World View: Mideast Peace Talks Postponed for Two Weeks After Two Days

This morning's key headlines from

  • Level of stock market margin debt in 2013 exceeds 1999 and 2007
  • Taliban jailbreak is new humiliation for Pakistan
  • Terrorist jailbreaks becoming increasingly common
  • Mideast peace talks postponed for two weeks after two days

Level of stock market margin debt in 2013 exceeds 1999 and 2007

Level of margin debt in 2013 exceeds level prior to 1999 and 2007 stock market financial crises
Level of margin debt in 2013 exceeds level prior to 1999 and 2007 stock market financial crises

The thing that promotes panics and stock market crashes is not some major decision by investors en masse to sell everything for emotional reasons. There may be an initial emotional panic, but what keeps it going is deleveraging of margin debt causing forced selling. People who had borrowed money to purchase stocks start receiving margin calls, forcing them to sell more, causing a vicious downward spiral. Margin debt reached astronomical levels just before the 1929 crash, in 1999 just before the Nasdaq crash of 2000, in in 2007, just before the financial crisis.

In another sign that a stock market crash is approaching, margin debt has rebounded, and is once again at astronomical levels, higher than in 1999 or 2007, as you can see from the above graph. As I've written a number of times in the last four months (see "23-Jun-13 World View -- The 'experts' scramble to explain the stock market plunge"), Wall Street stock prices have been increasing so quickly that they've become dangerously parabolic. The recent rapid increase in margin debt explains the parabolic rise.

For more information on how margin debt works today, see my article on Interactive Brokers ( How margin accounts work today versus 1929). You can borrow $1 million at 1.3% interest, and you can use it to invest in the stock market, presumably in stocks that yield over 5%. That's sounds good when you listen to their ad, but once your stock going down a little, you very quickly start receiving margin calls, and you have to sell your assets at a loss. If that happens to enough investors at the same time -- and the rapid rise in margin debt indicates that it will -- then forced selling causes a vicious downward spiral. Pragmatic Capitalism

Taliban jailbreak is new humiliation for Pakistan

Monday's jailbreak in Pakistan, after an attack by 100 Pakistan Taliban (TTP) terrorist militants, freed 248 convicted prisoners, far more than the "dozens" that we reported yesterday, including a few dozen hardcore terrorists. The police who were supposed to be protecting the prison dropped their weapons and ran when the militants attacked. The police "are corrupt, lazy and unprofessional," according to a police source.

Even worse, authorities had advance warning of the attack, but did not act on it, leading to not-very-farfetched speculation that the prison guards were complicit in the jailbreak. This would not be surprising, inasmuch as Osama bin Laden lived openly in Abbottabad, Pakistan, for ten years, with the apparent complicity of Pakistan's army and intelligence services, resulting in the greatest humiliation for Pakistan in decades.

Pakistan's new prime minister Nawaz Sharif had promised to end terrorist attacks by the Taliban by simply negotiating with the Taliban, possibly freeing some prisoners in exchange for guarantees to end the terrorist attacks. It's now clear that TTP has decided to free the prisoners on their own, leaving Sharif no negotiating leverage.

The whole idea was silly, anyway. The TTP subsidiary, Lashkar-e-Jhangvi (Lej), was never going to agree to end their multiple terrorist attacks whose objective is to exterminate all Shias in Pakistan.

The other relevant issue is that Sharif had promised to end U.S. drone strikes on Taliban militants, in the hope that doing so would motivate the TTP to stop their terrorist attacks. That was a silly idea too. BBC and Daily Times (Pakistan)

Terrorist jailbreaks becoming increasingly common

The Pakistan jailbreak was the third in the last week. In Iraq last week, coordinated terrorist attacks were carried out on the Abu Ghraib prison, freeing hundreds of prisoners. A few days later, a prison riot led to the escape of more than 1,000 inmates from a detention center in Benghazi, Libya. Although there's no evidence that the three incidents were coordinated, but it seems likely this technique of breaking convicted terrorists out of jail is becoming increasingly common, as a way to increase the population of terrorists in these and other countries. CS Monitor

Mideast peace talks postponed for two weeks after two days

The Washington Mideast peace talk talks, announced with great fanfare on Sunday by U.S. Secretary of State John Kerry, ended two days after they began. On Tuesday, U.S. Secretary of State John Kerry announced with great fanfare that the talks would begin again in the next two weeks in the Mideast, but he could not name a specific date or whether they would take place in Israel or the Palestinian territories. In June, Kerry announced the Afghanistan peace talks with the Taliban, by they collapsed in one day after they were announced. BBC

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