As in "Mauled by The Bear", and I ain't talking economics. Try Russia.
While this weekend was light on economic news, it sure wasn't in the Geopolitical file drawer.
Georgia and South Ossetia had a dust-up that turned into something just a hair short of full-on war.
The importance of this cannot be overstated; among other things the oil and gas pipeline that goes through Georgia is the only path for oil in that region of the world that does not go through Russia and thus isn't under Russian control.
And Russia, this weekend, make quite clear that they're interested in what we call "regime change" in Georgia.
The backdrop on this is pretty nasty. South Ossetia is internationally-recognized as part of Georgia. Russia has, for years, been issuing Russian passports to the entire population of South Ossetia, and the people there would "prefer" to identify with Russia, mostly because they share ethnic ties with North Ossetia, which is Russian.
The South Ossetians have a significant component of their population that is unhappy enough with being "Georgian" to intermittently lob shells southbound. Last week late the Georgian government got tired of it and decided to step on the malfactors, which instantly ignited both a ground and air assault from both sides, with Russia chipping in for the South Ossetians.
Energy, as I have noted before in this blog and over at Musings, is likely to be the next major cause of conflict between global powers. Here lies "Exhibit A".
So long as this remains contained to Georgia, and does not result in Russia gaining control of the pipeline, it is of little consequence in the grand scheme of things.
If, however, either of those tests fails - if Ukraine, for examine, decides to enter the dust-up or if Georgia proper were to fall to Russia, then things suddenly get a lot more interesting, and not in a good way.
Consider the possibilities if the entirety of Eastern Europe's oil and gas supply is under Russian control. Remember folks that Russia has cut off pipeline feeds into Eastern Europe in the not-so-distant past.
The FDIC is going to need more cash; under the law they will be forced to go back to their member banks and raise insurance premiums. The problem with the insurance system is of course that when you have some "bad actors" like IndyMac the good folks get to pay for it, as the bad ones are dead. Not too cool, but this is what we get with the system we have designed and permitted.
Why is this bad? Go look at the weakest banks and you will find them as the ones paying outsize-returns on CDs. Must be nice to be able to attract people into a sinking ship without a risk of the people getting on drowning, as you get to bill your failure to the sound.
Next up is the dollar; it has been rocketing higher. Huh? I've been warning people that the "short bucky" trade is both overdone and predicated on the rest of the world being ok while we go bowl-swirling; in point of fact my thesis has been, since this started, "we're screwed and the rest of the world is screwed worse!"
This is a good place for the buck, as people do their damnedest to acquire dollars to pay down debt they can retire.
The ugly-stick in this is that we are now in a world of negative real interest rates; that is, you're being paid to borrow again when measured against price inflation.
This is not a good situation in that it is a raw attempt to force another bubble to form "somewhere"; it is incapable of working, however, because there is an insufficient unencumbered asset base available to fuel it compared to housing, but it can and will fuel speculative froth as the "free" money goes looking for a way to "win" and those with hard, desirable assets flip between believing in a "hyperinflationary" future (which IMHO is a horsecrap) and the reality of deflating asset prices.
The problem with the hyperinflationary scenario is that in a world where money is fungible with credit and most of what's being spent is in fact credit due to the credit bubble you need to find an asset base that can "secure" further borrowing.
We seem to be out of those, never mind that banks really dislike the idea of having their $300,000 loaned out to buy a house turn into a loaf of bread.
Oh, the mainstream media is all over the Bear Stearns "bankruptcy PUT" plays now. But is anyone asking the real question implied by the following paragraph?
"That night, Schwartz got a call from Treasury Secretary Henry Paulson making it clear that the Bear Stearns had until Sunday evening to find a buyer because the Fed planned to withdraw its financial backing. Paulson, who didn't want the government to appear to be bailing out a Wall Street firm, then brokered the sale to JPMorgan."
Hmmmm..... Schwartz wouldn't be the one who leaked that, would he? It would make no sense to leak the information that your own firm is about to go "boom" due to what amounts to a bombing run by your competitors (one of whom just happens to sit on the board of the NY Fed.)
So exactly who did leak that information into the market where it could be traded on - that The Fed intended to withdraw funding that they had put in place just a few days before?
We have the folks at The Fed, including the board of the NY Fed which brokered the original line, and every one of them, along with Paulson, should be under subpoena right now.
All phone calls, all emails, everything.
I smell smoke.
Oh, and by the way if you're wondering why people would be so brazen as to trade on such a thing with PUTs that are that far out of the money with a week until they expire, you need only look at the willful blindness of the SEC with regards to the crazy "Buffet buys the world" rumors that had been run for the express purpose of pumping stocks in various sectors over the preceding six months.
Not one indictment or investigation had issued over these rumors, and to date, there still hasn't been one.
When the cops sit back and eat donuts while the robbers hold up banks, is it any surprise that the robberies get more brazen over time?
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