Earlier this week, CNN’s senior White House correspondent Jim Acosta asked President Obama the following question at a press briefing:

“A lot of Americans have this frustration that they see the United States has the greatest military in the world, it has the backing of nearly every other country in the world when it comes to taking on ISIS. I guess the question is, and if you’ll forgive the language, but why can’t we take out these bastards?”

Well Jim, the answer is quite simple and indeed, if you – or any other member of the mainstream media for that matter – would bother to look at things like thedeclassified Pentagon report that Judicial Watch turned up earlier this year, you’d be less confused.

Allow us, once again, to provide you with the answers you seek, straight from the Pentagon ca. 2012:

…there is the possibility of establishing a declared or undeclared Salafist Principality in eastern Syria (Hasaka and Der Zor), and this is exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime, which is considered the strategic depth of the Shia expansion (Iraq and Iran).”

Translation: if Sunni extremists were to establish a proto-state in eastern Syria that would be great because it would destabilize Assad and cut off Iran from Hezbollah thus endangering the preservation of Tehran’s Shiite crescent. 

For those who need a still simpler formulation: ISIS started out no different than any of the other rebels the US supports in Syria. They likely received guns, money, and training if not directly from the US, then from Saudi Arabia and Qatar. Washington seems to have had some idea that they would seek to capture and hold territory and as far as the Pentagon was concerned, that was just fine. Whether or not the CIA anticipated what would come next is up for debate, but make no mistake, US intelligence knew good and well this was a possibility and let it happen because ousting Assad was (and still is) the top priority.

So when the Jim Costas of the world ask “why can’t we take out these bastards?”, the answer is that if if we did, one of the main forces destabilizing the Assad regime would be gone and not only that, the US would no longer have an excuse to be in Syria, which would leave the country’s political future entirely up to Russia and Iran and that is a decidedly unpalatable outcome not only for Washington, but for Riyadh and Doha as well.

It’s Occam’s Razor Jim: look for the simplest possible explanation and go with that. 

Of course that explanation is simply too bad to be true for most Americans and so the public and the mass media will continue to exists in a state of perpetual bewilderment as to why 13 months of aerial bombardment hasn’t done anything to degrade the group.

In case any of the above isn’t clear enough, Sergei Lavrov has commentary which may help to drive the point home, presented below without further comment:

“Despite announcing ambitious plans for its coalition against Islamic State (IS, formerly ISIS/ISIL), the analysis of those [US-led] airstrikes during over a year lead to conclusion that they were hitting selectively, I would say, sparingly and on most occasions didn’t touch those IS units, which were capable of seriously challenging the Syrian army.”

“Apparently, it’s a kind of a ‘honey is sweet, but the bee stings’ situation: they want IS to weaken Assad as soon as possible to make him leave somehow, but at the same time they don’t want to overly strengthen IS, which may then seize power.”

 

“The US stance seriously weakens the prospects of Syria to remain a secular state, where the rights of all ethnic and religious groups will be provided and guaranteed,” 

 

“Russia’s assessment of the US-led anti-terror operation in Syria is based on observations of specific results and there are little results, not to say there are none – except the fact that during this period [since August 2014] the Islamic State has grown on the territories they control.”

Clear enough?

The question of how the Islamic State funds its sprawling caliphate has been discussed in the past: we first broke down the primary driver of ISIS revenue well over a year ago, in September 2014, when we explained that “ISIS uses oil wealth to help finance its terror operations.”

Daily Signal’s Kelsey Harkness explained the breakdown as follows:

According to the Iraq Energy Institute, an independent, nonprofit policy organization focused on Iraq’s energy sector, the army of radical Islamists controls production of 30,000 barrels of oil a day in Iraq and 50,000 barrels in Syria. By selling the oil on the black market at a discounted price of $40 per barrel (compared to about $93 per barrel in the free market), ISIS takes in $3.2 million a day.

 

The oil revenue, which amounts to nearly $100 million each month, allows ISIS to fund its military and terrorist attacks — and to attract more recruits from around the world, including America.

Most importantly, we added that to be successful in counterterrorism efforts, “the U.S. and its allies must “push the Islamic State out of the oil fields it has captured and disrupt its ability to smuggle the oil to foreign markets.”

None of this was surprising to anyone, but what was quite surprising is that it took the allied forces over a year to take the oil revenue threat seriously and begin targeting the Islamic State’s oil infrastructure in earnest.

Today, in an article titled “Why US Efforts to Cut Off Islamic State’s Funds Have Failed” Bloomberg tries to explain just how it is that despite a more than a year long campaign, ISIS funding remains as strong as ever, and notes that “the latest round of airstrikes are directly related to the administration’s new math. “You have to go after the oil, and you have to do it in a serious way, and we’ve just begun to do that now,” citing Benjamin Bahney, an international policy analyst at the Rand Corp., a U.S. Department of Defense-funded think tank.

To be sure, there are other sources of revenue: Bloomberg correctly notes that “even if the U.S. finally weakens the group’s oil income, Bahney and other analysts in the U.S., the Middle East, and Europe contend, Islamic State has resources beyond crude—from selling sex slaves to ransoming hostages to plundering stolen farmland—that can likely keep it fighting for years.”

Still, without a doubt, the dominant source of funds for the terrorists is oil, and not just oil, but a well-greased logistical machine that keeps thousands of barrels moving from unknown pumps to even refineries, and ultimately to smugglers who operated out of Turkey and other countries.

Here is Bloomberg:

Most often refined in Syria, the group’s oil is trucked to cities such as Mosul to provide people living under its black banner with fuel for generators and other basic needs. It’s also used to power the war machine. “They have quite an organized supply chain running fuel into Iraq and [throughout] the ‘caliphate,’ ” says Michael Knights, an Iraq expert at the Washington Institute for Near East Policy, using the militant group’s religiously loaded term for itself. Because the U.S. apparently believed the real money for Islamic State came primarily via selling refined oil, rather than crude, last year’s strikes heavily targeted refineries and storage depots, says Bahney. He and other experts say that strategy missed an important shift:Militants increasingly sell raw crude to truckers and middlemen, rather than refining it themselves. So while Islamic State probably maintains some refining capacity, the majority of the oil in IS territory is refined by locals who operate thousands of rudimentary, roadside furnaces that dot the Syrian desert.

Here is where it gets interesting: Bloomberg cites Pentagon officials who acknowledge “that for more than a year they avoided striking tanker trucks to limit civilian casualties. None of these guys are ISIS. We don’t feel right vaporizing them, so we have been watching ISIS oil flowing around for a year,” says Knights. That changed on Nov. 16, when four U.S. attack planes and two gunships destroyed 116 oil trucks.

So any qualms about vaporizing “innocent civilians” promptly disappeared when the Pentagon realized that its 1+ year long campaign had been an epic debacle, that a suddenly surging ISIS was stronger as ever, and most importantly, that its critical revenue lifelines had been largely untouched for years. Perhaps they weren’t innocent civilians after all.

It is still unknown if this recent crackdown on “dumping oil”, or crude which dramatically lowers the price of oil in global markets – it certainly is an odd coincidence that the price of Brent and WTI began its tumble last fall, just when the Islamic State made its dramatic appearance on the world scene – will have an effect and cut off the primary source of funds to ISIS.

But what we have been wondering for months and what we hope some enterprising journalist will soon answer, is just who are the commodity trading firms that have been so generously buying millions of smuggled oil barrels procured by the Islamic State at massive discounts to market, and then reselling them to other interested parties.

In other words, who are the middlemen.

What we do know is who they may be: they are the same names that were quite prominent in the market in September when Glencore had its first, and certainly not last, near death experience: the Glencores, the Vitols, the Trafiguras, the Nobels, the Mercurias of the world.

To be sure, funding terrorist states is not something thatsome of the most prominent names in the list above have shied away from in the past.

Which one (or ones) are the guilty parties – those who have openly breached terrorism funding laws – we don’t know: it may be one, or more of the above, or someone totally different.

At this point, however, three things are certain: whoever the commodity trading house may be that is paying ISIS-affiliated “innocent civilians” hundreds of millions of dollars for their products, they are perfect aware just who the source of this deeply discounted crude is. Crude so deeply discounted, in fact, it results in massive profits for the enterprising middleman who are engaging in openly criminal transactions.

The second certainty: whoever said middleman is, it is very well known to US intelligence services such as the NSA and CIA, and thus to the Pentagon, and thus, the US government.

The third certainty is that while the US, and Russia, and now France, are all very theatrically bombing something in the Syrian desert (nobody really knows what), the funding of ISIS continues unabated as someone keeps buying ISIS oil.

We wonder how long until someone finally asks the all important question regarding the Islamic State: who is the commodity trader breaching every known law of funding terrorism when buying ISIS crude, almost certainly with the tacit approval by various “western alliance” governments, and why is it that these governments have allowed said middleman to continue funding ISIS for as long as it has?

Moments ago Caterpillar reported its latest monthly retail sales statistics and the numbers have never been worse: not only is the dead CAT bounce in US sales finally over, tumbling -8% Y/Y, after a -4% decline in September and hugging the flatline for the past few months, but sales elsewhere around the globe were a complete debacle: Asia/Pacific (mostly China) was down -28%, a dramatic drop from the -17% a month ago, EAME dropping -13%, and Latin America down -36%…

… but global retail sales just posted a massive -16% drop in the past month, after dropping 9% a year ago and another 12% in 2013, this was the biggest annual drop since early 2010.  As the chart below shows, CAT has now suffered a record 35 months, or nearly 3 years, of consecutive declining annual retail sales – something unprecedented in company history, and set to surpass the “only” 19 months of decling during the great financial crisis by a factor of two!

Worse, with the market no longer rewarding stock buybacks, Caterpillar suddenly finds itself flailing in the gale strength winds of what nobody can claims any longer is not a global industrial depression.

However, there is good news – while Caterpillar’s revenues and cash flows may be plummeting with every passing month, at least the company has a cunning plan how to recover some inventory.

According to the WSJ, Caterpillar is eager to reassure shareholders it won’t get burned on equipment leased to customers in China even as the economy cools there. CAT Financial Services President Kent Adams said during a conference call on Tuesday that the company keeps tabs on the position of machinery electronically through its Product Link system.

“If a customer falls behind, we have the ability to derate the engine or turn the engine off, and we’ve set up a legal presence in all of the provinces of China.”

In other words, any and all Chinese lessors who fall behind on their payments will suddenly find their excavator’s engine shut down and no longer operable, stuck in the middle of a mine, quarry, or construction site with a paperweight weighing dozens of tons.

So this is great news right? After all, at least Caterpillar will have recourse to its equipment, and can “solidify” its balance sheet. The problem, as we showed last week, is that there already is an epic glut of CAT heavy equipment in the wild.

How epic? Here is a reminder of what CAT products sold recently at an auction:

Was: $2.9m | Now: $15,000: Caterpillar 992C wheel loader

Was: $2.7m | Now: $46,000: Caterpillar D11N crawler tractor

Was: $900,000 | Now: $47,500: Caterpillar 775D rear dump truck

Well, if all else fails, CAT’s creditors will at least be able to convert their secured “claims” into all too physical inventory, even if that inventory’s market value is now worth less than 99% of book.

on Sunday in “Depression Tracker: Brazil Braces For Big Week Of Bad Data,” we warned that this was likely to be a rather harrowing week for anyone hoping to see a light at the end of the tunnel for the trainwreck that is Brazil’s collapsing economy.

Specifically, we previewed three data points, i) the IBC-Br monthly real GDP indicator, ii) IPCA-15 inflation, and iii) the IBGE October labor market report. The latter two prints are due tomorrow. We got the GDP tracker today. It was not pretty. 

The the central bank’s output proxy showed real activity falling 0.5% m/m, the fourth straight month of declines. Here’s Goldman’s full breakdown:

In annual terms, the monthly indicator of activity declined by a large 6.1% yoy in September and on a 12-month cumulative sum basis, real GDP contracted 2.8% yoy, close to the lows reached in 3Q2009.

 

According to the IBC-Br, the statistical carry-over for growth in 2015 dipped to -3.6% (i.e., if the economy remains flat throughout 2015 at the September level real GDP will record a 3.6% contraction on average during the year).

 

According to the central monthly real GDP indicator, which has been an imperfect indicator of the National Accounts quarterly GDP, real GDP declined 1.4% QoQ sa during 3Q2015 (adding to the-2.1% qoq sa variation recorded during 2Q2015). Hence,real GDP has now declined by four consecutive quarters. Finally, the carry-over for 4Q real GDP is at -0.6%, that is, were GDP to remain flat during Oct-Dec at the September level, real GDP would decline 0.6% qoq sa during 4Q2015.

 

 

Barclays simply called it “free fall mode”, noting that “today’s result is due to the strong contraction in industrial production (-1.3% m/m sa) and retail sales (-1.5% m/m sa).”

Finally, here’s FT, quoting Capital Economics:

Economic activity fell by 6.2 per cent in September from the same period a year earlier.

 

That’s the biggest year-on-year drop on record, according to Capital Economics, andpoints to a third quarter contraction of nearly 5 per cent.

 

Edward Glossop at Capital Economics said he expects Brazil’s third quarter GDP numbers “to be terrible”. He added:

 

“Conditions are unlikely to have improved much at the start of Q4. October’s PMI data suggest that the slump in industry deepened, while the further deterioration in labour market conditions over the past couple of months suggests that consumption remained under pressure.”

Q3 data is due on December 1.

Bear in mind that this comes against a backdrop of worsening inflation. As we noted on Sunday, Goldman sees IPCA-15 inflation coming in at 0.87%. The implication: inflation would print somewhere in the neighborhood of 10.3% y/y (the worst in more than 10 years) and you when you put that together with everything noted above you get a stagflationary nightmare. 

Truthfully, this is an unmitigated disaster of epic proportions and it just keeps getting worse. Until now, Goldman’s Alberto Ramos has been the undisputed king when it comes to producing lists of the country’s economic problems that are so long they induce riotous laughter. Well watch out Alberto, BofAML’s David Beker may be coming for your spot:

Leading activity indicators are persistently posting negative prints throughout the year, despite already being at record low levels, corroborating our call for a 3.3% yoy contraction in 2015. Tightened credit markets, high household indebtedness level, rising inflation and the ongoing labor market loosening should continue to drive purchasing power and confidence levels down, preventing a rebound in the near term. Accordingly, industrial production declined 10.9% yoy in September, posting the 19th consecutive negative print and returning to production levels from a decade ago. At the same time, retail sales contracted for the sixth time in a row in year-over-year terms, reaching a negative 6.2% yoy print. All in, these results indicate that activity indicators should continue to decline next year, reflecting a deeper and longer economic recession, with economic activity only starting to recover in late 2016.