Saturday, September 21, 2019

Saudi Arabia, Iran and Repo Fundig freeze.

A set of FB posts arranged oldest to newest.  There is a thread connnecting dots

Houthi Drone/Missile attack on Saudi Arabia FB post on  2019/09/16

The oil and gas conditioning plant in Abqaiq is the largest of the world.
processes 6.8 million barrels of crude oil each day. More than two thirds of all Saudi oil and gas production runs through it.

it’s the single worst sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990, when Saddam Hussein invaded his neighbor. It also exceeds the loss of Iranian oil output in 1979 during the Islamic Revolution, according to data from the U.S. Department of Energy."

This attack was by a piss poor set of rebels in Yemen a 1,000km to the South. Imagine if the attack is was from the much more well armed neighbors to the East or North. Complete shutdown, the Clown Prince aint very smart.

Huge Spike in Repo Rates  FB post on  2019/09/17
Important: US Repo rates went upto 10%. Should be a few basis points above Fed Fund rates
The NY Fed has stepped in an provided funding of 75 billion and stabilized the situation. Will the Fed have to continue to do this, i.e. a QE.
The big question is what caused the spike forn 2-3% to 10%. What do some banks etc know or suspect.
Note the US Repo market is about 4 Trillion

Excerpts from a Moon of Alabama Analysis FB post on  2019/09/18

How Russian And Iran Beat Their Opponents' Strategies
Interesting Analysis. Specially in conjunction of consequences with Saudi claims of "material evidence" that Iran was responsible for Aramco bombing.

It (Russia) had developed a number of new weapons that can defeat the ballistic missile defense the U.S. installed. It also put emphasis on its own air and missile defense as well as on radar and on electronic countermeasures that are so good that a U.S. general described them as "eye-watering".
U.S. allies, who have to buy U.S. weapons, have followed a similar defense investment strategy as the U.S. itself. They bought weapon systems that are most useful for wars of aggression but did not invest in defensive weapon systems that are needed when their enemies prove capable of hitting back.
That is the reason why Saudi Arabia has more than 350 modern fighter planes but only relatively few medium and long range air defense systems that date back to the 1970s.

Saudi Arabia does not have short range air defenses against drones and cruise missiles because the U.S. does not have such systems. It also does not have sophisticated electronic countermeasures because the U.S. can not provide any decent ones.

Note: Saudis spend the third largest amount on defense (67 billion) after US (649 bn) and China (250 bn). Most of Saudi defense spending are purchases from the US.

Drone/Missile attack on Saudi and Boeing 737:  FB post on 2019/09/10

The Saudis have evidence the Drones/Missiles were of Iranian Origin*. The Saudis claim it is an act of war by Iran.
The Trump/US has two loose loose choices
a) Go to war with Iran and see Oil spike to over USD 100/barrel and huge destabilization of mid east
b) Avoid war and more sanctions. That is sure to make the Saudis think many times before they buy arms from the US. Who knows they may even pivot to Russia and buy S-400's. Many other countries will also think twice in buying multi billion dollar US weapons. India and Turkey have already pivoted to Russia.

‘Made in Iran’ is not ‘launched by Iran’. What about arms made in US/UK etc.

This whole failure of defensive aspect of US weapons has parallels to the Boeing 737 MAX fiasco. It was blamed on foreign pilots, and no culpability of Boeing's slip shod systems (The NY Times feature on 2019/09/18 is a good example)
Well folks, 90% of Boeing aircraft sales are to foreign countries. All have either put their purchases on hold or cancelled.
The FAA reputation has also taken a hit. Countries/Companies are going to wait for alternate sign off by Aviation Authorities of other countries.

IRGC, Major General Hossein Salami FB post on 2019/09/22

Irans Islamic Revolutionary Guard Corps (IRGC), Major General Hossein Salami
"Be careful, a limited aggression will not remain limited. We will pursue any aggressor."
Bush, Obama/Hillary had the easy pickings. Iraq/Afganistan and Libya.
US/Trump is now left to deal with North Korea and Iran.
Iran keeps on pushing up the ante.

I feel sorry for Trump who contested on an anti war platform. How will he get out of this box. A real big man will make peace. Is Trump big enough or will his advisors push him to war.


Back to the Repo and SOFR rates.  FB post on 2019/09/22                             
To quote
"Richard Dzina, said that the New York Fed is examining "why banks with excess cash failed to lend to the overnight money market, following a week that revealed cracks in the US’s financial plumbing."

Are the banks seeing a possibility of loose loose situation and hoarding cash.
a) The US gets involved in a Saudi/Iran/Israel war
b) Even worse if the US does not step up to plate and attack Iran in support of the Saudis.
       i) The Saudis start pivoting to Russia like I said previously
        ii) Even much worse the Saudis decide the nuclear option against the US. Start selling oil in any currency or gold. The petrodollar ends, i.e. the necessity to buy USD to buy oil.
For those who dont know every single USD has to go thru a US bank and subject to inspection.

Tulsi Gabbard  FB post on 2019/09/22
And it’s a huge disgrace to hear our commander-in-chief basically put us in a position —the American people, our men and women in uniform, our military assets — in a position where we are servants of the Saudi kingdom. Standing by and awaiting their orders on how we should proceed.”

Specifically she had criticized the president's early remarks following the twin attacks on Saudi Aramco facilities last week, where Trump tweeted he's "waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!".

Fox (which prior to 2017 had a significant chunk of its parent company 21st Century Fox owned by Saudi investors) consistently toeing the Saudi line on everything from Syria to Yemen to Iran.

I didnt know that, i.e. Fox had significant Saudi investment itself. That is a story in itself, see comments. This is why I read ZeroHedge)

Prince Alwaleed Bin Talal owned 1.5 billion of Fox shares, approx 5% with voting rights.

Prince Alwaleed was "detained" at the Ritz Carlton in Riyadh, Saudi Arabia in Nov 2017. It was during that time period that he sold all his shares in Fox.

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