“Foreign states that go to war in Yemen usually come to regret it,” writes Patrick Cockburn, the veteran Middle East correspondent for the U.K. Independent.
If oil traders are itchy about the mess in Yemen, they’re not showing it. After a spike above $51 a barrel last Thursday, West Texas Intermediate is already back to $48.59.
But we can’t shake the feeling the story’s not over.
“A Saudi military spokesman said the coalition it leads would step up pressure on the Houthis and their allies in the next few days,” Reuters reports. The Houthis are a Shiite Muslim sect that’s chased the pro-American Sunni Muslim dictator Abd-Rabbu Mansour Hadi into hiding in Saudi Arabia.
“Recent developments give credence to what a well-placed energy insider told me at a conference in Houston not long ago,” says our Byron King.
A war waged by Saudi Arabia intersects with two of Byron’s areas of expertise — oil and military affairs. So we don’t take Byron’s words lightly.
“The Saudis’ primary motivation in crashing oil prices last November was to harm Iran,” Byron paraphrases his inside contact. “In other words, low oil prices are not about hurting Russia because of Ukraine, nor about slowing the advance in North American fracking. The Saudi idea is to squeeze the bank accounts of the mullahs in Tehran.
“Now we see the Iranian blowback. Iran-backed rebels have knocked out the former government in Yemen, which was friendly to both Saudi Arabia and the U.S. The Saudis have a full-scale religious war on their southern border, with opponents fully backed by Iran.”
Not every expert on the region agrees about Iran’s level of backing to date for the Houthis in Yemen. But with Saudi Arabia now trying to smash the Houthis, Iranian involvement in the conflict becomes a sure thing anyway. Cockburn again: “By leading a Sunni coalition, Saudi Arabia will internationalize the Yemen conflict and emphasize its sectarian Sunni-Shia dimension.”
“I expect Saudi Arabia to learn soon that it’s harder to stop fighting a war than it is to get into one,” says Byron.
“The Saudis had better ‘win’ quickly in Yemen or they’re in for a long slog in a snake pit. That’s the way these things work over there; but the Saudis are smart, and they know that.”
Affirmation of Byron’s thesis comes this morning from The Swoop, the elliptic foreign-policy briefing posted each week by the Washington Assessment and Analysis Service.
“High U.S. officials,” it says, “have convinced their Saudi counterparts to moderate their objectives to bring the Houthi insurgents to the negotiating table, not to try to drive them totally from power. To this end, the Pentagon is enhancing military assistance to make the Arab coalition’s air war more effective, thus staving off the need for a land invasion.”
But you know what they say about the best laid plans. If those plans fail, “we may see an oil price recovery much sooner than many people expected,” says Byron.
“I’m not losing any sleep over a further oil crash,” Byron adds, as he examines forecasts for oil to fall as low as $20.
“The U.S. rig count has plummeted due to a drought of new drilling capital. Looking ahead, there are indications that U.S. oil output may cease growing in the next two or three months.
“Yes, we saw increased oil flow from Iraq last year, too — which is problematic in the near future. Libyan output rose last year as well, and has fallen in recent months. Civil wars will do that to an oil-producing region.
“In other parts of the world, Russian oil output is problematic. Brazilian offshore oil isn’t growing nearly as fast as optimists expected a few years ago. Canadian oil sands are flowing, to be sure, but are constrained by costs and transport bottlenecks.”
How to play it? Byron is comfortable with current prices on the Big Three in the oil services sector — Schlumberger (SLB), Halliburton (HAL) and Baker Hughes (BHI). The latter two firms are merging. “Meanwhile, I believe that majors will be able to keep up dividends,” he concludes. “Look at, say, Chevron (CVX), Total (TOT) or Shell (RDS-B).”
Energy shares are leading Wall Street higher as the first quarter winds down. The Dow is up 250 points as we write. Forty more and it’s back above 18,000.
The other major indexes are also up, but not as strongly.
A surprising number of expert chart watchers are turning bearish, according to our Jonas Elmerraji — just back from the Market Technicians Association’s Annual Symposium in New York.
“In the last four years of MTA symposiums I’ve attended,” says Jonas, “this was the first one where the vast majority of attendees weren’t betting on the rally to keep trucking higher. In fact, there were a large number of outright bears at the event.”
The whys and wherefores are complicated — more than we can squeeze into our 5 Mins. today. Suffice it to say Jonas has taken notice. “We’re talking about a smart group of traders and technicians — and they’ve collectively been right for a long time.
“That said, I’m not joining their camp quite yet. Sure, this rally is showing some cracks right now. But the primary trend is still up, and that means we’ll keep buying the dips.
“Even if the bears at the conference were right about some of the cracks forming in the stock market, the outcome isn’t going to be a white-knuckle market crash. A correction? Sure. But we can trade corrections.”
Americans remain relatively prudent with their personal finances, judging by this morning’s “income and spend” report from the Commerce Department.
Personal incomes grew 0.4% in February, while consumer spending grew 0.1%. For most of the past year, the growth in income has outpaced the growth in spending.
This report also includes “core PCE” — the Federal Reserve’s preferred measure of inflation. It registers a year-over-year increase of 1.4%.
That’s nowhere near the Fed’s 2% sweet spot… but the number has reversed a downward trend going back to last fall. Other inflation measures are doing the same of late. Stay tuned…
Gold is retreating further from $1,200 as the week begins. At last check, the bid was down well over 1%, to $1,183.
Be afraid: If Sen. Chuck Schumer wins his campaign to succeed Harry Reid as Senate minority leader, the IRS might once again start outsourcing its debt collection to private firms.
Schumer is a huge champion of the idea. He pushed hard for it last year, when The Washington Post described his proposal thus: “Bereaved relatives could find themselves under siege for unpaid estate taxes under the proposal. So could people who incur a tax debt under the new Affordable Care Act — either because they owe a penalty for not buying health insurance or because the government was too generous in estimating the size of their health care tax subsidy.”
Schumer loves the idea not least because two of the companies that would do the work are based in his home state of New York.
The idea died last year in part because it was tied up with other proposals that were nonstarters in the House. Still, as the Post piece reminds us, it has the proverbial “bipartisan support.”
Never mind it’s been tried twice before and failed — once under Clinton and again under Bush the Younger.
The second time out, the private firms collected about $98 million between 2005-09 — for which they were paid $16.5 million in commissions. But it cost $86 million for the IRS to administer the program.
Nina Olson, the national taxpayer advocate, thinks it’s a lousy idea. “Despite two attempts [in the past] at making it work,” she said last year, “the program has lost money both times, undermining the sole rationale for its existence…
“There’s this myth that there’s this pool of accounts that nobody’s doing anything about and that we would be able to get a ton of money from. And if that were true, you could make a case for private collection agencies. But it’s just not true.”
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“Of all taxes, property taxes are the worst type,” a reader writes.
[When a topic has legs, it has legs…]
“We who maintain a nice home and property are actually penalized by higher property taxes based on higher ‘appraised value,’ while those in the same neighborhoods who let their property go to weeds and become run down pay less — again based on a lower ‘appraised value,’ even though we all supposedly share equally in what those taxes get us.
“Any type of income or property taxes, however, is nothing more than a penalty on those who work to have in order to give to those who won’t work at all.”
“Along the lines of the property tax issue, you should also consider that you do not really own your car or dog or many other things,” writes another.
“Try driving your car without a current registration and see how much that costs. Try taking your dog for a walk without the proper tags and see how much that will cost you. In America, you do not really own anything. You are only allowed to have some things if you pay the government for the privilege. Heck, you don’t even really have much control over your own kids, as they are controlled by the system for over 12 years.”
“The property taxes being collected today,” writes a third, “are a holdover from before income taxes and even sales taxes and excise taxes (but after head taxes such as the Romans collected).
“Back then, property taxes (or ‘rents’ if peons and peasants were involved) were the primary peaceful means for funding the governments of that day. When the idea that ordinary citizens should be allowed a voice in the government began to be implemented, initially only landowners were allowed to vote.
“So property taxes are an older form of funding government activities. But of late, there has been talk about ‘wealth taxes’ so the government gets more funding from the well-off. Wonder what a ‘wealth tax’ looks like? Property taxes, for starters.”
“On the brighter side,” a fourth reader counters, “what’s good for the goose may be good for the gander.
“With so many investors reaching for yield, investing in tax liens is a pretty viable, secure way to invest. If I had any real money, I would go that route as a part of my portfolio.
“Personally, I think it beats peer-to-peer lending. In peer to peer, if the borrower can’t pay, you lose. In tax liens, if the so-called owner can’t pay, you win, and you win anyway when someone pays, or you own a new piece of property in your portfolio.
“Just my contrary view to the rant about the rent we all pay on property, good or bad.”
“I buy three-six homes per year for $3,000-4,000 each at tax sales because the last owner did not pay his high taxes,” writes a reader doing just that.
“Then I get the taxes lowered. After fixing them up, I rent them out. I am getting over 50% return.”
“As a Canadian who owned property in Colorado, I was amazed that I could be taxed by governments that I could not vote for,” writes our final correspondent.
“I remember from my history books that about 250 years ago, somebody got revolting that there was taxation without representation. We who stayed loyal to the crown cannot be taxed unless we vote for them; i.e., if you own land, you vote for the taxer.
“In Colorado, even an American that did not live there could not vote, so in the ski towns, it was the renters that asked for lots of free goodies that elected the representatives and the ‘rich’ owners paid.
“Maybe you Americans should get revolting again.”
The 5: Reminds us of the old Wizard of Id gag…
The King: “You can say that again!”
Best regards,
Dave Gonigam
The 5 Min. Forecast
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