Mish's Global Economic Trend Analysis

Holier than Thou: Why Should Anyone Believe the US, Ukraine, or Russia? What is the US Attempting to Hide?
Email from Ukraine Portfolio Manager; Obama Idiocies and Ironies
War & Markets: Less Growth, Less Certainty, More Geopolitical Risk

Holier than Thou: Why Should Anyone Believe the US, Ukraine, or Russia? What is the US Attempting to Hide?

Posted: 21 Jul 2014 07:51 PM PDT

I am quite tired of rhetoric from the Obama administration and Kiev regarding the situation in Ukraine. Hardly any of it is believable.

Indeed, some Ukraine propaganda efforts of Kiev are so amateurish they appear as sloppy acts of desperate coverups.

If so, then it is far more likely Ukraine is the guilty party, not the separatists. If you are innocent, you do not choose such tactics.

What is the US and Kiev Attempting to Hide?

Earlier today, Obama Issued a Stern Warning to Russia coupled with a statement "What exactly are they trying to hide?"

That's a good question. But let me turn the tables by asking: "What exactly is the US and Kiev attempting to hide?"

Challenge From Russia

Please consider Russia Challenges Accusations that Ukraine Rebels Shot Down Airliner.

Russia's Defence Ministry on Monday challenged accusations pro-Russian rebels were to blame for shooting down a Malaysian airliner and asked the United States to produce satellite images to support its assertions.

At a briefing in which generals used flashing radar images on big screens in a state-of-the-art conference room, the ministry said a Ukrainian fighter jet had tracked the airliner despite Kiev's assertions that no aircraft were nearby.

The hi-tech presentation appeared a direct response to video and audio recordings used by Ukrainian security officials to back up their accusations of Russian and rebel involvement - recordings the ministry's comments suggested were fabricated.

"Russian air space control systems detected a Ukrainian Air Force plane, presumably an SU-25 (fighter jet), scrambling in the direction of the Malaysian Boeing ... The distance of the SU-25 plane from the Boeing was from 3 to 5 kilometres (2 to 3 miles)," Air Force Lieutenant-General Igor Makushev said.

"Earlier, Ukrainian officials said that on the day of the Boeing 777 crash there were no military aircraft in the region - as you can see this does not appear to be true."

Another officer, Lieutenant-General Andrei Kartopolov, said that, "whether it is a coincidence or not", a U.S. satellite had been monitoring the area at the time.

"We also have some questions for our U.S. partners," he said. "According to the U.S. declarations, they have satellite images that confirm the missile was launched by the rebels. But nobody has seen these images." "If the American side has pictures from this satellite, then they should show the international community."

US Covering Up For Kiev?

I highly doubt that Russia would make those claims unless they could back them up.

Even if so, that does not prove who fired the missile. Yet assuming the presentation is accurate, it does show Kiev lied big time. It also suggests the US is covering up for Kiev.

Given enough time, I suspect the US can doctor those satellite images to show something that isn't there or in this case, remove something that is. Time in this regard is already up.

10 Questions

As I peruse 10 Question for Kiev a number of questions stand out as reasonable requests (assuming of course Kiev has nothing to hide):

2. Can official Kiev give all details related to the use of Buk systems in the combat zone, and especially answer why these systems were deployed, given that the militias have no aircraft?

4. Are representatives of the Ukrainian Armed Forces prepared to submit to international experts documentation on the inventory of air-to-air and surface-to-air missiles installed on their anti-aircraft weapons?

5. Will air control data be provided to the international commission on the movements of Ukrainian Air Force planes on the day of the tragedy?

8. Can official Kiev comment at this time on the report that appeared in social media, allegedly from a Spanish-national air traffic controller working in Ukraine, that the Boeing that was shot down was under escort by two Ukrainian military aircraft?

9. Why has the SBU begun to work with the recordings of communications between air traffic control and the Boeing crew and with Ukrainian radar data, without the involvement of international representatives?

Russia Says Has Photos Of Ukraine Deploying BUK Missiles

Please consider the excellent post by ZeroHedge Russia Says Has Photos of Ukraine Deploying BUK Missiles in East, Radar Proof of Warplanes in MH17 Vicinity

The day the Malaysian airliner crashed, the Ukrainian forces deployed an air defense group of three or four Buk-M1 missile batteries near Donetsk, Lt. Gen. Andrei Kartapolov, head of the Russian General Staff's Main Operations Department, told reporters on Monday.

"These surface-to-air systems are capable of hitting targets at a distance of up to 35 kilometers at an altitude of 22 kilometers. For what purpose and against whom were these missile systems deployed? As is known, the militia has no aviation," he said.

"A Ukraine Air Force military jet was detected gaining height, it's distance from the Malaysian Boeing was 3 to 5km," said the head of the Main Operations Directorate of the HQ of Russia's military forces, Lieutenant-General Andrey Kartopolov speaking at a media conference in Moscow on Monday.

"[We] would like to get an explanation as to why the military jet was flying along a civil aviation corridor at almost the same time and at the same level as a passenger plane," he stated.

Additionally, as Russia noted using what appears to be legitimate photographic evidence (something the west has so far failed to provide in any capacity) MH17 crashed within the operating zone of the Ukrainian army's self-propelled, medium-range surface-to-air 'Buk' missile systems, the Russian general said.

"We have space images of certain places where the Ukraine's air defense was located in the southeast of the country," Kartapolov noted.

The first three shots that were shown by the general are dated July 14. The images show Buk missile launch systems in about 8km northwest of the city of Lugansk – a TELAR and two TELs, according to the military official.

InfoWars

While the US and Kiev demand much from Russia, both fails to answer any questions leveled at them.

Earlier today Alex Jones on InfoWars offered this reminder: U.S. Plotted to Provoke Shoot Down of Airliner to Create Pretext for War

For those of you who may discriminate against the source, here are some of the examples the article mentions, except with links to Wikipedia and other sources.

US Shoots Down Iran Passenger Flight 655

Iran Air Flight 665

Iran Air Flight 655 was an Iran Air civilian passenger flight from Tehran to Dubai that was shot down by the United States Navy guided missile cruiser USS Vincennes on 3 July 1988. The accident took place in Iranian airspace, over Iran's territorial waters in the Persian Gulf, and on the flight's usual flight path. The aircraft, an Airbus A300 B2-203, was destroyed by SM-2MR surface-to-air missiles fired from the Vincennes.

All 290 on board, including 66 children and 16 crew, died. In 1996, the United States and Iran reached "an agreement in full and final settlement of all disputes, differences, claims, counterclaims" relating to the incident at the International Court of Justice.

Contrary to the accounts of various USS Vincennes crewmembers, the Vincennes' shipboard Aegis Combat System recorded that the Iranian airliner was climbing at the time and its radio transmitter was "squawking" on the Mode III civilian code only, rather than on military Mode II. The Vincennes tried unsuccessfully to contact the approaching aircraft, seven times on the military emergency frequency and three times on the civilian emergency frequency, but never on air traffic control frequencies. This civilian aircraft was not equipped to pick up military frequencies and the messages on the civilian emergency channel could have been directed at any aircraft.

When questioned in a 2000 BBC documentary, the U.S. government stated in a written answer that they believed the incident may have been caused by a simultaneous psychological condition amongst the 18 bridge crew of the Vincennes called 'scenario fulfillment', which is said to occur when persons are under pressure. In such a situation, the men will carry out a training scenario, believing it to be reality while ignoring sensory information that contradicts the scenario. In the case of this incident, the scenario was an attack by a lone military aircraft.

George H. W. Bush, the vice president of the United States at the time commented on the incident during a presidential campaign function (2 Aug 1988): "I will never apologize for the United States — I don't care what the facts are... I'm not an apologize-for-America kind of guy."

If the US can't and won't apologize for the downing of a passenger airplane, why should Russia, when it was not even directly involved in the incident?

Bush 'Plotted to Lure Saddam into War with Fake UN Plane'

Please consider The Independent report Bush 'Plotted to Lure Saddam into War with Fake UN Plane'.

George Bush considered provoking a war with Saddam Hussein's regime by flying a United States spyplane over Iraq bearing UN colours, enticing the Iraqis to take a shot at it, according to a leaked memo of a meeting between the US President and Tony Blair.

The two leaders were worried by the lack of hard evidence that Saddam Hussein had broken UN resolutions, though privately they were convinced that he had. According to the memorandum, Mr Bush said: "The US was thinking of flying U2 reconnaissance aircraft with fighter cover over Iraq, painted in UN colours. If Saddam fired on them, he would be in breach."

The memo damningly suggests the decision to invade Iraq had already been made when Mr Blair and the US President met in Washington on 31 January 2003 when the British Government was still working on obtaining a second UN resolution to legitimise the conflict.

The leaked memo shows precisely what war-mongering liars were leading the US and UK at the time.

Operations Northwoods

Finally, please consider the Wikipedia report on Operation Northwoods.

Operation Northwoods was a series of proposals that originated within the Department of Defense (DoD) and the Joint Chiefs of Staff (JCS) of the United States government in 1962. The proposals, which called for the Central Intelligence Agency (CIA), or other operatives, to commit acts of terrorism in US cities and elsewhere, were rejected by the Kennedy administration.

At the time of the proposal, Cuba had recently become communist under Fidel Castro. The operation proposed creating public support for a war against Cuba by blaming it for terrorist acts.

To this end, Operation Northwoods proposals recommended hijackings and bombings followed by the introduction of phony evidence that would implicate the Cuban government. It stated:

The desired resultant from the execution of this plan would be to place the United States in the apparent position of suffering defensible grievances from a rash and irresponsible government of Cuba and to develop an international image of a Cuban threat to peace in the Western Hemisphere.

Although part of the US government's anti-communist Cuban Project, Operation Northwoods was never officially accepted; it was authorized by the Joint Chiefs of Staff, but then rejected by President John F. Kennedy.

These are the kinds of jackasses in US government. And we are now supposed to believe President Obama and Ukraine president Petro Poroshenko? Please be serious.

By the way, this is not an endorsement for Putin. I am quite sure he can lie just like Obama, Bush, and Poroshenko. Yet, given all the eyes on the data, I highly doubt Russia would make the claims it did unless it could back them up.

Meanwhile, Kiev has made charges, backed up by tampered and easily disproved videos. And the US has offered no direct evidence of any kind, most likely because it cannot.

If and when US does produce a document, so much time has passed it will it will be highly suspect. If the US had strong evidence, rest assured it would have been released long ago.

Anything released now is likely tampered with.

Reflections on Apologies

Apologies are not a sign of weakness, but rather a sign of strength. The US could have and should have apologized to the victims of downed passenger flight 655. If the US cannot apologize, it should not expect any other country to do so.

Hopefully the black boxes released to Malaysia earlier today will provide more evidence, but don't count on it. Instead count on more lies from all involved.

"Lie When It's Serious"

Please remember what Jean-Claude Juncker said in 2011: "When it becomes serious, you have to lie". Juncker is former Luxembourg PM and president-elect of European Commission.

Scenario Fulfillment

This is certainly pretty serious. Given that Russia has produced more credible evidence than any other country, and given Ukraine has been caught in some very clumsy lies, I am sticking with my assessment that Kiev is responsible, possibly in an act of 'scenario fulfillment'.

If so, the US is purposely aiding Kiev in the coverup. Facts show the US is capable of far worse than lies.

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

Email from Ukraine Portfolio Manager; Obama Idiocies and Ironies

Posted: 21 Jul 2014 02:03 PM PDT

President Obama came out swinging today and issued a Stern Warning to Russia on Isolation in response to the crash of MH17.

Barack Obama has warned Russia it risks further international isolation if it does not intervene directly with the pro-Russian separatist rebels to "compel them to co-operate" with the investigation into the crash of MH17.

He questioned why the rebels would want to prevent international observers and investigators access to the crash site. "What exactly are they trying to hide?"

He said his Russian counterpart, Vladimir Putin, had "direct responsibility" for the actions of the armed men on the ground.

"Russia has extraordinary influence over these separatists," he said. "No one denies that. Russia has urged them on, Russia has trained them, we know that Russia has armed them with military equipment and weapons including anti-aircraft weapons."

"Compel Rebels to Co-operate"

The US cannot control its own border with Mexico, in peacetime. Yet, Obama expects Russia to not only control its border with Ukraine, but to also control rebels outside Russia. That's ridiculous.

To top it off, Putin offered to let Ukraine monitor border checkpoints from the Russian side, but Ukraine turned down the chance.

"Russia has extraordinary influence over these separatists. No one denies that," stated Obama.

That too is ludicrous. Russia denies that claim. And any one with any bit of common sense can detect Obama's statement as blatant self-serving propaganda.

Email from Ukraine Portfolio Manager

Ilya Porkalov, a Ukraine pottfolio manager writes:

This allegation about the billboard has already been disproved. You just can not see the address on the billboard no matter how hard you try. And that network of car dealers can be found in many cities. How stupid it would be for Ukraine to make stuff up (like this video, or the phone recordings) when all secret services of the world will be watching and checking this, and with a single fake all credibility would be lost?

This is a clip of the original video posted by Ukrainian interior ministry.

Government Stupidity Happens All the Time

Yep, it would be not only pretty stupid, but rather very sloppy and quite stupid. Yet, that is exactly what I believe happened. I give a detailed explanation in just a bit. First here is a bit on Ukraine media reporting.

Ilya asked me to read website http://en.censor.net.ua/ stating "This one is a bit biased to pro Ukrainian side, but at least they don't make up news like all Russian media."

He also asked me to look at several other websites including http://www.stopfake.org/.

StopFake is a Russian activist site. They're trying to disprove many of the Russian propaganda stories, you post on your blog. http://www.kyivpost.com/ is an old newspaper for expats in Ukraine, it's slow but objective. Also if you don't mind using Google translate the best Ukrainian news website is considered pravda.com.ua - it's well known for high standards of journalism, although it's Ukrainian, it's definitely not propaganda. Several of their journalists have allegedly been killed by Ukrainian governments over the years.

Response to Ilya

Jacob Dreizin, a US citizen who speaks Russian and reads Ukrainian has this answer for Ilya.

1. In regards to news sites: Censor.net.ua is notorious for outrageous, bogus news. It's not taken seriously, even in Ukraine. Stopfake.org is a clown site.

Kyiv Post is OK, but it does not really have any reporters or assets out in the field. Pravda.com.ua is good. As far as I know, it is one of only three "real" news sites in Ukraine that goes beyond just repeating government press releases. I actually referred to this site once or twice in my emails to you. However, and like Kyiv Post, Pravda.com.ua does not really have any assets out in the field. So ultimately it's more like a blog.

2. As for the billboard: The sources I read did not claim to see any address on it. Instead, there are several people who know the surrounding area (the billboard, the road, houses, etc.) It just happens that the billboard raised their eyebrows and gave it away. Also, they have provided a precise street address for one of the structures in the background. (I think it was 11 Gorkii Street, Krasnoarmeisk.)

If someone wants to deny that, fine. But then, they should specify the location of the footage (e.g. what road, what town, what mile-post, what GPS coordinates, etc.)

Isn't that the minimum that a credible government would do? Just posting crap to Youtube and saying "this is a Russian Buk, this is the Russian border" is not credible. If they can't back it up with verifiable facts, then it's just a random video in some random place that is allegedly showing something. Could be anywhere.

Jacob clearly has the far better argument here. If Ukraine has an address for that video, let's see it.

It's easy to believe propaganda when it supports the side you are on.

95% of Western media articles take the side of Kiev. In his email, Ilya asked me to look at both sides, and I am doing exactly that.

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

War & Markets: Less Growth, Less Certainty, More Geopolitical Risk

Posted: 21 Jul 2014 11:11 AM PDT

Steen Jakobsen, chief economist and CIO at Saxo Bank, has an interesting article today on War & Markets which I present below as a guest post.

Steen says ...

Prepare for less growth, less certainty and more geopolitical risk
Crude oil price is simplest proxy for geopolitical risk
Wars reflect a world where growth is low and energy expensive

"There are causes worth dying for, but none worth killing for" – Albert Camus

The world is increasingly becoming engaged in civil wars and general turmoil where Camus' words could and should play a central [role] but never will. This article is one of the hardest to write as war is never about right or wrong. They are per definition always wrong and extremely personal and emotional. The fact is, however, that we need to put "the risk of wars" into our macro outlook as they are increasing not only in intensity but also in the numbers of casualties.

I will not condone anyone or any party involved in the present conflicts – I learned my hard lesson advocating the removal of Saddam Hussein, only to learn that his successors are just as bad. Therefore, Camus' words will remain my mantra.

The simplest way to "measure" geopolitical risk is to look at the price of energy. Energy is everything for a macro economist as it's a tax on the economy when high, and a discount when low. High energy consumption levels makes it a critical part of any projection but despite this, energy assumptions are often exogenous (given!).

Think about this: Everything you did this morning involved energy consumption: Waking up to your smart phone (charging overnight), putting on the coffee, pouring the cold milk from the fridge, taking a shower, driving the car to work and walking into your air-conditioned office. Likewise, the rest of your day will be one big consumption of energy. The world's energy resources are primarily extracted from "volatile" or underdeveloped regions, creating a real risk of disruption of supply. Herein lies a clear and quantifiable risk.

The way I measure this geopolitical risk is through measuring the spread between the 5th contract of WTI crude oil and the first contract. Of course, there are other factor at work, but in the absence of a better alternative, I use this War Risk Premium Indicator.

As can be seen, since July 15 the "war premium" or more neutral "disruption premium" have increased by USD 2 and the world's consumers are now paying two dollars more per barrel of WTI crude. Overall there are many factors influencing the crude market but the price of energy remains the one component we need to know is stable and preferably falling.

The overall impact from war is negative despite the glorified analysis of how World War II stopped the recession – think of the 1970s – probably a better and more relevant analogy to today's trouble in Gaza, Iraq, Russia/Ukraine, Libya, and Syria. Many will argue it's different this time, back then we were too dependent on the Middle East! Sure, but prices were only between 10 and 25 US dollars a barrel back then!

Now we have lived with an oil rise in excess of USD 100 more or less since 2007! Crude is now four times higher in price than during the "inflationist" 1970s – the era in which we ended the Bretton Woods system of monetary management and where central banks started targeting inflation instead.

No, the signal from the energy market about the demand of energy and the risk of getting enough of it is clear: Prepare for less growth, less certainty and more geopolitical risk. The market, however, maintains a steady hand: Israel will be contained inside a couple of weeks, Russia vs. Ukraine will find a solution. The non-acceptance of tail-risk (Black Swans) is clear for everyone to see. The market is "perfect" in its information, zero interest rates will save us and we have all been fooled into believing that the real world no longer matters.

Unemployment, social inequality, wars, innocents being killed, and TV images of people fighting to live another day are not relevant………except for the fact that for world growth to keep increasing we need to continue to see growth in Africa, the Middle East and Eastern Europe.

We need to accept that the world is now truly global – we smiled while globalisation reduced prices and made our companies more profit, now the escalation of wars reflect a world where growth is low, energy is expensive and increasingly hard to get and that we have gone full circle with macro and interventionist policies.

The escalation of turmoil in the world is yet to play a role for the market, but be warned: everything economic has a delayed reaction of nine to twelve month – whenever there is an action there will be a reaction. If the present state of alertness continues through the summer you can bet on higher energy prices having a serious impact on not only world growth but also on markets. But don't ever forget that the real losers are the individual families losing loves ones. No, Camus got it right. There is nothing worth killing for, plenty to fight for.

Mish Comments

The above in entirety courtesy of Steen Jakobsen.

I would not go so far as to say the "risk premium" has risen $2 since July 15. There are too many variables and even random fluctuations that could be at play. If oil would have otherwise been falling because of slowing in China, the risk premium could be way higher. Similarly, oil could be rising for other reasons and the risk premium could be zero or negative although I consider that unlikely.

That said, Steen is generally on the mark with his observations especially his conclusion: "If the present state of alertness continues through the summer you can bet on higher energy prices having a serious impact on not only world growth but also on markets. But don't ever forget that the real losers are the individual families losing loves ones. No, Camus got it right. There is nothing worth killing for, plenty to fight for."

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

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