Monday, July 20, 2015

The Iran Deal

I wanted to give the announcement of the nuclear arms control deal between Iran and the P5+1 a few days to circulate, watch the outrage machine kick into high gear, watch my facebook news feed get bombed by all manner of memes denouncing the deal, and give all the other by now tediously predictable opinion-massage techniques time work their way through the system.

Let's take a step through what the deal is - and is not - and see where that leaves us. A lot of the arguments against the deal can be found in this National Review article and many others like it. 

The Deal
Some of the claims about this deal somehow guaranteeing Iran will somehow be poised to immediately deploy nuclear weapons at the end of 8 years or 10 years look to be more talk than actual substance. The deal allows full and intrusive monitoring at the known nuclear sites, everything from mining to centrifuges. Centrifuges are limited and reduced dramatically in this deal.

The activities at Fordow, the place I would have most concern over, are dramatically reduced. Yes, the Iranians can continue centrifuge studies - but they can't use uranium in them. That is a big deal. Yes, the Iranian negotiators can go home and brag that they brought home the ability to work on centrifuge tech (under our watchful eye), but they don't mention, no uranium. They can only work with stable isotopes. Enriching stable isotopes is useful some niche manufacturing work and in the realm of medical isotope irradiations. There are a lot, and I mean a lot, of things you have to get very right in order to enrich uranium (the form you use for enrichment, uranium hexafluoride, is incredibly toxic and must be kept a high temperatures). Limiting uranium enrichment studies to the older centrifuges at Natanz is probably the best compromise that could have been reached short of war since, technically, it is not illegal to enrich uranium up to the 20% mark (that is, raise the level of U-235 from 0.7% to 19.9% - the U-235 isotope is the one that matters in this case).

The Iranians are required to downblend the material they had enriched up towards 20%, which again is a big deal in my mind as this limits a "breakout" or "sneakout" towards having fissile material in enough quantities to be of concern before we'd figure it out and bomb them.

I read the agreement to state that if Iran is found to violate key parts of the enrichment limitations then there is an automatic path back to the UN Security Council that re-imposes sanctions without a vote, which means Russia or China can't block future efforts to clamp them back down. It says something like "any participant" can raise issues with the oversight commission governing this agreement. The clock starts and within 30 days the UN Security Council can either do something (like impose sanctions) or if they do nothing, the sanctions are automatically re-imposed. That appears to me as a huge win. 

What the Deal Does not Do
No, the deal does not allow the IAEA or the US to swoop in on any military base anywhere in Iran unannounced for inspections. That is quite true. This is a bargain to ease sanctions in return for more inspections and insight into the Iranian nuclear program, which means also more chances to catch covert work should there be any. This actually seems like a case where sanctions worked - we imposed hardship on them and they responded by policy changes.

What I think is being conflated by those who really oppose this plan is that it does little or nothing to ease geopolitical tensions in the region. That is true. This really is a nuclear non-proliferation treaty - not a regional peace treaty. This is much more akin to what Reagan accomplished with the USSR in the 1980's in terms of arms limitations and setting out methods for two states that don't trust each other. We got nuclear arms limitations out of the Rekjavik conference, but Reagan also continued to fund the mujahadin against the Soviets in Afghanistan (you know, back when Bagram Air Force base was the center of evil occupation, not a critical node supporting a military partnership). That's how I look at it, at least.

Now, I totally understand the hesitation over the sunset clauses, but it is not like we'll spend the next 8 or 10 years in a vacuum. We'll still be penetrating their programs with our spies, we'll be monitoring their efforts in nuclear and other programs, and we'll see how it evolves. I don't have a better answer other than to say this was a negotiation and you don't always get everything you want.

At the end of the day, the things most of the opponents wanted - full access any time, any place - was not going to happen. Iran was not a country defeated in a major war. This is still reasonably strong regional power and negotiations never give everyone everything they want. The Iranians actually had to give up quite a bit. Not everything, but then again, they didn't have to.

The other thing I find interesting is that Iran is viewed as having almost superpowers by many commentators. The IRGC apparently can magically miracle a nuclear bomb in place (and all the vast sub-systems and other challenges needed to deploy a useful weapon), undetected, without a testing program, and also magically have militarily relevant numbers of those weapons ready to use, also undetected. This is the same nuclear program which was penetrated by Stuxnet and where Iranian scientists continue to have a nasty habit of winding up dead.

Add to that the fact that Iran and their proxies are getting their butts handed to them in Iraq and Syria by the Islamic State, yet somehow I continue to read how they are magic demon warriors and will drive across the Middle East and take Mecca, Medina, and Jerusalem if we blink our eyes for just a second. This is the same country that couldn't beat Iraq back in the 1980's, even with Oliver North selling them spare parts.

Liking it vs. What is Best Strategically

There is another interesting thing lost in the immediate flare up of antipathy towards this deal. Roll the clock back to the early 1970's and ask yourself what a Korean War vet would have thought upon seeing Nixon grinning at a reception in China? The hate would have been strong. And justified. But that deal radically changed the balance of power against the USSR and gave the United States a tremendous number of options in dealing with the Soviets for the next nearly two decades.

Not to get all John Lennon on you, but imagine, if you will, just imagine having the option to flip Iran into, if not the US sphere of influence, then let's say out of the Chinese/Russian orbit. What happens when the Islamic State gears up for the big push into Saudi Arabia, the home of the hardcore version of Islam which drives IS and where a corrupt monarchy totters on top of a population boom and stares out at declining oil revenues? Wouldn't it be nice to have the option of cutting a few more deals with Iran? Hell, the brilliant neo-con architects of the Iraq invasion bascially gifted Iraq to the Iranians. We might as well have a few more options to get at all that lovely oil...

Don't mistake my lukewarm approval of the deal to mean I like it. But sometimes what is best strategically is not all that palatable personally.

Also, I realize it is heresy to think in terms of US needs and strategic position in this region where we are supposed to have only one position - the position told to us by our ally in nuclear-armed Tel Aviv, so I'll stop here.


There are still tons of issues in this region. Yes, there are legitimate worries over things like ballistic missile tech, Iranian support of Hizbullah and Iraqi Shi'ite militias (just to try and clear it up, we don't like Hizbullah, but we are okay with the Iranian-supported militias fighting the Islamic State - got it). No, the Iranian Revolutionary Guards Corps are not nice people. Noted.

This deal does not address these issues. This was structured as a nuclear arms control deal, not a regional peace deal. On that limited score, it is actually a net win for the West, in my opinion. Yes, war is an option, I guess. The last one worked out so well, some folks might be ready to send another generation off to fight for their opinions on the matter.

Parting Shot

Oh, and one other thing. There is a great quote from Speaker of the House John Boehner talking to this deal that I must share:
“It blows my mind that the administration would agree to lift the arms and missile bans and sanctions on a general who supplied militants with weapons to kill Americans,” Mr. Boehner said.
He said this without irony. How many 9/11 bombers were Iranian? How many were Saudi?

Just checking.

Thursday, July 16, 2015

8 Unprecedented Extremes Indicate a Stock Market Bubble in Trouble

I wanted to share another set of analyses from EWI. Personally, I am not sure whether we are poised for a blow-off like the mid-1920's in the U.S. or about to jump off into the Abyss, but I have found the charts and analyses from Prechter's folks very valuable over the years. I hope you will as well.

- - -

By Elliott Wave International

This article was adapted from Robert Prechter's June 2015 Elliott Wave Theorist. For more charts and detailed commentary, analysis and forecasts from Prechter's latest issues, click here for the extended subscriber version of this report -- it's free.

It is amazing to read assertions from the Fed and others that the stock market is nowhere near being in a bubble. Several aspects of the financial environment are actually so extreme as to be unprecedented. Some indicate a bubble, and others a bubble in trouble.

Below are eight indicators we are watching closely, among others.

1) Record debt in U.S. dollars

Total dollar-denominated debt peaked at $52.7 trillion in early 2009. At the end of Q1 2015, it stands at $59 trillion, an unprecedented amount.

2) Margin Debt at All-Time Highs

Never have more trading-account owners owed so much money, and never have they had such a low level of available funds from which further to draw.

3) Stocks Are Overvalued (based on dividend yields)

The Dow's annual dividend payout has been less than 3% for 235 out of the past 246 months. Prior to the bull market that started in 1982, the longest duration under 3% was just one month, at the top in 1929.

4) Fund Managers Are Maxed Out

The percentage of cash in mutual funds has been below 4% for all but one of the past 70 months (a period of nearly six years). Prior to this time, the longest such duration was only nine months, a streak that ended in October 2007.

5) Stocks are at a Triple Extreme

Previous triple manias occurred in 1901/1906/1909 and 1965/1968/1972, and both led to severe bear markets. This one is even bigger and has lasted longer.

6) Stocks Rose on Low Volume for Six Straight Years

Such a thing has never occurred before -- one year, maybe, but not six.

7) Unprecedented Divergence Among Major Indexes

On May 20, we published an interim issue of The Elliott Wave Theorist to tell subscribers:

Today something amazing happened: The Dow Transports closed at a 6-month low on the same day that the S&P 500 made an all-time intraday high. I doubt this has ever happened before.

The Dow Theory non-confirmation between the Dow Industrials and Transports is now [more than] six months old. This big a divergence, for this long a time, is very bearish.

8) Advisor Bearishness at 38-Year Low (optimism near record high)

The 30-week moving average of the percentage of bears among stock market advisors is at a 38-year low. (Investors Intelligence data is inverted to show optimism.)

This article was adapted from Robert Prechter's June 2015 Elliott Wave Theorist. For more charts and detailed commentary, analysis and forecasts from Prechter's latest issues, click here for the extended subscriber version of this report -- it's free.

Sunday, July 5, 2015

Too Late to Prepare Now...

In light of the "No" vote in Greece this weekend, here is a video from EWI which I think might interest you. One thing to think about - what's the use of all this information if you don't take action early?


An Elliott wave perspective on the Greek crisis

By Elliott Wave International

Today, I got on the phone with Brian Whitmer, editor of our monthly European Financial Forecast.
Brian has been preparing his subscribers for the Greek crisis for a while. Listen to his latest thoughts.

Europe is in the world spotlight this month, with Greece's future hanging in the balance. But Greece is just one part of the problem. Enjoy an excerpt from Brian Whitmer from the June European Financial Forecast to see just how precarious Europe's financial situation has become.
Read Global Insight: Europe's Debt-Dependent Economy now >>

This article was syndicated by Elliott Wave International and was originally published under the headline (Interview, 5:13 min.) Greek Debt Crisis: "Too late to prepare now". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Nuclear Strike of the Month (July 2015)

NUKEMAP simulation of a 500 kT air burst over Terminal Island

Note on the Nuclear Strike of the Month Series: In this series I want to illustrate various ways attacks using nuclear weapons can play out.  I will be using Dr. Alex Wellerstein's online NUKEMAP tool to generate the estimates of the blast and follow-on effects and we'll be turning to concepts found in Nuclear Emergencies to help evaluate consequences.

My rationale is to show a wide range of nuclear attack scenarios short of all-out thermonuclear war. The idea is to give readers a feel for the destructive power of nuclear weapons, provide scenarios as thought experiments for your own planning, and to discuss what nuclear weapons can and (sometimes more importantly) what nuclear weapons can't do.

For a variety of reasons, it is my opinion we will see nuclear weapons used in warfare sometime between now and 2030. We might as well brush up on the basics. 

Nuclear Strike of the Month: Port of Los Angeles

For this scenario, we look to the Port of Los Angeles, the busiest port (by volume) in the United States. Here we will red team an attack by a nuclear weapons state in the context of a limited nuclear war.

The Scenario
The Great Eurasian War had started off badly for the U.S. and her allies. While the collapse of Ukraine, the ugly civil wars in the Baltic States, the flipping of key European allies to the Russian camp, and the three-way slaughter which had kicked off between the Islamic State, Saudi Arabia, and the joint Iranian-Iraqi expeditionary forces was bad, it was the initial blows the U.S. Navy took in the Pacific which had led to the largest housecleaning at the Pentagon ever seen. The waves of Chinese anti-ship missiles which struck the carrier group led by the USS George Washington and sent her, along with half of her support ships, to the bottom of the South China Sea, were the great wake-up call which led to the famous series of Congressional hearings, anti-corruption trials, and the sanctioning and brief nationalizations of most U.S. based defense contractors.

While China scored several early naval successes, final victory was still out of reach in her attempt to eject the U.S. as the primary hegemon in the Pacific. Having antagonized Vietnam, Taiwan, the Philippines, Japan, and South Korea with her moves in the South China Sea, she was ringed with small but highly motivated and increasingly capable adversaries. But, it was the utter collapse of the North Korean armed forces which set the wheels in motion for the destruction of the Port of Los Angeles.

North Korea had moved on the offensive in support of China and Russia in the opening days of the Asia theater. The initial bombardment and waves of North Korean attackers had stalled in heavy urban fighting in and around Seoul, which went on for weeks, then months. The counterattack by the South Korean Army, supported by U.S. (and, clandestinely, Japanese) air power, had shattered the assault. Coupled with mass defections and a series of coup attempts in Pyongyang, the campaign which China had hoped to use to keep Japan and South Korea distracted with had become a debacle. South Korea had not yet immediately rushed forces north, recalling the various campaigns of the first Korean War and what had happened when the UN forces had headed towards the Yalu River.

China then made the fateful step to deploy a series of non-nuclear EMP devices over Tokyo, Yokohama, Seoul, Busan, Gwangju, Taipei, Manila, and Ho Chi Minh City, causing considerable damage to the electronic infrastructure of those cities and plunging much of their command and control into short-term chaos.

The fear of nuclear war had haunted the wide ranging series of wars which had erupted across Eurasia, but so far the horrors of a nuclear strike had been averted. However, this series of EMP bursts, on the heels of the new Green-led government in Germany pulling out of NATO and calling for a separate peace with Russia, the U.S. President, under intense pressure from Congress to "do something" after having "lost" Germany, declared the EMP attacks as crossing a red line. One week later, a large Chinese flotilla off the coast of beleaguered Taiwan had been blasted by three nuclear airbursts over the Taiwan Strait, sending 80% of the fleet to ocean floor.

Radiation, Fireball, and Blast effects of a 500 kT shot over the Port of Los Angeles

The Attack

Two days later, a Chinese diesel sub, which had somehow escaped detection, surfaced three hundred miles west of Los Angeles and launched two ICBMs. One of the rockets failed on launch. The other streaked towards LA, detonating high over Terminal Island with the force of 500 kilotons.

The blast was optimized to do maximum physical damage. The shock wave and fireball turned the Port into an apocalyptic landscape of twisted metal, destroyed rail lines, a mish-mash of cranes twisted into heaps on the ground, all illuminated by fires and explosions as the goods crammed into the standard containers, bound for Asian allies or headed into the U.S., turned to ash and smoke.

Most of the people shook from their beds in the LA basin thought a massive earthquake had finally hit LA. Stumbling to their windows or front doors, they instead saw a massive mushroom cloud rising in the west. Wilmington and San Pedro were flattened. Rolling Hills, Lomita, Long Beach, and Carson were a firestorm. Terminal Island itself was a smoking crater.

The Aftermath
Hundreds of thousands of casualties quickly overwhelmed emergency responders. Support from the military was initially slow in coming as well, as the West Coast worried about another wave of attacks. 

That said, the years of improving construction standards and a network of fire departments well trained in working collapsed structures meant thousands were saved who might have otherwise died.

The port itself was obliterated and the Port of Long Beach heavily damaged. The infrastructure feeding the ports, the warehouses, the fuel depots - everything was either burning or destroyed.

The knock-on effects for exports and imports would trickle across the continent. Businesses reliant on "Just in Time Inventory" strategies, LEAN manufacturing, and other metastatic growths of the long-gone positive mood era quickly went dark as components were either delayed or destroyed as a result of this attack.

The various wonks at the Defense Department were actually surprised it was only a 500 kT shot and that it had been timed early in the day. The standard Chinese ICBM was the Dong Fen, with a nominal rating of 5 MT. Was this attack with only 10% of that yield a sign of restraint? And why hit at dawn when such an attack could have used the rush traffic as a force multiplier for the chaos which followed in its wake? Or had the warhead failed to operate at its full capacity and the timing was irrelevant? And what about the second missile which had failed on launch? Was it insurance? Had it targeted the Port of Long Beach?

The first interpretation might allow the parties a chance to step back and reconsider the further use of these weapons. If the other interpretation prevailed in the Pentagon, then the war was about to take an even uglier turn.

Thoughts and Plans
This blast is representative of a large nuclear strike, but it is far below the multi-megaton blasts which can be generated by most any nuclear power.

  • As we've seen in other installments of the nuclear strike of the month series, air bursts generally do not produce significant fallout. This does not mean there won't be many casualties from radiation exposure from the blast, but that it will be a minor component compared to the shock wave and fire ball.
  • Look into the rail networks and other infrastructure destroyed by such an attack. While an agent of massive destruction, nuclear weapons are also agents of disruption for modern economies, especially ones reliant on the rapid movement of trade goods.
  • As we've done previously, zoom out from this attack. Put this into scale and perspective. Think about how nuclear weapons are portrayed in non-technical literature and what you see here.
  • If you live in the LA basin, would your emergency preparations be useful in this scenario? Do you have water? Food? Cash? Imagine the transportation nightmare for people trying to get out of the area. Sheltering in place would probably be your best option - would you be able to?

Clown Show Disclaimer

Due to the subject matter of this post, it will be necessary to provide the following disclaimer. Blog posts like this tend to bring out comment trolls ready to gin up the Clown Show of name-calling, knee-jerk willful misinterpretation, and angry discourse generating much sound and fury, but which in the end, signifies nothing. Such comments will be deleted. 

I am not promoting nuclear war. I am not attempting to wish such an attack upon any population anywhere.  I am attempting to provide a plausible scenario which might lead to the use of nuclear weapons. My expectation is that you will use this scenario to war game whatever plans you may be putting into place to deal with this new era we find ourselves in and see if you are as ready as you hope.