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Generational Dynamics Web Log for 8-Dec-2014
8-Dec-14 World View -- Bank of International Settlements warns of 'fragile' and 'sensitive' markets

Web Log - December, 2014

8-Dec-14 World View -- Bank of International Settlements warns of 'fragile' and 'sensitive' markets

Israel's warplanes strike Syria, in areas near Damascus

This morning's key headlines from GenerationalDynamics.com

Israel's warplanes strike Syria, in areas near Damascus
Egypt continues building buffer zone on Sinai border with Gaza
Bank of International Settlements warns of 'fragile' and 'sensitive' markets

Israel's warplanes strike Syria, in areas near Damascus

Hezbollah-provided picture of Sunday's Israeli air strike (Al Arabiya)

Hezbollah-provided picture of Sunday's Israeli air strike (Al Arabiya)

Syria said on Sunday that Israel's warplanes had bombed areas near Damascus international airport and in the town of Dimas, near the border with Lebanon. Syrian state media said that messages had been sent to the United Nations demanding sanctions against Israel:

"The messages read that Israel has committed a heinous crime against the sovereignty of Syria as Israeli warplanes attacked two safe areas in al-Dimas and near Damascus International Airport in Damascus Countryside, causing material damage in a number of institutions there.
The Ministry stressed that the attack is in the framework of extending help and support to the armed terrorist groups in Syria, especially after the series of achievements made by the Syrian army in Deir Ezzor, Aleppo, Daraa and other areas. ...
The attack reflects the Israeli explicit involvement in supporting the armed terrorist groups in Syria, on top of which Jabhat al-Nusra, along with well-known regional and western countries."

Israel and Syria have been in a state of war since 1948. Israel refused comment on the accusations.

It's thought that Israel was striking advanced weaponry or chemical weapons held by the regime of Syria's president Bashar al-Assad and in transit to Hezbollah in Lebanon for use in attacking Israel. However, a Lebanese TV correspondent reported that Israel struck 10 crucial intelligence-linked locations in Syria that belong to Iran. SANA (Syria) and Jerusalem Post and Al Arabiya (Saudi Arabia)

Egypt continues building buffer zone on Sinai border with Gaza

Schools in Egypt's North Sinai region along the border with the Gaza Strip are reopening after ten days closure due to Egypt's counter-insurgency operations in the area.

Egypt's army is attempting to eliminate "once and for all" the threat from Hamas terrorists from Gaza, following a massive October 24 terrorist attack with a car bomb that killed 33 Egyptian troops. Egypt's president Abdel al-Fattah al-Sisi labeled the attack an existential threat to Egypt, and ordered that a buffer zone be built along the border with Gaza with the objective of eliminating the smuggling tunnels under the wall that separates Gaza from Sinai.

The original plan was that the buffer zone would be 500 meters (1/2 km) wide and 13.5 km along the border. However, several days ago Egypt announced that it would double the width of the buffer zone to 1 km. According to the state news agency:

"A decision was taken to increase the buffer zone along the border in Rafah to one kilometer. The decision ... came after the discovery of underground tunnels with a total length of 800 to 1,000 meters."

Egypt has been demolishing homes in Sinai along the Gaza border in order to make room for the buffer zone. Egypt originally announced that 802 homes were to be demolished and 1,156 families to be relocated. With the doubling of the width of the buffer zone, it's assume that 1600 homes will be demolished and 2300 families displaced and relocated.

There has been little international condemnation or interest in Egypt's plan to demolish 1600 homes. However, there has been a great deal of international condemnation when Israeli forces demolished the home of Abdelrahman Shaludi, a terrorist who had purposely plowed his car into pedestrians on October 22, killing two people. Daily News Egypt and Daily News Egypt (18-Nov)

Bank of International Settlements warns of 'fragile' and 'sensitive' markets

Last week, on one of days when the Dow Jones Industrial Average reached a fresh all-time high, I heard one of the male anchor on CNBC say something like: "The Dow Jones has reached an all-time high 48 times this year. That's the highest number since 1929." The female anchor said, "What are you saying????" and quickly changed the subject.

In fact, the near-parabolic spike in stock prices is only one of the ways that Wall Street is signaling danger. According to Friday's Wall Street Journal, the S&P 500 Price/Earnings index (stock valuations) on Friday (December 5) has shot up to 19.54. This is far above the historical average of 14, indicating that the stock market is in a huge bubble that could burst at any time.

On October 16, I warned that wild stock market swings, which are similar to the wild swings that occurred in October 1929, were particularly dangerous, because the next wild swing could be sharply downward by hundreds of points.

Now the Bank of International Settlements (BIS) is confirming this view in its quarterly report:

"These abrupt market movements (in October) were even more pronounced than similar developments in August, when a sudden correction in global financial markets was quickly succeeded by renewed buoyant market conditions.
This suggests that more than a quantum of fragility underlies the current elevated mood in financial markets. Global equity markets plummeted in early August and mid-October. Mid-October's extreme intra-day price movements underscore how sensitive markets have become to even small surprises."

The BIS pointed out that the US dollar has been strengthening significantly in recent weeks against the euro, the yen, and other emerging market currencies. This is happening because the Federal Reserve is cutting back on quantitative easing ("printing money"), at the same time that the European Central Bank (ECB) and the Bank of Japan (BOJ) have been significantly increasing their quantitative easing programs. On Friday, there was an unemployment report of a larger-than-expected rise in U.S. jobs in November, and this sent the dollar to multi-year highs against the yen and euro.

Many companies in emerging economies have been going increasingly into debt, just as American companies did in the mid-2000s, leading to the financial crisis. However, many of the emerging market company debts are denominated in dollars, and so a significant strengthening of the dollar means, in effect, that the amount owed is growing substantially, relative to the country's own currency. This could force these businesses into bankruptcy, creating a chain reaction of further bankruptcies. Also, it could force many hedge funds and businesses to liquidate their assets, such as stocks and bonds, in order to pay their debts, causing a chain reaction of asset sales, causing a stock market plunge.

According to one currency analyst, Kit Juckes at Sociéte Générale, this could have an effect as early as Monday morning:

"It's the warning that the rising dollar could bring more (emerging markets) trouble in its wake - as it did in the 1990s - that is going to challenge FX [foreign exchange] markets tomorrow [Monday] morning while we're all thinking about what the U.S. non-farm payroll data mean for Fed rate hike timing."

Reuters and AFP and Bank of International Settlements (BIS)

(Comments: For reader comments, questions and discussion, see the 8-Dec-14 World View -- Bank of International Settlements warns of 'fragile' and 'sensitive' markets thread of the Generational Dynamics forum. Comments may be posted anonymously.) (8-Dec-2014) Permanent Link
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Generational Dynamics Web Log for 8-Dec-2014 8-Dec-14 World View -- Bank of International Settlements warns of 'fragile' and 'sensitive' markets

Israel's warplanes strike Syria, in areas near Damascus

Egypt continues building buffer zone on Sinai border with Gaza

Bank of International Settlements warns of 'fragile' and 'sensitive' markets

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Generational Dynamics Web Log for 8-Dec-2014
8-Dec-14 World View -- Bank of International Settlements warns of 'fragile' and 'sensitive' markets