimea actually had a vote, and the vote was overwhelming, one can legitimately argue the Crimea takeover was democracy in action. Rigged or not, it's 100% certain the vote would have gone in favor of Russia.

Votes? Constitutions? Who Gives a Damn?

Who gives a damn about votes?

Some claim the vote was illegal by Ukraine's constitution. But what good are constitutions anyway?

The US doesn't give a damn about the US constitution let alone the constitution of any other nations (unless of course it serves our purpose).

Legal Basis for Troops in Iraq?

On September 5th, the Guardian commented on the legality of US troops in Iraq: Legal basis for Iraq troop deployment called into question as days wear on.
The legal basis for the recent introduction of more than 1,000 US ground troops in Iraq was called into question on Friday, after the White House confirmed that it does not consider itself bound by time limits that usually constrain such deployments.

Under the terms of the 1973 War Powers Resolution, troop deployments into war zones may not last longer than 60 days, unless Congress explicitly authorises military force.

As no congressional authorisation yet exists – Congress returns from its August recess next week – lawyers have wondered about the solidity of the legal grounding for the latest US war in Iraq.
Obama's ISIS Plan Legal?

On September 12, Salon asked: Is Obama’s ISIS plan legal?.

President Obama's legal basis for "destroying ISIS" is a stretch. But who's going to stop him? Congress? Ha!

"Moderate" Collateral Damage

It's tough distinguishing friends from enemies, especially when allies don't agree who the enemies are, and our enemies have the same primary goal as us!

For example, the Financial Times note Syria Rebels Dismayed by US Air Attacks on Non-Isis Groups.

In the course of Syria’s nearly four-year civil war, Ahmed Hamadi an anti-regime rebel, often hoped western intervention would help his cause. But when it finally came, it killed his neighbours and their children.

Door Number One or Door Number Two?

  1. When you go about killing moderates and their kids, do you think the remaining moderates and kids will love us for our freedom-fighting ways?
  2. Or do you think we created more extremists?

Hitting Oil Targets

Today the Financial Times reports US took out Syria's Oil Refineries.
US-led coalition strikes targeted at least six oil refineries held by militants from the Islamic State of Iraq and the Levant (Isis) in eastern Syria overnight, hitting at one of the group’s main sources of financing.
Did Blasting Oil Refineries Help?
“This was a really important strike because of oil’s significance to Isis,” said an activist who uses the nom de guerre Thaer al-Khalidiya. “But unfortunately its impact is diminished by how unpopular the strikes are becoming, and by how little it seems to be affecting the group’s military operations in Syria.”
Strikes Becoming Unpopular
Civilian casualties were also reported in strikes on southeastern Hassaka countryside, which could increase the negative popular sentiment. According to the Syrian Observatory for Human Rights, around seven non-Isis fighters and civilians were killed, including one child and several women. It said 15 Isis militants were killed. It is impossible to independently verify the figures.
Gee - Who coulda thunk that killing innocent kids might become unpopular? Besides, why aren't these ingrates happy with our fantastic hit ratio? We killed 15 ISIS members and only 7 innocent victims.

The cost of hundreds of tomahawk missiles and bombs per ISIS member killed is clearly irrelevant. The US Has plenty of money. If we run out, we can always print more.

What about ISIS weapons?

Inquiring minds may be asking "What about ISIS weapons?" That's a good question given nearly all of them are US made, confiscated by ISIS in Iraq.

Here's the answer:
Redur Xelil, a spokesman for Syria’s main Kurdish force, known as the People’s Protection Units (YPG), said some coalition strikes had hit the area but targeted Isis bases far from the front lines, many of which had already evacuated. He pleaded for more strikes near the front to help the YPG win the battle.

“The bases of ISIL and all their heavy weapons, vehicles and equipment are in the open air and visible to everyone,” he said, using an alternative acronym for Isis. “But they have not yet been targeted by the air strikes.”
There you have it. We don't target weapons, instead we cripple Syria's infrastructure.

Mistakes Bound to Happen

Unfortunately, such mistakes happen when you Drop a Month of Bombs in Two Days on Syria. Strikes.

Rationale for Fighting ISIS

One rationale for the bombings is that an ISIS cell threatened the US.

Exactly how credible was that? The Guardian reports US officials unclear on threat posed by obscure al-Qaida cell in Syria.
Three days after the United States unexpectedly launched air strikes against an al-Qaida cell in Syria, officials are offering varied and conflicting explanations on the precise nature of the threat posed by the group.

Hours after Tomahawk missiles slammed into buildings near Aleppo believed to be used by Khorasan, an obscure group said to be focused on exporting terrorism from Syria, the US military described it as involved in “imminent attack plotting” against western targets.

Yet it is unclear what Khorasan was planning, how far that planning advanced, and whether the US itself was a target. Nor is the US confident as yet that it has either killed Khorasan’s leaders or significantly degraded any threat Khorasan may pose.
Bomb First, Ask Questions Later
A senior US official briefing reporters the day after the strike said that Khorasan was “nearing the execution phase” for an attack “in Europe or the homeland”. Hours before the strike, however, a different senior official had told the Guardian there was no indication of an imminent domestic threat from the group.

Yet on Thursday, the Pentagon’s chief spokesman dismissed questions about how mature any attack planning was, saying it was “near the end stages of planning an attack a western target”.

“I don’t know that we can pin that down to a day or a week or a month or six months. Doesn’t matter. Far better to be the left of a boom than the right of it,” said Rear Adm John Kirby, using military jargon about periods before and after an attack.
Aspirations vs. Reality
Leaks to the New York Times and the Washington Post cast doubt on the maturity of an attack emerging from Khorasan.

Anonymous officials were cited as saying it was unclear if Khorasan had picked out targets, deployed operatives to execute them or otherwise set a specific plan in motion, with one describing Khorasan’s planning as “aspirational”.
Perpetual War

Is the US war on Syria constitutional according to Syria's constitution? Better yet, is the US war on Syria constitutional even according to ours?

On September 13, the Guardian reported Obama's legally dubious Isis campaign is just a way to continue perpetual war.

Authot Trevor Tim wrote "The question isn’t whether this is war. It is. The question is how long until we’re clamouring for ground troops in Iraq again."

I am in complete agreement.

Following a Pentagon statement that this was the "beginning of a sustained campaign" that could last years, I penned Battle for Perpetual War is Won.

Undeclared War

"We did not request the regime’s permission. We did not co-ordinate our actions with the Syrian government. We did not provide advance notification to the Syrians at a military level, or give any indication of our timing on specific targets,” said Jen Psaki, the state department spokeswoman."

Interestingly, Syria's Deputy Foreign Minister called the US a "Natural Ally" stating We're 'Fighting the Same Enemy.

“When it comes to terrorism, we should forget our differences… and forget all about the past,” said deputy foreign minister Faisal Mekdad. “It takes two to tango...We are ready to talk."

Talk? Who wants that? Why talk when the battle for perpetual war has been won?

Legal Knots

Let's return to the question of legalities, this time specifically in regards to Syria. The Guardian reports US ties itself in legal knots to cover shifting rationale for Syria strikes.
US government lawyers have invoked Iraq’s right to self-defence and the weakness of the Assad regime as twin justifications for US bombing in Syria, in a feat of legal acrobatics that may reopen questions over its right to intervene in the bitter civil war.

In a letter to the United Nations secretary general, Ban Ki-moon, released near 24 hours after attacks began, US ambassador Samantha Power argued that the threat to Iraq from Islamic State, known as Isis or Isil, gave the US and its allies in the region an automatic right to attack on its behalf.

The brief letter did not mention the US invasion of Iraq in 2003, which rested on erroneous claims of weapons of mass destruction and arguably contributed to its current instability, but stresses instead the country’s right to self-defence in the face of this new threat.

The US also argued that there was legal right to pursue Isis inside Syria due to the weakness of that country’s government – a regime the US has been actively urging be undermined by rebel groups for much of the past two years.
Amazing Three-Point Logic!

  1. States must be able to defend themselves and Syria cannot. 
  2. One reason Syria cannot defend itself is the US actively supports those who attempt to topple Syrian president Assad. 
  3. Because Assad is struggling to defend himself (from us), we allegedly have a legal basis to defend Syria.

For purpose of crippling another country, oil refineries are "prime targets".  By taking out Syrian refineries, Syria is even less likely to defend itself from those who wish to topple the Syrian government.

Meanwhile, the US is in yet another undeclared war with Congress sitting on its ass, unwilling to do anything with elections coming up.

Bright Side

Please look on the bright side!

  1. US GDP goes up every time we drop a bomb and the bomb is replaced with more bombs.  
  2. The more innocent kids we kill, the more enemies we make. 
  3. The more enemies we make, the more bombs we drop. 
  4. The more bombs we drop the more US GDP goes up and the more money the CEOs of defense companies make.

As an alternative, I offer my own sure-fire solution: The Moderate's Prayer.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com 

Blue Ribbon for Sanction Craziness: Italy Seizes Hotel of Putin Ally; Russia Threatens Law Allowing Seizure of Foreign Assets

What's Russia to do? Stand back and let the US and Europe escalate sanction after sanction, or respond in kind?

Either way, Russia loses. I believe Europe has the worst of it, but both suffer.

Hope for Sanity Appears to Be Lost Cause

By responding in kind, Russia hopes to put some sanity in the heads of US and EU officials. But with brains as dense as Obama, McCain, and various EU officials, hope for sanity appears to be a lost cause.

Sanction Madness Escalates: Italy Seizes Hotel of Putin Ally

Two days ago sanction madness hit a new extreme: Italy seizes Putin ally Arkady Rotenberg’s property assets.
The Italian tax police have seized €30m in assets, including a luxury hotel in Rome and two villas in Sardinia, controlled by Arkady Rotenberg, a longtime ally of Russian president Vladimir Putin targeted by US and EU sanctions. 

The move comes amid continued tensions between Russia and the EU over Ukraine, and ahead of a possible visit by Mr Putin to Milan next month for a summit with European and Asian leaders that could offer a chance to rebuild some bridges.

Speaking to Russian newswire Interfax, Mr Rotenberg said: “I have been subject to sanctions for several months. Nothing surprises me anymore. But what puzzles me is that the current situation involves real estate to which the sanctions do not apply. Sanctions only apply to accounts and assets which I do not have in Italy.”
Russia Threatens Law Allowing Seizure of Foreign Assets

Response from Russia was swift. Moscow Times reports Draft Law Allows Russia to Seize Foreign Assets in Response to Sanctions.
Russian courts could get the green light to seize foreign assets on Russian territory under a draft law intended as a response to Western sanctions over the Ukraine crisis.

The draft, which was submitted to parliament on Wednesday by a pro-Kremlin deputy, would also allow state compensation for an individual whose property is seized in foreign jurisdictions.

Italian authorities this week seized property worth about 30 million euros ($40 million) belonging to companies controlled by Arkady Rotenberg, an ally of President Vladimir Putin targeted by the U.S. and European Union sanctions.

The draft law, published on a parliamentary database, would allow for compensation for Russian citizens who suffer because of an "unlawful court act" in a foreign jurisdiction and clear the way to foreign state assets in Russia being seized, even if they are subject to international immunity.

Russian laws require three readings in the lower house and the approval of the upper house before going to Putin to be signed into law.
Blue Ribbon for Sanction Craziness

What would happen if Russia were to act in kind, by seizing McDonald's Real Estate Empire in Russia, Starbucks, or Exxon?

Does Russia have more assets in the US (for the US to seize) or does the US have more assets in Russia (for Russia to seize)?

The question is moot.

Illegal seizure of assets under the guise of "sanctions" is not a good idea. Sanctions in general are crazy, but in the ever-escalating madness, Italy is now in the lead for the much-coveted blue ribbon for sanction craziness.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Housing Early Warning Stress Indicator On Rise

A chart in the latest Black Knight Mortgage Monitor Release caught my eye.

For five months, the number of properties and the percentage of properties 30-days delinquent has been on the rise (arrows added).



click on chart for sharper image

Key Indicators

  • The mortgage delinquency rate jumped nearly 5% in August, reaching its highest point since February.
  • The year-over-year change in 30-day delinquencies is a negative 4.8%. Another month like August would nearly reverse the year-over-year downtrend in delinquencies.
  • The inventory of  30-day delinquent homes rose by 146,000. Another month like August would reverse the year-over-year change.
  • 90-day delinquencies do not show the same ominous trend as 3-day delinquencies, but 90-day delinquencies first require 30-day delinquency then 60-day delinquency.

So far, the 90-day stats have not rolled over, but with the 30-day uptrend this long, it likely will.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Monetary Policy Rules

Here is a website that gives up-to-date graphs of several policy rules.

24 Eylül 2014 Çarşamba

Unionizing & Daytimizing Philippine Outsourcing [?]

They work the early morning hours...for good reason.
There's an interesting article over at Bloomberg talking about the Philippines' emergence as a global hub for business process outsourcing (BPO) industries. At the same time, it points out disturbing proposed legislation that may kill the goose that lays the golden egg. As Daniel Pink explains, these BPO industries do mostly routine tasks, not the more creative ones that cannot (yet) be performed outside Western metropoles. Still, they have made significant contributions to the Philippine economy. Let us begin with some figures:
During the past decade, business process outsourcing -- which encompasses call centers, health-care information management and computer animation, among others -- has emerged as one of the fastest-growing segments of the country’s $272 billion economy.
In 2013, the BPO industry generated $15.5 billion in revenue and employed 900,000 people, up from $3.2 billion and 240,000 people in 2006, according to the IT and Business Process Association of the Philippines, or IBPAP.
Along the way, the industry eclipsed tourism as one of the biggest sources of foreign revenue, behind remittances sent home by Filipinos working abroad -- payments that reached a record $23 billion in 2013. It’s grown so fast that Philippine Senator Miriam Defensor Santiago last year proposed legislation to safeguard the welfare of BPO workers and ensure their rights to unionize. 
Then the article goes more into legislation with provisions on work hours and unionization:
Citing International Labour Organization studies, Santiago said 42.6 percent of BPO employees worked night shifts, and many suffered from insomnia and fatigue. As of mid-September, her bill was pending before the Senate Committee on Labor, Employment and Human Resources. IBPAP Chief Executive Officer Jose Mari Mercado says the industry upholds high standards. “Our assets are our people,” he says. “We take extra effort to ensure that we compensate them properly and provide them with health and wellness packages.”

Mercado says that by 2016, outsourcing may generate $25 billion in revenue and employ 1.3 million people, matching cash remittances for the first time. And BPO workers offer a plus that the Filipino diaspora doesn’t, he says. “The difference is that our 1.3 million are here with their families, and they spend all of their money here,” he says, adding that each outsourcing job generates as many as 2.5 jobs in retail, public transportation and other service businesses. 
I have two problems with this proposed bill: First, and this is the obvious point, you will need to work during the late evening and early morning hours in the BPO industry to match the hours of your export market. For instance, (US) Pacific time is 15 hours behind that in the Philippines. Obviously, customers in California will be calling to ask for support during hours when they are awake. Or, doctors will ask for medical transcriptions to be made during work hours when they see patients. This is obvious and industry-specific. While sleep-related problems may occur for some BPO workers, it's in the nature of the job for the same reason that it is laughable if fitness trainers complain about physical exertion or emergency medical responders complain about the need to be on alert nearly all the time. Deal with it or find another line of work.

Second, encouraging unionization is equally dubious. One of the Philippines' known advantages over other call centers like those in India is having a more "neutral" accent (read: sound more like a Midwesterner). Another one is that, until now at least, the Philippines has had less labor unrest than India--a political risk factor routinely cited by those investing or considering investing in India. Would American firms used to ever-declining union participation at home and union non-involvement abroad welcome efforts to organize workers in the Philippines? I strongly doubt it. Mark my word: labor militancy is an FDI killer up there with the Ebola virus with a side helping of MERS.

Funny how people think of all sorts of ways to shoot themselves in the foot. From where I come from, they usually run for office.

Housing Prices, "Real" Interest Rates, and the "Real" CPI

With housing prices still rising, albeit more slowly, inquiring minds might be wondering about "Real" interest rates and the "Real" CPI?

CPI Distortions

I believe the CPI is hugely distorted, but not for the same reasons as everyone else. Home prices used to be in the CPI but the BLS now uses OER (Owners' Equivalent Rent). OER is a measure of actual rental prices as well as fiction.

The BLS determines OER from a measure of rental prices and also by asking the question “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”

If you find that preposterous, You are not the only one. Regardless, rental prices are simply not a valid measure of home prices.

OER Weighting in CPI

OER has the single largest weight of any component in the CPI, at 23.957%.



Let's play "What If?" Specifically, "What if the BLS used actual home prices instead of OER in calculating the CPI?"

HPI-CPI

Periodically, Black Knight Financial Services provides the actual data behind their HPI (Home Price Index), a measure of actual prices.

We can use that data to see what the CPI would look like if we put actual home prices in the CPI instead of OER.

I call this the "HPI-CPI".

I passed on an Excel spreadsheet of the Black Knight HPI aggregate housing prices to Doug Short at Advisor Perspectives and we produced the charts below.

Notes

  • Click on any chart to see a sharper image
  • Data as of June 2014
  • Annotations in purple by me

Let's start with a look at the rate of increase in home prices vs. the rate of increases in OER.

Comparative Growth in HPI vs. OER



From 1994 until 1999 there was little difference in the rate of change of rent vs. housing prices. That changed in 2000 with the dot.com crash and accelerated when Greenspan started cutting rates.

The bubble is clearly visible but neither the Greenspan nor the Bernanke Fed spotted it. The Fed was more concerned with rents as a measure of inflation rather than speculative housing prices.

Two Inflation Indexes Year-over-Year



The above chart shows the effect when housing prices replace OER in the CPI. In mid-2004, the CPI was 3.27%, the HPI-CPI was 5.93% and the Fed Funds Rate was a mere 1%. By my preferred measure of price inflation, real interest rates were -4.93%. Speculation in the housing bubble was rampant.

In mid-2008 when everyone was concerned about "inflation" because oil prices had soared over $140, I suggested record low interest rates across the entire yield curve. At that time the CPI was close to 6% but the HPI-CPI was close to 0% (and plunging fast).

As measured by HPI-CPI real interest rates were positive from mid-2006 all the way to 2010, even when the Fed Funds rate crashed to .25%. That shows the power of the housing crash and how badly the Fed misplayed the housing bubble.

Real rates went positive again in mid-2010 until early 2011.

CPI and HPI-CPI Variance From Fed Funds Rate



The above chart shows two measures of "Real" interest rates. The Blue line is the Fed Funds Rate minus the CPI. The Red line is the Fed Funds Rate minus the HPI-CPI.

Both measures show how the Fed has pushed real rates into negative territory.

However, the rate of growth in home prices is slowing. If home prices actually start to decline, which I believe likely, HPI-CPI will show outright deflation.

And even with the Fed Funds rate at 0.25%, real rates will again be positive as measured by HPI-CPI, but perhaps not by the Fed who uses the CPI as its measure of price inflation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Law of Excuses: It's Always Something (But Never the Right Thing)!

The out-of-the-blue excuses countries come up with for not making budget deficit targets are rather amusing.

For example and via translation from La Vanguardia, France Blames Deficit on Jihadist Terrorism, Lack of Inflation.
French Prime Minister, Manuel Valls, said today that his country's military missions against jihadist terrorism, along with public investment in education and security make it difficult to meet deficit limits.

"If we reduce our military budget, where are we going?"
In regards to "where are we going?", I have a proposal: If France would cut public spending in general, by a third, reduce taxes by as much, and roll back all socialist regulations, I suggest "up", and in a very dramatic fashion.

Instead, Valls proposes Wimpy's philosophy Eat Now, Pay Later.
The "spiral of debt" which is France, which has not achieved a balanced national budget in four decades, is "unsustainable".

However, the French prime minister stressed his commitment to fiscal stabilization and fiscal consolidation, and explained to a large group of German businessmen reforms to labor, tax and administrative level, which aims to save up to 50,000 million for 2017 .
2017 - I Can Hardly Wait

I will gladly pay you in 2017 for a hamburger today.

Between now and then, how how many excuses can France come up with to push the date back further?

Valls vs. Wimpy



Law of Excuses

Shockingly, no one has yet proposed "The Law of Excuses", so I get to claim it.

I dedicate the law to France: It's Always Something (But Never the Right Thing)!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

25 Eylül 2014 Perşembe

Legal Basis for War in Syria? Amazing Three-Point Logic!

The hypocrisy of the US is on full display. We have imposed preposterous sanctions on Russia following its takeover of Crimea.

Given that Crimea actually had a vote, and the vote was overwhelming, one can legitimately argue the Crimea takeover was democracy in action. Rigged or not, it's 100% certain the vote would have gone in favor of Russia.

Votes? Constitutions? Who Gives a Damn?

Who gives a damn about votes?

Some claim the vote was illegal by Ukraine's constitution. But what good are constitutions anyway?

The US doesn't give a damn about the US constitution let alone the constitution of any other nations (unless of course it serves our purpose).

Legal Basis for Troops in Iraq?

On September 5th, the Guardian commented on the legality of US troops in Iraq: Legal basis for Iraq troop deployment called into question as days wear on.
The legal basis for the recent introduction of more than 1,000 US ground troops in Iraq was called into question on Friday, after the White House confirmed that it does not consider itself bound by time limits that usually constrain such deployments.

Under the terms of the 1973 War Powers Resolution, troop deployments into war zones may not last longer than 60 days, unless Congress explicitly authorises military force.

As no congressional authorisation yet exists – Congress returns from its August recess next week – lawyers have wondered about the solidity of the legal grounding for the latest US war in Iraq.
Obama's ISIS Plan Legal?

On September 12, Salon asked: Is Obama’s ISIS plan legal?.

President Obama's legal basis for "destroying ISIS" is a stretch. But who's going to stop him? Congress? Ha!

"Moderate" Collateral Damage

It's tough distinguishing friends from enemies, especially when allies don't agree who the enemies are, and our enemies have the same primary goal as us!

For example, the Financial Times note Syria Rebels Dismayed by US Air Attacks on Non-Isis Groups.

In the course of Syria’s nearly four-year civil war, Ahmed Hamadi an anti-regime rebel, often hoped western intervention would help his cause. But when it finally came, it killed his neighbours and their children.

Door Number One or Door Number Two?

  1. When you go about killing moderates and their kids, do you think the remaining moderates and kids will love us for our freedom-fighting ways?
  2. Or do you think we created more extremists?

Hitting Oil Targets

Today the Financial Times reports US took out Syria's Oil Refineries.
US-led coalition strikes targeted at least six oil refineries held by militants from the Islamic State of Iraq and the Levant (Isis) in eastern Syria overnight, hitting at one of the group’s main sources of financing.
Did Blasting Oil Refineries Help?
“This was a really important strike because of oil’s significance to Isis,” said an activist who uses the nom de guerre Thaer al-Khalidiya. “But unfortunately its impact is diminished by how unpopular the strikes are becoming, and by how little it seems to be affecting the group’s military operations in Syria.”
Strikes Becoming Unpopular
Civilian casualties were also reported in strikes on southeastern Hassaka countryside, which could increase the negative popular sentiment. According to the Syrian Observatory for Human Rights, around seven non-Isis fighters and civilians were killed, including one child and several women. It said 15 Isis militants were killed. It is impossible to independently verify the figures.
Gee - Who coulda thunk that killing innocent kids might become unpopular? Besides, why aren't these ingrates happy with our fantastic hit ratio? We killed 15 ISIS members and only 7 innocent victims.

The cost of hundreds of tomahawk missiles and bombs per ISIS member killed is clearly irrelevant. The US Has plenty of money. If we run out, we can always print more.

What about ISIS weapons?

Inquiring minds may be asking "What about ISIS weapons?" That's a good question given nearly all of them are US made, confiscated by ISIS in Iraq.

Here's the answer:
Redur Xelil, a spokesman for Syria’s main Kurdish force, known as the People’s Protection Units (YPG), said some coalition strikes had hit the area but targeted Isis bases far from the front lines, many of which had already evacuated. He pleaded for more strikes near the front to help the YPG win the battle.

“The bases of ISIL and all their heavy weapons, vehicles and equipment are in the open air and visible to everyone,” he said, using an alternative acronym for Isis. “But they have not yet been targeted by the air strikes.”
There you have it. We don't target weapons, instead we cripple Syria's infrastructure.

Mistakes Bound to Happen

Unfortunately, such mistakes happen when you Drop a Month of Bombs in Two Days on Syria. Strikes.

Rationale for Fighting ISIS

One rationale for the bombings is that an ISIS cell threatened the US.

Exactly how credible was that? The Guardian reports US officials unclear on threat posed by obscure al-Qaida cell in Syria.
Three days after the United States unexpectedly launched air strikes against an al-Qaida cell in Syria, officials are offering varied and conflicting explanations on the precise nature of the threat posed by the group.

Hours after Tomahawk missiles slammed into buildings near Aleppo believed to be used by Khorasan, an obscure group said to be focused on exporting terrorism from Syria, the US military described it as involved in “imminent attack plotting” against western targets.

Yet it is unclear what Khorasan was planning, how far that planning advanced, and whether the US itself was a target. Nor is the US confident as yet that it has either killed Khorasan’s leaders or significantly degraded any threat Khorasan may pose.
Bomb First, Ask Questions Later
A senior US official briefing reporters the day after the strike said that Khorasan was “nearing the execution phase” for an attack “in Europe or the homeland”. Hours before the strike, however, a different senior official had told the Guardian there was no indication of an imminent domestic threat from the group.

Yet on Thursday, the Pentagon’s chief spokesman dismissed questions about how mature any attack planning was, saying it was “near the end stages of planning an attack a western target”.

“I don’t know that we can pin that down to a day or a week or a month or six months. Doesn’t matter. Far better to be the left of a boom than the right of it,” said Rear Adm John Kirby, using military jargon about periods before and after an attack.
Aspirations vs. Reality
Leaks to the New York Times and the Washington Post cast doubt on the maturity of an attack emerging from Khorasan.

Anonymous officials were cited as saying it was unclear if Khorasan had picked out targets, deployed operatives to execute them or otherwise set a specific plan in motion, with one describing Khorasan’s planning as “aspirational”.
Perpetual War

Is the US war on Syria constitutional according to Syria's constitution? Better yet, is the US war on Syria constitutional even according to ours?

On September 13, the Guardian reported Obama's legally dubious Isis campaign is just a way to continue perpetual war.

Authot Trevor Tim wrote "The question isn’t whether this is war. It is. The question is how long until we’re clamouring for ground troops in Iraq again."

I am in complete agreement.

Following a Pentagon statement that this was the "beginning of a sustained campaign" that could last years, I penned Battle for Perpetual War is Won.

Undeclared War

"We did not request the regime’s permission. We did not co-ordinate our actions with the Syrian government. We did not provide advance notification to the Syrians at a military level, or give any indication of our timing on specific targets,” said Jen Psaki, the state department spokeswoman."

Interestingly, Syria's Deputy Foreign Minister called the US a "Natural Ally" stating We're 'Fighting the Same Enemy.

“When it comes to terrorism, we should forget our differences… and forget all about the past,” said deputy foreign minister Faisal Mekdad. “It takes two to tango...We are ready to talk."

Talk? Who wants that? Why talk when the battle for perpetual war has been won?

Legal Knots

Let's return to the question of legalities, this time specifically in regards to Syria. The Guardian reports US ties itself in legal knots to cover shifting rationale for Syria strikes.
US government lawyers have invoked Iraq’s right to self-defence and the weakness of the Assad regime as twin justifications for US bombing in Syria, in a feat of legal acrobatics that may reopen questions over its right to intervene in the bitter civil war.

In a letter to the United Nations secretary general, Ban Ki-moon, released near 24 hours after attacks began, US ambassador Samantha Power argued that the threat to Iraq from Islamic State, known as Isis or Isil, gave the US and its allies in the region an automatic right to attack on its behalf.

The brief letter did not mention the US invasion of Iraq in 2003, which rested on erroneous claims of weapons of mass destruction and arguably contributed to its current instability, but stresses instead the country’s right to self-defence in the face of this new threat.

The US also argued that there was legal right to pursue Isis inside Syria due to the weakness of that country’s government – a regime the US has been actively urging be undermined by rebel groups for much of the past two years.
Amazing Three-Point Logic!

  1. States must be able to defend themselves and Syria cannot. 
  2. One reason Syria cannot defend itself is the US actively supports those who attempt to topple Syrian president Assad. 
  3. Because Assad is struggling to defend himself (from us), we allegedly have a legal basis to defend Syria.

For purpose of crippling another country, oil refineries are "prime targets".  By taking out Syrian refineries, Syria is even less likely to defend itself from those who wish to topple the Syrian government.

Meanwhile, the US is in yet another undeclared war with Congress sitting on its ass, unwilling to do anything with elections coming up.

Bright Side

Please look on the bright side!

  1. US GDP goes up every time we drop a bomb and the bomb is replaced with more bombs.  
  2. The more innocent kids we kill, the more enemies we make. 
  3. The more enemies we make, the more bombs we drop. 
  4. The more bombs we drop the more US GDP goes up and the more money the CEOs of defense companies make.

As an alternative, I offer my own sure-fire solution: The Moderate's Prayer.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com 

Blue Ribbon for Sanction Craziness: Italy Seizes Hotel of Putin Ally; Russia Threatens Law Allowing Seizure of Foreign Assets

What's Russia to do? Stand back and let the US and Europe escalate sanction after sanction, or respond in kind?

Either way, Russia loses. I believe Europe has the worst of it, but both suffer.

Hope for Sanity Appears to Be Lost Cause

By responding in kind, Russia hopes to put some sanity in the heads of US and EU officials. But with brains as dense as Obama, McCain, and various EU officials, hope for sanity appears to be a lost cause.

Sanction Madness Escalates: Italy Seizes Hotel of Putin Ally

Two days ago sanction madness hit a new extreme: Italy seizes Putin ally Arkady Rotenberg’s property assets.
The Italian tax police have seized €30m in assets, including a luxury hotel in Rome and two villas in Sardinia, controlled by Arkady Rotenberg, a longtime ally of Russian president Vladimir Putin targeted by US and EU sanctions. 

The move comes amid continued tensions between Russia and the EU over Ukraine, and ahead of a possible visit by Mr Putin to Milan next month for a summit with European and Asian leaders that could offer a chance to rebuild some bridges.

Speaking to Russian newswire Interfax, Mr Rotenberg said: “I have been subject to sanctions for several months. Nothing surprises me anymore. But what puzzles me is that the current situation involves real estate to which the sanctions do not apply. Sanctions only apply to accounts and assets which I do not have in Italy.”
Russia Threatens Law Allowing Seizure of Foreign Assets

Response from Russia was swift. Moscow Times reports Draft Law Allows Russia to Seize Foreign Assets in Response to Sanctions.
Russian courts could get the green light to seize foreign assets on Russian territory under a draft law intended as a response to Western sanctions over the Ukraine crisis.

The draft, which was submitted to parliament on Wednesday by a pro-Kremlin deputy, would also allow state compensation for an individual whose property is seized in foreign jurisdictions.

Italian authorities this week seized property worth about 30 million euros ($40 million) belonging to companies controlled by Arkady Rotenberg, an ally of President Vladimir Putin targeted by the U.S. and European Union sanctions.

The draft law, published on a parliamentary database, would allow for compensation for Russian citizens who suffer because of an "unlawful court act" in a foreign jurisdiction and clear the way to foreign state assets in Russia being seized, even if they are subject to international immunity.

Russian laws require three readings in the lower house and the approval of the upper house before going to Putin to be signed into law.
Blue Ribbon for Sanction Craziness

What would happen if Russia were to act in kind, by seizing McDonald's Real Estate Empire in Russia, Starbucks, or Exxon?

Does Russia have more assets in the US (for the US to seize) or does the US have more assets in Russia (for Russia to seize)?

The question is moot.

Illegal seizure of assets under the guise of "sanctions" is not a good idea. Sanctions in general are crazy, but in the ever-escalating madness, Italy is now in the lead for the much-coveted blue ribbon for sanction craziness.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Housing Early Warning Stress Indicator On Rise

A chart in the latest Black Knight Mortgage Monitor Release caught my eye.

For five months, the number of properties and the percentage of properties 30-days delinquent has been on the rise (arrows added).



click on chart for sharper image

Key Indicators

  • The mortgage delinquency rate jumped nearly 5% in August, reaching its highest point since February.
  • The year-over-year change in 30-day delinquencies is a negative 4.8%. Another month like August would nearly reverse the year-over-year downtrend in delinquencies.
  • The inventory of  30-day delinquent homes rose by 146,000. Another month like August would reverse the year-over-year change.
  • 90-day delinquencies do not show the same ominous trend as 3-day delinquencies, but 90-day delinquencies first require 30-day delinquency then 60-day delinquency.

So far, the 90-day stats have not rolled over, but with the 30-day uptrend this long, it likely will.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Monetary Policy Rules

Here is a website that gives up-to-date graphs of several policy rules.

24 Eylül 2014 Çarşamba

Unionizing & Daytimizing Philippine Outsourcing [?]

They work the early morning hours...for good reason.
There's an interesting article over at Bloomberg talking about the Philippines' emergence as a global hub for business process outsourcing (BPO) industries. At the same time, it points out disturbing proposed legislation that may kill the goose that lays the golden egg. As Daniel Pink explains, these BPO industries do mostly routine tasks, not the more creative ones that cannot (yet) be performed outside Western metropoles. Still, they have made significant contributions to the Philippine economy. Let us begin with some figures:
During the past decade, business process outsourcing -- which encompasses call centers, health-care information management and computer animation, among others -- has emerged as one of the fastest-growing segments of the country’s $272 billion economy.
In 2013, the BPO industry generated $15.5 billion in revenue and employed 900,000 people, up from $3.2 billion and 240,000 people in 2006, according to the IT and Business Process Association of the Philippines, or IBPAP.
Along the way, the industry eclipsed tourism as one of the biggest sources of foreign revenue, behind remittances sent home by Filipinos working abroad -- payments that reached a record $23 billion in 2013. It’s grown so fast that Philippine Senator Miriam Defensor Santiago last year proposed legislation to safeguard the welfare of BPO workers and ensure their rights to unionize. 
Then the article goes more into legislation with provisions on work hours and unionization:
Citing International Labour Organization studies, Santiago said 42.6 percent of BPO employees worked night shifts, and many suffered from insomnia and fatigue. As of mid-September, her bill was pending before the Senate Committee on Labor, Employment and Human Resources. IBPAP Chief Executive Officer Jose Mari Mercado says the industry upholds high standards. “Our assets are our people,” he says. “We take extra effort to ensure that we compensate them properly and provide them with health and wellness packages.”

Mercado says that by 2016, outsourcing may generate $25 billion in revenue and employ 1.3 million people, matching cash remittances for the first time. And BPO workers offer a plus that the Filipino diaspora doesn’t, he says. “The difference is that our 1.3 million are here with their families, and they spend all of their money here,” he says, adding that each outsourcing job generates as many as 2.5 jobs in retail, public transportation and other service businesses. 
I have two problems with this proposed bill: First, and this is the obvious point, you will need to work during the late evening and early morning hours in the BPO industry to match the hours of your export market. For instance, (US) Pacific time is 15 hours behind that in the Philippines. Obviously, customers in California will be calling to ask for support during hours when they are awake. Or, doctors will ask for medical transcriptions to be made during work hours when they see patients. This is obvious and industry-specific. While sleep-related problems may occur for some BPO workers, it's in the nature of the job for the same reason that it is laughable if fitness trainers complain about physical exertion or emergency medical responders complain about the need to be on alert nearly all the time. Deal with it or find another line of work.

Second, encouraging unionization is equally dubious. One of the Philippines' known advantages over other call centers like those in India is having a more "neutral" accent (read: sound more like a Midwesterner). Another one is that, until now at least, the Philippines has had less labor unrest than India--a political risk factor routinely cited by those investing or considering investing in India. Would American firms used to ever-declining union participation at home and union non-involvement abroad welcome efforts to organize workers in the Philippines? I strongly doubt it. Mark my word: labor militancy is an FDI killer up there with the Ebola virus with a side helping of MERS.

Funny how people think of all sorts of ways to shoot themselves in the foot. From where I come from, they usually run for office.

Housing Prices, "Real" Interest Rates, and the "Real" CPI

With housing prices still rising, albeit more slowly, inquiring minds might be wondering about "Real" interest rates and the "Real" CPI?

CPI Distortions

I believe the CPI is hugely distorted, but not for the same reasons as everyone else. Home prices used to be in the CPI but the BLS now uses OER (Owners' Equivalent Rent). OER is a measure of actual rental prices as well as fiction.

The BLS determines OER from a measure of rental prices and also by asking the question “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”

If you find that preposterous, You are not the only one. Regardless, rental prices are simply not a valid measure of home prices.

OER Weighting in CPI

OER has the single largest weight of any component in the CPI, at 23.957%.



Let's play "What If?" Specifically, "What if the BLS used actual home prices instead of OER in calculating the CPI?"

HPI-CPI

Periodically, Black Knight Financial Services provides the actual data behind their HPI (Home Price Index), a measure of actual prices.

We can use that data to see what the CPI would look like if we put actual home prices in the CPI instead of OER.

I call this the "HPI-CPI".

I passed on an Excel spreadsheet of the Black Knight HPI aggregate housing prices to Doug Short at Advisor Perspectives and we produced the charts below.

Notes

  • Click on any chart to see a sharper image
  • Data as of June 2014
  • Annotations in purple by me

Let's start with a look at the rate of increase in home prices vs. the rate of increases in OER.

Comparative Growth in HPI vs. OER



From 1994 until 1999 there was little difference in the rate of change of rent vs. housing prices. That changed in 2000 with the dot.com crash and accelerated when Greenspan started cutting rates.

The bubble is clearly visible but neither the Greenspan nor the Bernanke Fed spotted it. The Fed was more concerned with rents as a measure of inflation rather than speculative housing prices.

Two Inflation Indexes Year-over-Year



The above chart shows the effect when housing prices replace OER in the CPI. In mid-2004, the CPI was 3.27%, the HPI-CPI was 5.93% and the Fed Funds Rate was a mere 1%. By my preferred measure of price inflation, real interest rates were -4.93%. Speculation in the housing bubble was rampant.

In mid-2008 when everyone was concerned about "inflation" because oil prices had soared over $140, I suggested record low interest rates across the entire yield curve. At that time the CPI was close to 6% but the HPI-CPI was close to 0% (and plunging fast).

As measured by HPI-CPI real interest rates were positive from mid-2006 all the way to 2010, even when the Fed Funds rate crashed to .25%. That shows the power of the housing crash and how badly the Fed misplayed the housing bubble.

Real rates went positive again in mid-2010 until early 2011.

CPI and HPI-CPI Variance From Fed Funds Rate



The above chart shows two measures of "Real" interest rates. The Blue line is the Fed Funds Rate minus the CPI. The Red line is the Fed Funds Rate minus the HPI-CPI.

Both measures show how the Fed has pushed real rates into negative territory.

However, the rate of growth in home prices is slowing. If home prices actually start to decline, which I believe likely, HPI-CPI will show outright deflation.

And even with the Fed Funds rate at 0.25%, real rates will again be positive as measured by HPI-CPI, but perhaps not by the Fed who uses the CPI as its measure of price inflation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Law of Excuses: It's Always Something (But Never the Right Thing)!

The out-of-the-blue excuses countries come up with for not making budget deficit targets are rather amusing.

For example and via translation from La Vanguardia, France Blames Deficit on Jihadist Terrorism, Lack of Inflation.
French Prime Minister, Manuel Valls, said today that his country's military missions against jihadist terrorism, along with public investment in education and security make it difficult to meet deficit limits.

"If we reduce our military budget, where are we going?"
In regards to "where are we going?", I have a proposal: If France would cut public spending in general, by a third, reduce taxes by as much, and roll back all socialist regulations, I suggest "up", and in a very dramatic fashion.

Instead, Valls proposes Wimpy's philosophy Eat Now, Pay Later.
The "spiral of debt" which is France, which has not achieved a balanced national budget in four decades, is "unsustainable".

However, the French prime minister stressed his commitment to fiscal stabilization and fiscal consolidation, and explained to a large group of German businessmen reforms to labor, tax and administrative level, which aims to save up to 50,000 million for 2017 .
2017 - I Can Hardly Wait

I will gladly pay you in 2017 for a hamburger today.

Between now and then, how how many excuses can France come up with to push the date back further?

Valls vs. Wimpy



Law of Excuses

Shockingly, no one has yet proposed "The Law of Excuses", so I get to claim it.

I dedicate the law to France: It's Always Something (But Never the Right Thing)!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com