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[Entertainment] Michelle Obama's Becoming Breaks a Record Set by Fifty Shades of Grey Becoming, Michelle Obama, BookBecoming is beloved by readers around the world. It's been two months since Michelle Obama released her memoir, and it's still on top of Amazon's best-selling books chart....
Published:1/17/2019 12:53:33 PM
[PAID] 'They Own the System': Amazon Rewrites Book Industry by Marching Into Publishing The online retail giant, the world’s largest public company, commands an unrivaled customer base for the books, ebooks and audiobooks it publishes. As a result, it’s jolting the publishing industry, creating instant best sellers out of self-published writers and pushing down earnings for others. Published:1/16/2019 11:44:30 PM
[Markets] From Baghdad To Finland And All Across The World: What's The US Up To?

Via Off-Guardian.org,

Why does the US Embassy in Helsinki need a big warehouse near Malmi Airport and what are the contents of thousands of kilograms of cargo sent to Helsinki from Baghdad?

A dilapidated warehouse in Malmi is being used by the US Embassy for unknown operations after a Wikileaks release revealed its location.

The anonymous looking building on Takoraudantie is notable only for the new 427 meter perimeter fence that according to the Wikileaks’ database was ordered by the US Embassy in April 2018.

...

More than a million kilograms of cargo were shipped from Baghdad to different parts of the world, reveals US embassies procurement documents.

Mysterious cargo shipments from the US Embassy in Baghdad to other American embassies and consulates around the world have been revealed on a Wikileaks’ database. Procurement orders of US embassies are public documents, but Wikileaks put them in a searchable database making it easier to analyse.

Here are two critical articles on this subject from Helsinki Times, dated December 29, 2018 and January 1, 2019 respectively.

GUARDED WAREHOUSES NEAR AIRPORT AND MYSTERIOUS CARGO FROM BAGHDAD

by Will Sillitoe

Situated across the street from the main entrance of Malmi Airport, the warehouse with its 3 meter high security fence appears an unlikely location for official embassy business. Neighbouring companies include a car yard and a tyre warehouse.

Helsinki Times visited the perimeters this weekend. Security personnel, young Finns in uniforms with American flags on their arms, appeared nervous and suspicious when asked to comment on the warehouse and refused to even confirm the order of the new fence structure which now surrounds the compound. At one point a security guard appeared in a second floor window to carefully monitor this reporter’s movements along Takoraudantie.

US embassy warehouse near Malmi airport. This image from Google street view is from 2011. The newly built permitter fence can not be seen in this image.

Mysterious parcels from Baghdad

The Wikileaks’ database has also revealed mysterious packages being sent to the US Embassy in Finland from their embassy in Baghdad.

The database displaying US embassy procurements around the world shows that tons of cargo are being distributed to Helsinki and other US embassies via regular airfreight cargo deliveries from Baghdad.

Twelve consignments, each logged at 5000 kilograms are recorded as sent to Helsinki and 23 other West European US embassies – an average of 2500 kilograms per US embassy.

The reason for such a vast volume of embassy deliveries from Baghdad is as yet unknown but this latest disclosure follows Wikileaks news that the US Consulate in Frankfurt was a purchase and postal centre for distributing spy equipment to other US embassies worldwide. Concerns are now raised that the US Embassy in Baghdad is also being used as a main distribution centre for secret operations.

In addition to Finland and Western Europe, the Wikileaks database shows that the US embassy in Baghdad disseminates hundreds of tons worldwide, with more than 300,000 kilograms recorded as being delivered Stateside alone.

Incoming diplomatic mail between embassies receives customs clearance and is automatically classified as a US government shipment.

The 80 page order list also details massive movements of road and air freight between Basra in the south of Iraq and Erbil in the north. No indication of the cargo contents are provided but the order sheets reveal convoys of trucks and vehicles were hired by Baghdad’s US embassy for the mysterious shipments.

The warehouse is equipped with several big gates suitable for lorries to drive in. Containers and a forklift in the yard indicate heavy duty use. A special antenna is on the roof.

Spy gadgets and surveillance operations

The disclosure of the building’s use by the US Embassy in Finland comes in light of revelations about US embassy spying activities worldwide, as featured in the Wikileaks’ US embassy shopping list database. In a published list of more than 16000 miscellaneous items, requests also appear for recording devices disguised as pens, lighters, glasses, watches and even spy shirt buttons.

Although US embassy procurements are public information, Wikileaks new database allows for country specific searches, giving clearer evidence of US embassy involvement in secret surveillance operations in certain parts of the world.. The timing of this latest Wikileaks’ release came just hours after its Twitter accounts were cyber attacked late on Friday, ahead of the Christmas holiday.

According to the database, requests made by the US Embassy in Finland appear to be for everyday items. Procurements include a tractor as well as services for snow removal, plumbing, gardening and cleaning. However, in light of ‘Tactical Spy Equipment’ purchased by US embassies elsewhere the existence of the warehouse compound near Malmi Airport raises concerns about potential secret operations closer to home. US Embassy official responsible for ordering the warehouse perimeter fence, was unavailable for comment.

Strategically located US embassy complex in Helsinki and the newly built “Innovation Center”.

Worldwide, the Wikileaks’ online data reveals that Latin America is the main target for purchases of spying equipment. Camera hats and USB drives as well as night visors and binoculars were among items procured for the US embassy in Colombia. But topping the list for requested surveillance items was the US embassy in El Salvador where the purchase of ‘Tactical Spy Equipment’ totalled 94 items.

Back in 2017 Wikileaks documents revealed that the American consulate in Frankfurt had served as a covert base to carry out digital spy operations. Using the US Embassy shopping list database, Germany’s Der Spiegel has now identified the consulate as a main buyer of spy equipment for diplomatic missions across Europe.

These latest Wikileaks’ revelations further highlight the role of US embassies in espionage activities across the globe. Some reports suggest over 80 US embassies worldwide conceal joint NSA-CIA “Special Collection Service” radio and electronic surveillance equipment. Such concerns add to the questions concerning activities at the Malmi warehouse and the secrecy surrounding it.

However, the database of US embassy shopping lists reveals some less concerning items too with one evoking the craziness of an Inspector Clouseau rather than a cold, calculating 007: A person to count fish and clean the pond was sought by the consulate in Guayaquil, Ecuador after officials lost track of how many fish they possessed.

The searchable Wikileaks database and info about Finland related activities can be found HERE.

*  *  *

WHAT DOES THE US EMBASSY IN BAGHDAD EXPORT TO FINLAND AND DOZENS OF OTHER COUNTRIES?

by Will Sillitoe

The database displaying worldwide US embassy orders of goods and services reveals Baghdad as a postal and shipping centre for tonnes of freight.

Though military freight might be expected between the US and Iraq, records show that embassies across Europe, Asia, the Middle East, the Americas and Africa are all receiving deliveries from Baghdad too.

According to Wikileaks’ database, orders to ship more than 540 tonnes of cargo to the US were made in May 2018. The same document shows other main delivery destinations included 120 tonnes of freight to Europe, and 24 tonnes to South Africa, South America and Central Africa respectively. In comparison, only two and a half tonnes of freight were moved within Iraq between Baghdad, Basra and Erbil International Airports. So, the export of items from Iraq appears to be the primary activity.

The content of the deliveries is as yet unclear, though the order contract suggests household items, rugs, electrical goods, linen, kitchenware, furniture, pianos, refrigerators, books, chinaware, clothing as well as mail could be among the items dispatched. According to the website movers.com, an average one bedroom apartment of furniture weighs approximately one tonne but the practicality of moving many types of household objects across continents is doubtful. It also remains unclear whether the quantity of tonnage relates to many small deliveries or a small number of very large ones.

The lack of disclosed orders moving cargo and services into Iraq highlights that the movement of diplomats and their families into such a dangerous region on a large scale is unlikely.  Transfers of military personnel back and forth would normally go through the US airbases in Iraq and not via the Embassy administration. So discounting the movement of more than a thousand staff members out of Iraq to countries around the world means that the content and purpose of the shipments remains a mystery.

The Wikileaks’ database findings coincide with the discovery of a previously undisclosed US Embassy warehouse near Malmi Airport, a storage facility suitable for receiving large truckloads of incoming freight. Documents also show that the US Embassy in Finland ordered a new security perimeter fence for the warehouse compound in April 2018. The purpose for the warehouse remains unknown.

This latest uncovering of unusual US embassy activity follows the 2017 exposure of the US Consulate in Frankfurt being used for surveillance operations and as a buying and postal dispatch centre of spying equipment for other US consulates. These latest Wikileaks revelations raise concerns that the US Embassy in Baghdad may also serve as a hub for secret operations worldwide.

The database also reveals that items listed as ‘Tactical Spy Equipment’ were ordered for US embassies in Latin America, with Colombia and El Salvador receiving a range of spy cameras disguised as pens, glasses, hats, USB drives and even shirt buttons.

*  *  *

So , as Eric Zuesse asked, why is America’s Baghdad Embassy the world’s largest embassy - and the largest by far?

"It's as if the US Embassy is there not only to protect American interests, but to manage the entire world from the heart of the capital, Baghdad.”

— Iraqi Sheikh Qassim Al Ta’ee, as quoted on 27 December 2011 in Al Iraq News and translated by Ibrahim Zaidan from the original Arabic by Nicholas Dagher 

Secret government tends to be costly for taxpayers, and also tends to add a lot to the governmental debt. An unauditable governmental department, such as the Defense Department is, cannot function, at all, without an enormous amount of corruption. This is the reality about America’s military. However, there’s much propaganda contradicting it. The news-media also serve those same billionaires.

How likely, then, is it, that America’s Baghdad Embassy serves the US public? It certainly does not serve the Iraqi public. But it does serve the people — whomever they are — who control the US Government. And that’s the Deep State. That’s the reality, but what’s promoted is fantasyland. And this fantasyland, which is promoted, is called “American democracy”. Just ask Big Brother, and he’ll tell you all about it. He always does.

Published:1/15/2019 10:37:21 PM
[World] 'Choose Your Own Adventure' publisher sues Netflix over 'Black Mirror: Bandersnatch' Chooseco says Netflix violated its trademark with “Bandersnatch,” a recent episode of “Black Mirror" that uses a format similar to those of the books.
     
 
 
Published:1/15/2019 4:36:18 PM
[World] [David E. Bernstein] At Least One Cheer for Law Reviews

Law reviews as venue for scholarship come under a lot of justified criticism, but at least the editors check the footnotes

Any well-published law professor can recite a litany of complaints about law reviews, the generally student-edited journals where most legal scholarship is published. For example, the students require citations for opinions, or for well-known facts; students get to select the articles they publish, but don't have the expertise to do so; and the bluebook citation system most law reviews follow is much too cumbersome, and requires way too many explantory parentheticals.

One advantage law reviews do have, however, is that the editors are meticulous about checking footnotes to ensure that citations actually support the authors' contentions, and that quotations are accurate. This has its limitations; a Holocaust denier citing to books by Holocaust deniers would pass such screening. But it does at least prevent authors from either just making things up or being incredibly sloppy, and then sticking in footnotes to make the invention or sloppiness look scholarly.

I've been involved off and on over the past year and a half in the ongoing debate over Nancy MacLean's book Democracy in Chains. My interest in the book was piqued when some of my Facebook friends were criticizing it for a variety of scholarly sins. I got hold of the book, and immediately turned to MacLean's brief discussion of my law school and its former dean, Henry Manne. I found that what MacLean wrote did not mesh with the facts. I thought perhaps that she was led astray by sources she thought to be reliable, so I checked her footnotes. Nope. She just made things up. For example, she asserted that Manne only hired white male faculty, which was not remotely true. Not only did the source she cited in the relevant footnote not assert this, it specifically mentioned my colleague Bruce Kobayashi, who has a very common Japanese surname and is in fact of Japanese descent.

MacLean is not the only recent perpetrator. Quinn Slobodian has emerged as leading historian and critic of the free-market oriented "neoliberal" (whatever that means) economists who emerged as leading critics of economic statism after World War II. Here's what economic historian Phil Magness found after reviewing a recent article by Slobodian on economist Ludwig von Mises:

Professor Slobodian has 93 footnotes in his article. Over 50 of them reference Mises's writings or correspondence. Looking them up, I found many instances in which the page reference to a paraphrase of a passage or a quote in one of Mises's works was not to be found where Professor Slobodian indicated it to be.

In some instances, this was not simply being off a page or two; the page referenced turned out to be in a portion of one of Mises's works that had nothing to do with the theme or idea that Professor Slobodian was referring to in the text of his own article. Hence, the paraphrase or quote literally had to be taken on good faith as being accurate or even there in one of Mises's writings.

In addition, there are instances in which Professor Slobodian asserts or implies views or states of mind held by Mises at some point in time. But the footnoted reference sometimes refers to some other scholar's work that when looked up did not refer to or imply anything about Ludwig von Mises.

One might be inclined to be more generous about these errors if they always didn't point in the same direction, to make historical figures that the authors object to on ideological grounds look bad. As in the case with MacLean, one suspects that some historians first construct their narrative, then look for citations to support it. If citations don't support the preconceived narrative, they abandon sound scholarly citation practices rather than abandoning the narrative.

Again, law reviews are far from perfect. But if you read a law review article, at least one published in a reasonably respectable journal, you can at least be pretty confident that the assertions made by the author are supported by the sources the author cites. One might think that we could trust professional historians to be meticulous about their sources without having third parties review them. Unfortunately, we cannot.

Published:1/15/2019 9:36:29 AM
[Markets] The Decline And Fall Of The European Union

Authored by Charles Hugh Smith via OfTwoMinds blog,

This exhaustion of the neocolonial-neofeudal model was inevitable, and as a result, so too is the decline and fall of the European integration/exploitation project.

That a single currency, the euro, would fracture rather than unite Europe was understood long before the euro's introduction as legal tender on January 1, 2002. The euro, the currency of 19 of the 28 member states of the European Union, is only one of the various institutions tying the member nations of the European union together, but it is the linchpin of the financial integration touted as one of the primary benefits of EU membership.

Skepticism of the benefits of EU membership is rising, as citizens of the member nations are questioning the surrender of national sovereignty with renewed intensity.

The technocrat elite that holds power in the EU is attempting to marginalize critics as populists, nationalists or fascists, overlooking the untidy reality that the actual source of tyranny is arguably the unelected bureaucrats of the EU who have taken on extraordinary powers to strip the citizenry of member states of civil liberties (i.e. the right to dissent) and of meaningful political enfranchisement.

As I have patiently explained since 2012, the underlying structure of the EU is neocolonialism, specifically, neocolonial-financialization. Stripped of artifice, the financial institutions of the EU core have colonized the EU periphery via the euro and the EU and imposed a modernized system of extractive serfdom on the citizenry of the core and periphery alike.

To understand the neocolonial-financialization model, we must revisit the classic model of colonialism. In the old model of Colonialism, the colonizing power conquered or co-opted the Power Elites of the region, and proceeded to exploit the new colony's resources and labor to enrich the core or center, i.e. the Imperial nation and its ruling elites.

This traditional model of colonialism was forcibly dismantled in the 1940s-1960s. Former colonies established their political independence, a process that diminished the wealth and control of former colonial powers.

In response, global financial powers sought financial control rather than political control. This is the key dynamic of the Neocolonial-Financialization Model(May 24, 2012), which substitutes the economic power of financialization (debt, leverage and speculation) for the raw power of conquest and political control.

The main strategy of financialization is: extend cheap credit to those with limited access to capital. Those with limited access to capital will swallow the bait and willingly agree to onerous conditions.

Then, when the credit expansion reaches levels that cannot be supported, the lenders demand collateral and/or favorable trade and financial concessions.

These tactics have been well-documented in books such as The Shock Doctrine: The Rise of Disaster Capitalism and Confessions of an Economic Hit Man.

But the economic pillaging of former colonies has limits, and as a consequence the global financial powers developed the Neocolonial Model, which turns these same techniques on one's home region.

Thus Greece and other capital-poor European nations were recognized as the periphery that could be exploited by the core, and the euro was the ideal tool to exploit the economies of nations which could never have generated credit/housing bubbles without the wide-open spigots of cheap credit flooding their economies.

In Neocolonialism, the forces of financialization are used to indenture the local Elites and populace to the financial core: the peripheral "colonials" borrow money to buy the finished goods manufactured in the core economies, enriching the Imperial Elites with A) the profits made selling goods to the debtors B) interest on credit extended to the peripheral colonies to buy the core economies' goods and "live large", and C) the transactional skim of financializing peripheral assets such as real estate and State debt.

In essence, the French and German banks colonized Europe's periphery nations via the financializing euro, which enabled a massive expansion of debt and consumption in the periphery. The banks and exporters of the core extracted enormous profits from the periphery via this expansion of debt and consumption.

The assets and income of the periphery are flowing to the core as interest on the private and sovereign debts that are owed to the core's money-center private banks.

Note how little of the Greek "bailout" actually went to the citizenry of Greece and how much was interest paid to the financial powers. The core has stripped Greece of collateral and political independence, just as the colonial powers of the 19th century stripped the African and Indo-Asian regions of income, assets and political independence.

This is not just the perfection of neocolonialism but of neofeudalism as well.The peripheral nations of the EU are effectively neocolonial debtors of the core, and the taxpayers of the core nations are now feudal serfs whose labor is devoted to making good on any financialization schemes that go bad.

Neocolonialism benefits both the core's financial Aristocracy and the periphery's oligarchies. This is ably demonstrated in the essay Misrule of the Few: How the Oligarchs Ruined Greece.

The EU has finally reached the endgame of the Neocolonial-Financialization Model. There are no more markets to exploit with financialization, no more assets to strip, and the serfs (a.k.a. yellow vests) of the core are tiring of being stripmined in service of the EU kleptocracy.

At this point, the financial Aristocracy has an unsolvable dilemma: writing off defaulted debt also writes off assets and income streams, for every debt is the core's asset and income stream. When all those phantom assets are recognized as worthless, the system implodes.

This exhaustion of the neocolonial-neofeudal model was inevitable and as a result, so too is the decline and fall of the European integration/exploitation project.

Recent podcasts:

Jonathon Twombly and I discuss The Everything Bubble: Its Effect on The Current Market and Real Estate Investing

Drew Sample and I discuss being an entrepreneur in the local economy and my new book Pathfinding Our Destiny

*  *  *

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print): Read the first section for free in PDF format. My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF). My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Published:1/15/2019 4:02:11 AM
[Markets] The Fed Dilemma

Submitted by Valentin Schmid of The Epoch Times

For the most part in 2017 and 2018, only academics and easy-money cranks scolded the Federal Reserve for raising rates. After all, the stock market was bubbling up and the economy was strong.

The economy is still strong, but the stock market has ended its record 10-year bull-market run with a bang. The 20-percent drop in the S&P 500 during one of the worst quarters in market history classifies as a bear market, although prices rebounded at the end of 2018 and in early 2019.

Now everybody from traders to retirees as well as President Donald Trump is scolding Fed Chairman Jerome Powell for his relentless path to higher interest rates and a reduction in the Fed’s balance sheet.

To make a long story short, yes, the Fed is chiefly responsible for this and other stock-market routs, which often precede recessions. There are other contributing factors, such as worries about the Chinese economy and trade, as well as the government shutdown, which will reduce the $1 trillion yearly spending spree of the federal government. But the Fed is at the center of the storm.

And the problem didn’t begin with the Fed’s actions over the past two years. The roots of the issues we now face have their immediate origins in the last financial crisis, but ultimately can be traced back to the founding of the Federal Reserve itself.

The Current Crash

The problem on the surface right now is that the Fed is taking away easy money from market participants and economic agents through its raising of the federal funds rate as well as the $50 billion per month reduction of its balance sheet.

The Fed balance sheet, as well as the federal funds rate, is the foundation of the entire global financial system. For every dollar by which the Fed expands its balance sheet, banks and shadow banks around the world can create many dollars’ worth of debt on top of it.

Terms like balance-sheet expansion and contraction, or quantitative easing (QE) and quantitative tightening (QT), are fancy words for printing money or removing money from circulation.

Since its creation in 1913, the Fed has had the power to print money and fuel booms, and contract money and create busts. So it has to take responsibility for the vicious business cycles since its creation, such as the Great Depression or the 2008 financial crisis.

You can trace this game back to the Fed’s origins, but here, let’s confine it to recent history.

In 1998, the giant hedge fund Long Term Capital Management collapsed and almost took the global financial system with it. The Fed pumped money into the system and we had the dot.com boom, which ended in a bust in 2000 after the Fed had tightened credit conditions.

It then pumped even more into the system to create the subprime boom, which ended in a bigger bust in 2008, again after the Fed had been raising rates for some time.

To “save the system” this time, the Fed boosted its balance sheet to more than $4 trillion and lowered interest rates to zero, in an unprecedented exercise in money printing. This has led to a bubble in corporate debt, student loans, auto loans, and real estate—again.

Popping The Bubble

But booms fueled by money printing usually fuel economic mirages and lead to investments that wouldn’t have been made otherwise, like subprime or dot.com. And even the boom from the past two years has seen a shallow economic recovery, with many people feeling left out.

Now, with interest rates up 2.5 percent, the balance sheet shrinking by $50 billion per month, and the stock market draw-down of 20 percent, we are looking to go into bust mode again.

The stock market reaction this time is particularly pronounced because the market has relied on the Fed to either ease monetary policy or delay tightening whenever there was a correction of 10 percent or so.

The fact that the market reacted so violently to a paltry 2.5 percent increase in rates tells us how dependent it is on easy money. The current Fed Funds rate is still lower than at most other times in recorded history.

And Chairman Powell has made it very clear that he isn’t “market dependent” but would rather follow his usually wrong and inaccurate models, as well as the philosophical concept of the neutral interest rate. He did backpaddle a little bit in early January, but the Fed has a history of talking up markets when talk is cheap.

Because even if the Fed doesn’t raise rates at the next meeting at the end of January, the balance sheet reduction will surely continue.

Either way, the economy can only be put back on solid footing if the bad investments of the boom are liquidated, which always causes asset-price collapses and economic recessions.

If the market is left to its own devices, these contractions are quick and painful, as in 1921, and then provide a solid basis for expansion.

So if Powell’s intention is to pop the bubble and go through the readjustment pain to put the economy on a long-term real growth trajectory, he is doing the right thing, even though he won’t be able to centrally plan the exact right rate for market clearing. But it would be a good start, and would require no bailouts this time around, unlike 2008 when the Fed and the Federal Government bailed out the whole banking system.

Contrary to popular opinion, there are ways and methods to orderly liquidate banks, as investment manager Barry Ritholtz points out:

“Let’s use Bank of America as an example. Bank of America gets nationalized, which really means Uncle Sam provides debtor in possession financing. This is really what happens normally with small companies. Someone who takes them out of bankruptcy give some operating money to keep functioning.

The equity gets down to zero—senior management out the door. There is certainly a layer beneath, which can get promoted without a problem. Bondholders, effectively they are highest in the line of who owns what’s left as the lenders. So they take what comes out of that minus Uncle Sam’s share of providing debtor in possession financing.

And you slowly feed all the pieces to the public. So you clean up the balance sheet and take all that debt. By the way there is no such thing as toxic assets. Well at 100 cents on the dollar they are toxic. But at 15 or 20 cents on the dollar there is plenty of upside there. So you take those assets and auction them off and you take what you get—maybe 15, 20, 25 percent. You take Merrill Lynch, which now has no bad debt on its books and you spin it off as a stand-alone.”

No Stability

The Fed claims it wants to promote economic stability and improve on the workings of the markets. But history in the 20th century shows that central banking has made business cycles worse than they were under a gold-based system and free banking, although credit crises existed before the Fed and are to be blamed on fractional reserve banking.

On top of that, the dollar has lost more than 90 percent of its value since the Fed’s inception. Stability looks different.

Whether it is incompetence or malevolence, as some historians have suggested, it doesn’t matter, because the Fed can’t replace a free market for capital.

In essence, setting interest rates and printing legal tender and reserves or contracting them at a whim is central planning. And this gets worse because private players are forced to accept Fed money as legal tender and we are forced to use Fed-powered bank money in the payment of taxes.

In fact, central banks look more like a Soviet politburo rather than a competitive market system, although they are privately owned. The few players in control of the system are using the state’s power to reap private profits and pile losses onto the taxpayer.

In contrast, the competitive market system is also the best system for money and banking, not just for other goods.

As economist Murray Rothbard points out, nobody thinks about installing a Board of Governors to supervise shoe production and their prices, so why do we need one to supervise money production and set its price?

In fact, President Franklin D. Roosevelt did think central planning would also be better for shoes and chicken, so he set up private cartels similar to the Fed for almost every industry under the National Industrial Recovery Act.

Unfortunately for him, it was ruled unconstitutional. Not surprisingly, constitutional lawyers like Edwin Vieira and many others believe the Fed isn’t compliant with the U.S. Constitution, of which Article 1, Section 10, states:

“No State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.”

Now, we have paper and electronic notes issued by the privately owned but not privately accountable Federal Reserve System, with the number of such notes expanded and contracted at will.

Sound Money

The Founding Fathers were rather fond of gold and silver, and were against central banking and the ever-expanding government debt that central banks finance.

“And I sincerely believe with you, that banking establishments are more dangerous than standing armies; [and] that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale,” Thomas Jefferson wrote in a letter to John Taylor in 1816.

Under the supervision of central banks with the power to print money and a government to bail them out, banks are indeed dangerous and will continue to cause boom-and-bust cycles. However, a return to sound money and competitive banking could put an end to this vicious loop.

Gold has traditionally served as sound money, and it could be used again by the marketplace and even banks to create a free market in capital, similar to the end of the 20th century.

“Look at the era of the classical gold standard, from 1871—the end of the Franco–Prussian War—until the beginning of World War I,” monetary philosopher Saifedean Ammous said.

“There’s a reason why this is known as the Golden Era, the Gilded Age, and La Belle Epoque. It was a time of unrivaled human flourishing all over the world. Economic growth was everywhere. Technology was being spread all over the world. Peace and prosperity were increasing everywhere around the world. Technological innovations were advancing.

“I think this is no coincidence. What the gold standard allowed people to do is to have a store of value that would maintain its value in the future. And that gave people a low time preference, that gave people the incentive to think of the long term, and that made people want to invest in things that would pay off over the long term.”

Ammous, author of “The Bitcoin Standard” also says that Bitcoin could serve as the digital gold of the future and replace the current system even without official government adoption.

But whether gold or Bitcoin, sound money would serve as a stable basis for the banking system, banks would have to be set free from the control of the Federal Reserve, be accountable for their actions, and be allowed to fail if they make bad investments.

This would remove moral hazard and create a more accurate clearing price for capital, which wouldn’t prevent, but would greatly reduce malinvestments and business cycles.

Chance For the Future

Given its dismal track record and probable unconstitutionality, the Federal Reserve System should be dissolved and sound money returned to the United States and the globe. The fact that Powell is maneuvering us into the bust cycle could provide the opportunity to execute this momentous plan.

The promoters of the Fed used the stock market and economic crisis of 1907 to push its creation through Congress in 1913.

If this bust cycle is going to be worse than 2008—and by many financial metrics, it well could be—the political elite around Trump could use the next crisis to do the reverse of 2008 and 1913.

Published:1/14/2019 12:34:12 PM
[Markets] CTAs Are About To Start Covering Their S&P Shorts

Last Wednesday, as the US stock market was roaring higher on its way to a 10% rebound from the December 24 bear market lows, we laid out the latest calculation from Nomura's cross-asset strategist, Charlie McElligott, who showed that it was only a matter of days before the same CTAs who were blamed for the sharp selloff in mid-December, were forced out of their from "max short" level and started covering, in the process sending markets even higher.

Now, in his latest update, McElligott has further refined his analysis and notes that whereas CTAs for the key equity indexes, the S&P, Stoxx and Nikkei are all still in the "Max Short" bucket, all that may be about to reverse, as the first "Buy to Cover" level is just a few points higher in the S&P, or at 2,594, less than 10 points away. Here are some more details from the Nomura analyst on where the max pain levels for algo shorts are, and where the market will almost certainly rise to before retesting if the short squeeze can push it even higher, or if a new wave of selling will emerge as Morgan Stanley predicted earlier:

  • SPX at 2594, Nasdaq at 6581, Eurostoxx at 3066, DAX at 10827, Hang Seng CH at 10363—all would see current “Max Short” covered down to just “-82% Short” if today closes above those levels

As McElligott adds, late last week saw Russell, FTSE, Hang Seng, ASX and KOSPI all trigger modest short-covers from their prior “Max Short” positioning at the start of the week. Finally, also nearing inflections is EURUSD nearing sell trigger to again go “Max Short” at 1.1442

Stepping away from the algos, McElligott next looks at equity hedge and mutual fund positioning, and notes that these players both "grabbed" meaningfully back-into US Stocks last week, increasing their “beta to SPX” WoW. According to Nomura's calculations, Mutual Funds’ “beta to SPX” rose to the 62nd %ile from 59% last week, but more glaringly, “buying the dip” was sharply higher from just 27th %ile 1m ago.  At the same time, long/short hedge fund "beta to SPX" also jumped last week to 52nd %ile from 41st %ile, although remains significantly lower from last month’s Santa Rally positioning blow-up (was 81st %ile 1m ago).

Another notable observation is that Long/Short equity HFs are also again increasing their “net exposure” through forced-reduction of their short books, which were obviously “grossed-up” in Dec as the market melted "and are now being painfully squeezed-out to start 2019" - in a repeat of the violent short squeeze observed in Q4, and in factor space are outperforming “Crowded / Popular / Momentum Longs” by 2x’s – 3x’s YTD.

Meanwhile, in stark contrast to US Equities Mutual- and Hedge- Funds, McElligott finds that Macro Funds have not yet participated in this US Equities bounce, dramatically reducing their ‘beta to SPX’ last week down to just 8th %ile from 33%ile the week prior; not only that but global macro HFs are currently the worst performing asset class, according to Goldman.

That, to the Nomura strategist, speaks to that desire of many macro traders to fade the equity rally.

Last, and perhaps most important, is that according to Nomura's QIS Risk Parity model, balance and risk-parity funds have seen ongoing additions to global Bonds over the past month (+$21B vs 1m ago, almost entirely in JGB 10s and small UST 10s) versus reductions in Credit (particularly US IG -$18.9B vs 1m ago) and Global Equities (-$4.9B vs 1m ago, with -$4.2B of the overall from US Equities reduction).

As McElligott concludes, "as 2019 develops, it will be key to track these “counter-cyclical” longer-term adjustments to Risk Parity positioning into this “slower growth, lower inflation” view, as our 2Y lookback increasingly “picks-up” the 2018 volatility regime, while the prior 2017 “halcyon days” realized volatility environment within the two-year window decreases with each passing day."

Published:1/14/2019 11:57:19 AM
[Markets] "Secret Money For Private Armies" Austin Fitts Exposes America's "Open Running Bailout"

Via Greg Hunter’s USAWatchdog.com,

Investment advisor and former Assistant Secretary of Housing Catherine Austin Fitts says it looks like a “global recession is coming.”

Is that going to cause the debt reset we’ve been hearing about for years? Fitts says, “Make no mistake about it, there is no reason for the federal government to default or monkey with any debt because they can literally print the currency..."

"The question is how do they make sure whatever they are printing really holds any kind of store of value. I think the reason you are seeing them reengineer the federal bureaucracy and financial transactions infrastructure is because they want much greater and tighter control to do whatever they do, and that includes to continue to debase the currency. They could do this (reset) entirely by debasing the currency...

What we are watching . . . is essentially a coup. We had a financial coup, and now we are watching a legal coup to consolidate that financial coup. I would keep my eye on the fundamental governance structure of the U.S. The important thing is not what they do. The important thing is who controls no matter what they do. Now, we have created a mechanism for them to control entirely in secret and create policies entirely in secret, including around the back of a U.S. President... It’s pirating by the ‘just do it’ method. I said to someone the other day, what is it about secret money for secret private armies that you don ‘t understand?

$21 trillion in “missing money” at the DOD and HUD that was discovered by Dr. Mark Skidmore and Catherine Austin Fitts in 2017 has now become a national security issue.

The federal government is not talking or answering questions, even though the DOD recently failed its first ever audit. Fitts says, “This is basically an open running bailout..."

"Under this structure, you can transfer assets out of the federal government into private ownership, and nobody will know and nobody can stop it. There is no oversight whatsoever. You can’t even know who is doing it. I’m telling you they just took the United States government, they just changed the governance model by accounting policy to a fascist government. If you are an investor, you don’t know who owns those assets, and there is no evidence that you do...

If the law says you have to produce audited financial statements and you refuse to do so for 20 years, and then when somebody calls you on it, you proceed to change the accounting laws that say you can now run secret books for all the agencies and over 100 related entities.”

In closing, Fitts says, “We cannot sit around and passively depend on a guy we elected President..."

"The President cannot fix this. We need to fix this...

This is Main Street versus Wall Street. This is honest books versus dirty books. If you want the United States in 10 years to resemble anything what it looked like 20 years ago, you are going to have to do it, and there is no one else who can do it. You have to first get the intelligence to know what is happening.”

Join Greg Hunter as he goes One-on-One with Catherine Austin Fitts, Publisher of “The Solari Report.”

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Published:1/13/2019 7:26:35 PM
[Entertainment] Top 10 Books to Read in 2019 E-comm: Top 10 Books to Read in 2019Remember when book clubs were a thing? Not long ago, before social media was what it is now, we were big on books and reading. We mean, what else were we going to do with our free time?...
Published:1/13/2019 5:22:57 AM
[Entertainment] 5 new books not to miss this week, including James Patterson's 'Liar Liar' James Patterson and Candice Fox team up for 'Liar Liar,' the third Detective Harriet Blue novel. Plus more new books on sale this week.
     
 
 
Published:1/13/2019 5:22:57 AM
[Markets] Hypocrisy Without Bounds: US Army Major Slams The Tragedy Of "Liberal" Foreign Policy

Authored by Maj. Danny Sjrusen via AntiWar.com,

The president says he will bring the troops home from Syria and Afghanistan. Now, because of their pathological hatred of Trump, mainstream Democrats are hysterical in their opposition.

If anyone else were president, the "liberals" would be celebrating. After all, pulling American soldiers out of a couple of failing, endless wars seems like a "win" for progressives. Heck, if Obama did it there might be a ticker-tape parade down Broadway. And there should be. The intervention in Syria is increasingly aimless, dangerous and lacks an end state. Afghanistan is an unwinnable war – America’s longest – and about to end in outright militarydefeat. Getting out now and salvaging so much national blood and treasure ought to be a progressive dream. There’s only one problem: Donald Trump. Specifically, that it was Trump who gave the order to begin the troop withdrawals.

Lost in the haze of their pathological hatred of President Trump, the majority of mainstream liberal pundits and politicians can’t, for the life of them, see the good sense in extracting the troops from a couple Mideast quagmires. That or they can see the positives, but, in their obsessive compulsion to smear the president, choose politics over country. It’s probably a bit of both. That’s how tribally partisan American political discourse has become. And, how reflexively hawkish and interventionist today’s mainstream Democrats now are. Whither the left-wing antiwar movement? Well, except for a few diehards out there, the movement seems to have been buried long ago with George McGovern.

Make no mistake, the Democrats have been tacking to the right on foreign policy and burgeoning their tough-guy-interventionist credentials for decades now. Terrified of being painted as soft or dovish on martial matters, just about all the "serious" baby-boomer Dems proudly co-opted the militarist line and gladly accepted campaign cash from the corporate arms dealers. Think about it, any Democrat with serious future presidential aspirations back in 2002 voted for the Iraq War – Hillary, Joe Biden, even former peace activist John Kerry! And, in spite of the party base now moving to the left, all these big name hawks – along with current Senate Minority Leader Chuck Schumer – are still Democratic stalwarts. Heck, some polls list Biden as the party’s 2020 presidential frontrunner.

More disturbing than the inconsistency of these political hacks is the vacuousness of the supposedly liberal media. After Trump’s announcement of troop withdrawals, just about every MSNBC host slammed the president and suddenly sounded more hawkish than the clowns over at Fox News. Take Rachel Maddow. Whatever you think of her politics, she is – undoubtedly – a brilliant woman. Furthermore, unlike most pundits, she knows a little something about foreign policy. Her 2012 book, Drift: The Unmooring of American Military Power was a serious and well-researched critique of executive power and the ongoing failure of the wars on terror. Drift was well reviewed by regular readers and scholars alike.

Enter Donald Trump. Ever since the man won the 2016 election, Maddow’s nightly show has been dominated the hopeless dream of Russia-collusion and a desire for Trump’s subsequent impeachment. Admittedly, Maddow’s anti-Trump rhetoric isn’t completely unfounded – this author, after all, has spent the better part of two years criticizing most of his policies – but her zealousness has clouded her judgment, or worse. Indeed, that Maddow, and her fellow "liberals" at MSNBC have now criticized the troop withdrawals and even paraded a slew of disgraced neoconservatives – like Bill Kristol – on their shows seems final proof of their descent into opportunistic hawkishness.

One of the most disturbing aspects of this new "liberal" hawkishness is the pundits’ regular canonization of Jim Mattis and the other supposed “adults” in the room. For mainstream, Trump-loathing, liberals the only saving grace for this administration was its inclusion of a few trusted, "grown-up" generals in the cabinet. Yet it is a dangerous day, indeed, when the supposedly progressive journalists deify only the military men in the room. Besides, Mattis was no friend to the liberals. Their beloved President Obama previously canned "mad-dog" for his excessive bellicosity towards Iran. Furthermore, Mattis – so praised for both his judgment and ethics – chose an interesting issue for which to finally fall-on-his-sword and resign. U.S. support for the Saudi-led starvation of 85,000 kids in Yemen: Mattis could deal with that. But a modest disengagement from even one endless war in the Middle East: well, the former SECDEF just couldn’t countenance that. Thus, he seems a strange figure for a "progressive" network to deify.

Personally, I’d like to debate a few of the new "Cold Warriors" over at MSNBC or CNN and ask a simple series of questions: what on the ground changed in Syria or Afghanistan that has suddenly convinced you the US must stay put? And, what positivist steps should the military take in those locales, in order to achieve what purpose exactly? Oh, by the way, I’d ask my debate opponents to attempt their answers without uttering the word Trump. The safe money says they couldn’t do it – not by a long shot. Because, you see, these pundits live and die by their hatred of all things Trump and the more times they utter his name the higher go the ratings and the faster the cash piles up. It’s a business model not any sort of display of honest journalism.

There’s a tragic irony here. By the looks of things, so long as Mr. Trump is president, it seems that any real movement for less interventionism in the Greater Middle East may come from a part of the political right – libertarians like Rand Paul along with the president’s die hard base, which is willing to follow him on any policy pronouncement. Paradoxically, these folks may find some common cause with the far left likes of Bernie Sanders and the Ocasio-Cortez crowd, but it seems unlikely that the mainstream left is prepared to lead a new antiwar charge. What with Schumer/Pelosi still in charge, you can forget about it. Given the once powerful left-led Vietnam-era protest movement, today’s Dems seem deficient indeed on foreign policy substance. Odds are they’ll cede this territory, once again, to the GOP.

By taking a stronger interventionist, even militarist, stand than Trump on Syria and Afghanistan, the Democrats are wading into dangerous waters. Maybe, as some say, this president shoots from the hip and has no core policy process or beliefs. Perhaps. Then again, Trump did crush fifteen Republican mainstays in 2015 and shock Hillary – and the world – in 2016. Indeed, he may know just what he’s doing. While the Beltway, congressional-military-industrial complex continues to support ever more fighting and dying around the world, for the most part the American people do not. Trump, in fact, ran on a generally anti-interventionist platform, calling the Iraq War "dumb" and not to be repeated. The president’s sometimes earthy – if coarse – commonsense resonated with a lot of voters, and Hillary’s hawkish establishment record (including her vote for that very same Iraq War) didn’t win her many new supporters.

Liberals have long believed, at least since McGovern’s 1972 trouncing by Richard Nixon, that they could out-hawk the Republican hawks and win over some conservatives. It rarely worked. In fact, Dems have been playing right into bellicose Republican hands for decades. And, if they run a baby-boomer-era hawk in 2020 – say Joe Biden – they’ll be headed for another shocking defeat. The combination of a (mostly, so far) strong economy and practical policy of returning US troops from unpopular wars, could, once again, out weigh this president’s other liabilities.

Foreign policy won’t, by itself, tip a national election. But make no mistake, if the clowns at MSNBC and "liberal" hacks on Capitol Hill keep touting their newfound militarism, they’re likely to emerge from 2020 with not only smeared consciences, but four more years in the opposition.

*  *  *

Danny Sjursen is a US Army officer and regular contributor to Antiwar.com He served combat tours with reconnaissance units in Iraq and Afghanistan and later taught history at his alma mater, West Point. He is the author of a memoir and critical analysis of the Iraq War, Ghostriders of Baghdad: Soldiers, Civilians, and the Myth of the Surge. Follow him on Twitter at @SkepticalVet.

[Note: The views expressed in this article are those of the author, expressed in an unofficial capacity, and do not reflect the official policy or position of the Department of the Army, Department of Defense, or the U.S. government.]

Published:1/12/2019 10:48:11 PM
[Markets] PG&E Reportedly Planning Bankruptcy Announcement To Workers As Soon As Monday

18 years after becoming one of America's largest bankruptcies, the writing is on the wall for California's utility giant after its cash-collateral-call triggering second downgrade to junk has led to reports that PG&E may notify employees as soon as Monday that it’s preparing a potential bankruptcy filing, according to people familiar with the situation.

California passed legislation last year in the aftermath of the deadly Wine Country fires requiring utilities to post public notices for employees at least 15 days before a change of control, including a bankruptcy filing.

This potential bankruptcy announcement comes after PG&E's AIG moment hit late on Thursday, when Moody’s did precisely what S&P did two days earlier, and cut the utility's credit rating to junk citing the electric company’s potential wildfire liabilities.

“We see a much more challenging environment for PG&E,” Moody’s analyst Jeff Cassella said in a statement. “The company is increasingly reliant on extraordinary intervention by legislators and regulators, which may not occur soon enough or be of sufficient magnitude to address these adverse developments.”

As Bloomberg reports, a notice may signal that the company has accelerated plans to make a Chapter 11 filing as way of dealing with crippling liabilities from wildfires that tore through California in 2017 and 2018, killing over 100 people and destroying hundreds of thousands of acres.

And, as we detailed previously, with two junk ratings, PG&E will now be required to use cash as collateral to guarantee power contracts, according to the company’s latest quarterly filing, which estimates the utility will have to fully collateralize as much as $800 million of positions.

That... is a problem because PG&E had only $430 million of cash on its books in September, precipitating what now appears to be an imminent liquidity crisis, one which as a result of some $30 billion in wildfire legal liabilities will quickly escalate into a solvency inferno, to use a term closely associated with California utility companies.

PG&E declined to provide a statement, saying the company doesn’t comment on rumor or speculation.

During its 2001, bankruptcy, California governor Gray Davis used the state's treasury to bail out the utility, provoking a controversy that eventually contributed to his ouster. PG&E emerged from bankruptcy in April 2004 after returning $10.2 billion to creditors.

Newly appointed California Governor Gavin Newsom said during a press conference Thursday that his office would be making an announcement related to PG&E within the next few days and that the issue was at the top of his agenda. He said in a later interview that the announcement would involve appointments to the California Public Utilities Commission, the state’s grid operator and to a commission established by legislature to explore wildfire issues.

Newsom’s office didn’t immediately respond to a request for comment on Saturday.

Citigroup Inc. called it a “a crisis of confidence.” Guggenheim Securities analysts likened the dilemma PG&E poses to investors and lawmakers as “a falling knife.”

As we pointed out previously, with relation to the last financial crisis, while Lehman was the spark, its was the bailout of AIG that really precipitated the most violent part of the 2008 crisis. While most analysts see PG&E as an isolated case, now that the biggest California utility is on the verge of bankruptcy, and is about to have its own AIG moment, one wonders just how "contained" this particular shock to the system will be.

One thing is clear, however: the shock to California residents, or rather their wallets, will be most unpleasant, as their rates are about to surge one way or another.

Think it couldn't happen? Think again, as Bloomberg reports, PG&E’s deepening financial crisis has already spread to the companies that supply its natural gas and generate electricity for its customers. At least two small gas suppliers have restricted sales to PG&E out of concern that the company won’t be able to pay, people with direct knowledge of the situation said earlier this week.

Some banks are taking a long look at a potential $2 billion debt financing for the Geysers, the world’s largest geothermal complex, because it supplies the utility, people familiar with the matter also said this week.

Published:1/12/2019 8:20:43 PM
[Markets] A Bang Or A Whimper: If Trump Is Overthrown What Comes Next?

Authored by James George Jatras via The Strategic Culture Foundation,

It’s a new year and the American cold civil war has shifted to its next phase with the Petrograd Soviet (formerly the Smolny Institute for Noble Maidens), a/k/a Speaker Nancy Pelosi’s Democrat-controlled House of Representatives ensconced at one end of Pennsylvania Avenue. Pelosi leads the revolutionary “second pivot and rival center of authority to the embattled Provisional Government headed by President Donald Trump, headquartered 16 blocks to the northwest.

As of this writing Trump is fighting for his political life. If he loses the Mexican standoff over the government shutdown and his border wall, he’s essentially finished. At this juncture, it looks as though he is prepared to declare a state of emergency and use Pentagon or FEMA funds to order the emplacement of a barrier as a military construction project. This is something for which he has the clearest black-and-white statutory authority under 10 US Code § 2802.

Nonetheless, if he goes that route, any such effort will be gummed up in the courts, just like his use of his plenary authority under 18 US Code 1182(f) to exclude “any aliens or … any class of aliens” whose entry into the US would in his judgment “be detrimental to the interests of the United States” – the germ of his campaign’s promised “Muslim ban” – was wimped down into supposedly “extreme vetting” of aliens from a handful of countries without much indication of what the “vetting” is supposed to filter. It’s likely such litigation would delay the wall or prevent its being built at all.

As of now, Trump states his preference to let the Democrats stew. After all, those immediately inconvenienced, such as federal workers and beneficiaries of some federal programs, are primarily Democrat constituencies. Let’s see how many more hysterical bleeding hearts like Cher pressure Pelosi to throw in the towel: “NANCY YOU ARE A HERO LET HIM HAVE HIS FKNG MONEY?.”

In any case, as even Senator Lindsay Graham recognizes, if Trump loses this battle – one he should have fought a year and a half ago – “it’s probably the end of his presidency.” If Trump wins, or more properly he avoids losing, he only lives to fight another day.

And, fight he must, despite his defenders’ truthful and entirely irrelevant bleating that there was no Russian “collusion.” Notwithstanding Democrats’ tap-dancing during the 2018 campaign on whether or not they would seek to impeach Trump, right out of the box articles of impeachment were filed within days of the House’s changing hands. Trump’s disgraced lawyer and “fixer” Michael Cohen will testify before the House Government Oversight Committee in February. While the weight of opinion suggests that Grand Inquisitor Robert Mueller will wrap up his auto-da-fé in a few months if not weeks, that would seem to be throwing away a powerful synergy with a House that is just beginning to gear up for multiple investigations into every aspect of Trump’s private and professional life, as well as his kids’. Add to that New York State Attorney General Letitia James on the warpath against Trump and “anyone” associated with him. Given Trump’s years in the sharp-elbowed world of high-end New York real estate and numerous business enterprises, as well as the Trump Foundation, there’s no limit to the number of regulatory, tax, and other violations the putsch plotters will construe as federal and state crimes, the latter of which can’t be pardoned by the President.

In short, it’s now a question not if Trump will be impeached but when and on what accusations. Adding fuel to the Democrats’ determination to bring him down before he’s up for reelection is the fear that if Trump survives until then he might well win, something no other Republican is likely to be able to do given the GOP’s tin ear to working class concerns, especially in the Rust Belt states that were Trump’s margin of victory. If Trump is successfully removed before 2020, whomever the Democrats nominate will beat Mike Pence or any other Republican nominee in a romp. After that, especially if Trump’s wall hasn’t gotten built, a sufficient number of imported new voters, many of them illegal, will ensure a permanent Democratic lock hold on power.

When Trump is impeached there may not be enough GOP votes in the Senate to remove him – as things stand now. But never underestimate Republicans’ propensity to cut and run when the going gets tough. It is suggested that any Republican who votes against Trump would seal his own political fate. Don’t be so sure. Those not up for reelection until 2022 and 2024 (like Utah’s newly elected Senator Mitt Romney, who didn’t even wait to be sworn in to volunteer for the role of Brutus) will feel insulated. Besides, when the crunch comes establishment Republicans fear a harsh word from the Washington Post and New York Times editorial pages more than they do their own voters.

This is not to say that after impeachment Trump will be removed, just that it is well within the realm of possibility. But if it does happen, then what?

One anti-Trumper (who prides himself on “poking Trump’s meth-addled, under-educated fans with a pointy stick.” No elite contempt for the Deplorables there!) ponders whether there would be –

‘…a civil war if Trump is driven from office?—?e.g., conviction after impeachment, resignation, 25th Amendment -that depends on what happens after, and there is no denying there is a chance of it, but it is highly unlikely. Many?—?possibly a great many?—?would believe they were wronged by this outcome, but how many would take up arms, and start shooting? Very few, if any at all. Trump would leave, Pence would become President, and Pence would be given credit for calming and healing the nation.

‘There would be no civil war.

But what happens after? Suppose Trump is put on trial for criminal charges, and then convicted? Or suppose he is pardoned or let off the hook, and then begins a sore-loser populist campaign all over the country, complaining that the Presidency was “stolen” by the “deep state” and that Hillary and “fake news” are responsible? That is when we should reopen the question of civil war.’

Of course if Trump is forced out, it would be precisely a stolen election – in effect, a regime change operation of the sort the same US-UK Deep State has staged in so many other countries – abetted by the lying, fake news (no need for sarcasm quotes) worthy of the former USSR and the Democratic establishment, with the collusion of a substantial element of the GOP.

But the improbable suggestion of Trump’s leading a post-White House rebellion one raises a valid point: if Trump were removed, either politically or physically, what – or who – would be the Deplorables’ rallying point? What or who would constitute the second pivot in what would then aspire to leadership in a new revolutionary situation?

The answer is not obvious. Those threatening various degrees of violent or even “gruesome” responses if the ongoing, anti-constitutional soft coup were to succeed never seem to address the question of what, exactly, the revolt would intend to achieve. Reinstate Trump, assuming that’s even possible? If not him, who – Ivanka? Where and how would pathologically law-abiding middle class Americans, many of them older and in questionable health, vent their rage? March on Washington – and do what when they got there? Torch the local post office?

Sure, devotees of the Second Amendment own more private weapons, so Trump supporters are better armed. But that may change as the violent Left gears up its own paramilitary capabilities secure in the knowledge that authorities turn a blind eye to their violence while regarding even non-violent civic nationalism as subversive.

Unlike the circumstance when the Constitution was adopted and private firearms were as good or better than military ones, there is no comparison today in delivery of devastating, deadly force. Trump himself seems to anticipate that the military would come out on his side:

‘“These people, like the Antifa — they better hope that the opposition to Antifa decides not to mobilize,” Trump said recently. “Because if you look, the other side, it’s the military. It’s the police. It’s a lot of very strong, a lot of very tough people. Tougher than them. And smarter than them … Potentially much more violent. And Antifa’s going to be in big trouble.” [...]

‘Some on far-right social media sites are all excited about what they’re calling “Civil War 2.0.” As documented by Dave Neiwert, there are various “Proud Boys” and “Patriots” living a fantasy version of Hank Williams Jr.’s “Country Boys Can Survive” almost entirely online.

‘“If they succeed in impeaching President Trump, then we will back President Trump,” one Georgia militiaman told reporters. “With a use of force if need be.”’

Well, maybe. In a conflict that would look nothing like America’s organized and relatively polite War Between the States (1861-1865) and more like the brutal communal conflicts in Yugoslavia (1991-1995), Spain (1936-1939), or Russia (1917-1922) estimates vary widely on how the military would divide. The same can be said for police forces, some of them heavily militarized.

Or perhaps the historic American nation, whose last-chance champion Trump was elected to be, would give up without a fight and submit to a tyranny that would, eventually, result in some even more fundamental societal collapse.

Americans like to imagine ourselves as rough-hewn, freedom-loving, don't-tread-on-me rebels. But after decades of corruption and conditioning by politicians, judges, bureaucrats, educators, entertainers, media, advertising, pharmaceuticals, processed foods, etc., today’s Americans may well be among the most docile people on earth.

Maybe that’s how America ends: not with a bang but a whimper. Let’s hope we don’t have occasion to find out.

Published:1/12/2019 2:17:42 PM
[Markets] Why Dismissing Globalist Warnings As "Project Fear" May Prove A Mistake

Authored by Steven Guinness,

In film and literature, the majority of stories feature a customary villain, either in a singular or collective sense. Someone or something that we can pour scorn on as the hero flounders in the face of increasingly insurmountable odds.

Whilst the hero invariably wins out in the world of fantasy, in reality the spoils often fall on the side of the miscreants. A discomforting fact is that throughout history a large proportion of these spoils have been claimed through the use of deception and outright conspiracy.

Authors such as Antony Sutton – who penned several books exposing the engineered conflict behind the Bolshevik Revolution and the rise of Adolf Hitler and Nazism – have presented irrefutable evidence detailing how world events can and are manipulated for the benefit of financial elites using what is known as the Hegelian Dialectic. This is where you create a thesis, pitch it against an antithesis, and use the ensuing conflict to engineer a synthesis that brings about significant but desired changes within society.

As I have written about previously, out of conflict generally comes the consolidation of power that works to the benefit of major global institutions like the International Monetary Fund and the Bank for International Settlements. They, along with the World Bank, the League of Nations, the United Nations and the makings of the European Union, were all conceived as a direct consequence of global conflict.

For globalists, chaos breeds opportunity. Historically, they have required crisis scenarios in order to both advance their goals and position themselves as the solution to instability.

We can find evidence for this from the IMF and it’s current head Christine Lagarde. In February 2010, Lagarde (who at the time was France’s Minister of Finance) was interviewed by The Globe and Mail and asked about the fall-out from the financial crisis of 2008:

I think that out of crisis, there are major difficulties and misery, but there are also opportunities, and now is the time, actually, post-crisis, after we mended the system so that it did not completely collapse, now is the time to give it a good thought, and a collective thought.

A month later, the IMF published a survey – the title of which left nothing to the imagination: ‘Crisis is Opportunity for Deeper, Faster Integration‘. Dominique Strauss-Kahn, who was replaced by Christine Lagarde as managing director of the IMF in 2011, said:

The crisis shows when the weather is quiet, existing institutions work well enough. But when you have a storm, then weaknesses of this institution appear clearly. And better coordination and stronger coordination in economic policy in my view is absolutely needed.

When you build a single currency, the natural step that follows should be a coordinated economic policy. Beyond monetary policy, Europeans must give themselves the means to manage economic policy.

Yet there exists a common place theory – perpetuated throughout alternative media and by proponents of liberty – that globalists will always seek to curtail attempts by the citizenry to jeopardise the ‘rules based global order‘ established out of the second world war. The belief is that any movement which on the surface rails against the centralisation of power will be sabotaged to the point of it’s inevitable defeat.

To challenge this theory, let’s look at what has become the latest fashionable meme to permeate the British mainstream – ‘Project Fear‘.

First used in the run up to the Scottish independence vote in 2014, ‘Project Fear‘ is a term that grew in prominence during the EU referendum campaign back in 2016. Today, it is wheeled out every time a warning is issued in regards to the potential for a ‘no deal Brexit. When those within the central banking fraternity (namely Bank of England governor Mark Carney and IMF head Christine Lagarde) speak out against no deal, it is interpreted as an attempt to first undermine Brexit, and secondly, seek to have the original referendum result overturned and keep the EU architecture intact.

In other words, we are encouraged to believe that they are striving to preserve the international order and that Brexit is incompatible with that ambition. What is not countenanced is the possibility of globalists using mechanisms such as a resurgence in nationalism to their advantage.

As demonstrated in previous articles, the economic ramifications from the first referendum resulted in a sustained depreciation of sterling that led to a rise in inflation. In response, the Bank of England have raised interest rates twice under the banner of stemming inflationary pressures. These rate hikes were not an isolated act. Elsewhere, the Federal Reserve and the Bank of Canada have also been raising rates, as have countries in emerging markets.

The trend of monetary accommodation has now shifted to monetary tightening, in the face of growing geopolitical and economic instability.

The first indication that this shift was coming occurred at the World Economic Forum at Davos in 2014, when Christine Lagarde mapped out what she described as a necessary ‘reset‘ of global monetary policies. This is an area I discussed in detail in my last article, ‘Monetary Policy ‘Reset’: From Rhetoric to Actuality‘.

Consider this: 2008 became a crisis of the global financial system. Interest rates were subsequently cut to near 0% across the West. Stimulus programmes were devised in the form of quantitative easing to re-liquidate markets and keep failing institutions afloat. In the years following, inflation rose above the mandated central bank target of 2%. This was tolerated indefinitely as Central banks continued to inject more money into the system amidst rising inflation. What we witnessed were actions to backstop the system, and to reinforce that backstop with the issuance of cheap money. With the debt bubble re-inflated, the illusion of economic recovery began to gain momentum.

Eleven years later in 2019, what we are being presented with are a series of politically led crises. Inflation has crept above target, which is no longer being tolerated in the same manner as before. Interest rates are rising, stimulus measures are either being cut or reversed. These are actions that unlike in 2018 do not serve to reinforce the financial system. At a time of record levels of consumer and corporate debt, intermixed with the aforementioned rise in nationalism / protectionism, monetary policy continues to tighten. Read communications emanating from the Bank of England and you will see that unlike several years ago, inflation mandates now matter again. This has created the perception of Brexit being the cause of a rise in interest rates.

The plan as far back as 2014 was to eventually reach a point where monetary accommodation could be reversed. The geopolitical conditions over the past three years have created a pathway for this to happen. Brexit has enabled the Bank of England to play their role in tightening policy. Prior to that the BOE had no discernible route in which to do so, not without inviting excess scrutiny and inquisition onto themselves.

Monetary policy is an essential tool in the creation of boom and bust cycles. At each stage of these cycles central banks covertly gain more control over the financial system. In 2008 they went all in and became the custodian of markets. Today they are retreating, which soon will precipitate an economic collapse. How they will benefit from this is through tighter regulations and reformulated policies administered from the global level, and the advancement of the long held plan for the gradual implementation of central bank issued digital currency.

This is why I would contest that the purpose behind ‘project fear‘ is not to prevent a no deal Brexit. When Mark Carney affirms that a consequence of no deal will be further devaluation of the pound and heightened inflation, these are prime conditions for the BOE to continue tightening.

I look upon ‘project fear‘ as the BOE and the IMF telegraphing what is most likely to happen. It is my belief that a second referendum will take place in 2019, perhaps around the time when the Bank for International Settlements are due to hold their annual conference in June. I also think the referendum would give the electorate the option of voting for a ‘hard‘ Brexit.

But as the furore over Brexit grinds on, the venue from which Christine Lagarde launched the IMF’s plans for a ‘reset‘ in 2014 are preparing to gather again in January. The theme for the 2019 World Economic Forum is, ‘Globalization 4.0: Shaping a New Architecture in the Age of the Fourth Industrial Revolution.’ The Fourth Industrial Revolution (4IR) is a subject I wrote about last year where I argued the case for it being mission creep towards a new world order that encompassed virtually all elements of society.

To quote WEF founder Klaus Schwab directly:

Our systems of health, transportation, communication, production, distribution, and energy – just to name a few – will be completely transformed.

Blockchain and distributed ledger technology, both of which are fundamental in the drive towards digital currency, are also part of the 4IR vision.

It was in December 2015 that Schwab first outlined the concept of 4IR in an article posted by Foreign Affairs (which is published by the Council on Foreign Relations). 4IR became the leading theme at Davos in 2016. Three years later and it is once again central to the WEF’s agenda.

It should be noted that whilst Schwab and other globalist figureheads talk of transforming society, they admit that the scale of change brought about through 4IR will cause ‘disruptions‘. It could be argued that these ‘disruptions‘ – most notably on a geopolitical level –  present a timely distraction for the incremental adoption of the main planks of 4IR.

Discussing ‘Globalization 4.0‘, Schwab speaks of a necessity for the ‘international community‘ to band together in order to ‘build a shared future‘. Schwab cites the present day as an ‘era of widespread insecurity and frustration‘, which he subsequently blames for a rise in populism. That is the same populism through which the ‘reset‘ of the financial system is being administered.

As globalists gradually make steps towards their goals, they sometimes become a touch more forthright in their communications. Schwab is no different in this respect:

Clinging to an outdated mindset and tinkering with our existing processes and institutions will not do. Rather, we need to redesign them from the ground up, so that we can capitalize on the new opportunities that await us.

Ready or not, a new world is upon us.

Be in no doubt that globalists are now openly agitating for major reform off the back of intensified geopolitical disorder. From a monetary perspective, I would encourage readers to be wary of the IMF’s impending ‘15th General Review of quotas‘, which they say must be completed by the time of the institution’s annual meetings in October this year. At the 14th general review, finalised nine years ago, the IMF’s quotas (measured in SDR’s) doubled in size in the aftermath of 2008.

Quite what economic conditions will be by the end of 2019 is unknown, but a significant deterioration from where we are now will allow the IMF the opportunity to use the 15th review to strengthen the role of the SDR via an increase in quotas.

The review also presents the IMF with the opportunity to ‘realign‘ quota shares, meaning a likelihood that the Chinese Renminbi will see its allocation increased at the expense of the U.S. dollar.

Published:1/12/2019 6:13:32 AM
[World] [John K. Ross] Short Circuit: A Roundup of Recent Federal Court Decisions

Sovereign immunity, absolute immunity, qualified immunity, and the agora of the digital age.

Please enjoy the latest edition of Short Circuit, a weekly feature from the Institute for Justice.

Ohio's licensing boards may soon be in for an existential crisis. A sweeping reform signed last week by Gov. John Kasich will require all state boards to prove a "public need for [their] continued existence," lest they expire. And to stem the growth of licensing red tape (which already covers almost a fifth of the state's workforce), a commission will rigorously review any proposed occupational regulations to ensure they're necessary and the "least restrictive" option to protect the public. IJ's Nick Sibilla has more at Forbes.com.

  • Unnamed corporation owned by an unnamed foreign gov't declines to comply with a federal grand jury subpoena (in what is believed to be the Mueller investigation of Russian interference in the 2016 presidential election). District court: So pay a $50k daily fine. Corporation: Can't make us; we're immune under the Foreign Sovereign Immunities Act. D.C. Circuit: Assuming without deciding that the Act applies to criminal cases, you still gotta comply or fork over the money. (SCOTUS: The corporation's application for a stay is denied.)
  • Last March, the FAA ordered an airplane maintenance company to cease its operations. The D.C. Circuit was set to consider the matter today. But wait! The gov't is shut down, and the Antideficiency Act generally prohibits gov't employees from working without an appropriation. FAA: Please postpone until we get funded. D.C. Circuit: No dice. Concurrence: Common practice is to continue with oral argument during shutdowns, so we'll do that. Dissent: Charles Dickens addressed this approach ("'Whatever is is right'; an aphorism that would be as final as it is lazy, did it not include the troublesome consequence, that nothing that ever was, was wrong."). The law is clear; we should postpone until there's an appropriation.
  • Allegation: Identity thief is captured on video buying gift cards ($28k total) at Home Depots in three Monroe County, N.Y. towns. Police arrest a different man who'd made small purchases at Home Depots in two of the towns around the same time. Prosecutors arraign the man in only one of the towns; a bail bondsman refuses to bond the man out lest he immediately be rearrested on the charges in the other towns. He ultimately spends 28 days in jail (and misses sitting for the bar exam). He's acquitted of all charges. Second Circuit: He can't sue the prosecutors for failing to arraign him in the other towns. (His false arrest and other claims against police are still proceeding below.)
  • Dignifying millennials and trolls alike, the Fourth Circuit sees Facebook as the agora of the digital age. Which means a Loudoun County, Va. supervisor violated the First Amendment when she banned a critic (alleging school board corruption) from her public Facebook page. The page's interactive aspects constituted a public forum.
  • Allegation: Inmate at Roanoke, Va. prison trips. Officers who were escorting him (handcuffed and in leg irons) pull his hair and slam his head into the concrete. Prison admin: No need to check the video. The officers say that's not what happened. District court: The inmate filed suit too late. Case dismissed. Fourth Circuit: Not so. The statute of limitations started running when the inmate exhausted the prison's internal review process. If it had started running at the time of the alleged beating (as the district court found), prison officials would have had a perverse incentive to stall their internal reviews.
  • Federal employee with bulging discs, other medical conditions requests several workplace accommodations, all of which are granted except request not to inform his supervisor of his work schedule. He sues. Failure to accommodate? Hostile work environment? Discrimination? Retaliation? The suit should not have been dismissed, says the Fourth Circuit. It was not in fact filed too early.
  • North Charleston, S.C. officer shoots unarmed motorist, who was fleeing on foot, in the back, killing him. Footage of the shooting goes viral. The officer, admitting he acted willfully and unreasonably, pleads guilty to depriving the deceased of his civil rights. Fourth Circuit: And that amounts to second-degree murder. Twenty-year sentence affirmed.
  • Allegation: In 2009, Mexican citizen illegally in U.S. tells authorities that her ex, the father of two of her children and a drug cartel member, has threatened to kill her. She weeps; CBP agents coerce her into signing a form requesting voluntary return to Mexico. She's driven back to Mexico, where her ex murders her days later. Fifth Circuit: Can't sue over that.
  • Man contacts FBI, alleges that Washington Parish, La. district attorney is engaged in shady tax dealings with a pastor. Yikes! The man is arrested for failure to pay child support and denied bail because of "DA Hold." He spends 100 days in jail. He sues the (now-former, now-convicted) DA and the pastor, alleging false imprisonment, First Amendment retaliation, and due process violations. Fifth Circuit: And those claims should have been allowed to proceed, not least because the "mysterious and unheard-of 'DA Hold'" is not a thing.
  • Flint, Mich. officials (with state officials' approval) switch city's municipal water source in 2014 to save money, unleash public health disaster. Plaintiffs: And violated our right to bodily integrity. Officials: We get sovereign immunity, which doesn't normally apply to cities, but our day-to-day operations had been taken over by the state, thus transforming the city into an arm of the state. Sixth Circuit: Nope. But some defendants get qualified immunity. Partial dissent: No court has ever recognized a Fourteenth Amendment right to bodily integrity. Everyone should get qualified immunity.
  • In other police shooting news, the Seventh Circuit affirmed the conviction of a Chicago police officer who shot 16 times at a car full of teenagers. This one was caught on video, too. (Thankfully, no one died.)
  • Peoria, Ill. police arrest a 14-year-old for a double murder. He's tried as an adult and convicted, spends 30 years in prison. He's paroled; the governor commutes the rest of his sentence (leaving the conviction intact) and later pardons him (sweeping the conviction from the books). He sues the city and several officers, alleging that, among other unsavory things, they fabricated evidence, destroyed evidence, and coerced a false confession during 31 hours of interrogation over two days. District court: Too late. The suit should've been brought within two years of the commutation. Seventh Circuit: No, the clock started when he was pardoned. The suit may proceed. (See his page on the National Registry of Exonerations for more.)
  • Allegation: Ferguson, Mo. officials arrest people who are unable to pay fines for minor offenses and keep them in crowded, unsanitary jail indefinitely—until friends or family scrape together the cash. Ferguson officials: We get sovereign immunity, which usually only applies to state officials, but the injuries alleged (except for the jail conditions) are attributable to the local court, which is an arm of the state. Eighth Circuit: The suit can proceed.
  • Unlawful alien, caught possessing a firearm, is charged with violating a federal law that categorically bars unlawful aliens from possessing firearms. Defense: That law violates the Second Amendment. Ninth Circuit: We're not sure whether the Second Amendment applies to unlawful aliens in the first place, but even if it does, this law passes muster. It's sufficiently tailored to the government's crime-control interests since unlawful aliens are subject to removal, are often hard to trace, and "have already shown they are unable or unwilling to conform their conduct to the laws of this country."
  • Social services removes two boys from Pierce County, Wash. home they share with their father and grandfather after authorities discover grandfather's trove of child porn. The boys are moved to their maternal grandparents' home and permitted to visit their father, who is the lead suspect in the disappearance of the boys' mother, under the supervision of a social worker. On their final visit, the boys run ahead of the social worker to greet their father; he locks the social worker out, murders the boys, sets the house on fire, and kills himself. Ninth Circuit: Could be the dep't of social services was negligent.
  • Woman uses false ID to purchase firearm for her ex, who's on the run from police in connection with a Phoenix, Ariz. double homicide. She's convicted, sentenced to 30 months in prison. Ninth Circuit (over a dissent): New trial. She should have been allowed to present expert testimony on Battered Woman Syndrome.
  • If "the overriding mission" of your religion is "the achievement of White racial immortality"—well, the Tenth Circuit might decide it's not a religion at all. And that's the end of those free-exercise claims. Turns out courts aren't sympathetic when you challenge the conditions of the maximum security prison sentence you got for trying to murder a federal judge.
  • Greene County, Ga. patrolman pulls over a car for a turn signal that is blinking too rapidly. He then asks about unrelated matters (e.g., "You don't have any dead bodies in your car?"). The driver consents to a search of the car, which yields a firearm (which the motorist, a convicted felon, cannot possess). Eleventh Circuit: The initial stop was reasonable, but per a 2015 U.S. Supreme Court decision, prolonging the stop by asking unrelated questions was not. Nevertheless, the good faith exception to the exclusionary rule applies because the driver was pulled over in 2013. No need to suppress the evidence.
  • New Jersey law authorizes local gov'ts to adopt redevelopment plans, condemn property that is "necessary" for redevelopment. Glassboro, N.J. officials seek to condemn a parcel, but instead of detailing how the land is necessary to its redevelopment project, the borough says only that it wants to stockpile the parcel for possible future redevelopment. Not so fast, says the New Jersey Appellate Division. "Such a 'take first, decide later' approach is contrary to both the text of the statute and its public accountability objectives." (IJ participated in oral argument and as amicus curiae.
  • Vermont state trooper pulls over motorist for partially obscured registration sticker on his license plate, which is not actually an infraction. The trooper detects faint smell of burnt marijuana, but a pat-down yields no contraband, and the trooper determines the motorist is unimpaired. The motorist declines permission for a search of his vehicle, so it is towed to an impound lot while search warrant is secured. The search yields no contraband, but the motorist must pay $150 to retrieve the vehicle. (The search does turn up a small pipe with marijuana residue, but that's not criminal in Vermont these days.) Vermont trial court: Tough luck, motorist; the statutes are inapplicable to this situation, so you have no judicial remedy. Vermont Supreme Court: The Vermont Constitution provides an avenue for the motorist to obtain damages from the state, and sovereign immunity doesn't block that. Remand to determine whether the trooper's activities violated the motorist's constitutional rights.

Friends, the Cato Institute would like to publish a book written by a businessman who believes he was falsely accused of malfeasance by the Securities and Exchange Commission. Faced with the threat of cripplingly expensive litigation (even if he won), the businessman settled. Now he wants to share the story of how the SEC used its enormous power to extract the settlement. But one condition of the settlement is that he must never publicly dispute the allegations against him. This week, Cato, represented by IJ, launched a First Amendment challenge to the agency's policy of imposing such gag orders, a policy that serves no legitimate public purpose but does shield the agency from public scrutiny of its enforcement actions. Click here to read more.

Published:1/11/2019 3:40:13 PM
[Entertainment] Netflix faces $25 million lawsuit over ‘Black Mirror: Bandersnatch’ If you watched Netflix’s latest ‘Black Mirror’ production, there’s no doubt it reminded you of the “Choose Your Own Adventure” books. Now, the publisher that owns the trademark to “Choose Your Own Adventure,” Chooseco, LLC, is suing Netflix. The publisher is alleging trademark infringement, The Hollywood Reporter first reported. In the complaint, Chooseco says Netflix […] Published:1/11/2019 12:42:37 PM
[Markets] Covert British Military-Smear Machine Moving Into US

Authored by Max Blumenthal and Mark Ames via ConsortiumNews.com,

After mobilizing a disinformation campaign across Europe, documents show that the Integrity Initiative is now infiltrating the US...

A bombshell domestic spy scandal has been unfolding in Britain, after hacked internal communications exposed a covert U.K. state military-intelligence psychological warfare operation targeting its own citizens and political figures in allied NATO countries under the cover of fighting “Russian disinformation.” 

The leaked documents revealed a secret network of spies, prominent journalists and think-tanks colluding under the umbrella of a group called “Integrity Initiative” to shape domestic opinion—and to smear political opponents of the right-wing Tory government, including the leader of the opposition Labour Party, Jeremy Corbin.

Until now, this Integrity Initiative domestic spy scandal has been ignored in the American media, perhaps because it has mostly involved British names. But it is clear that the influence operation has already been activated in the U.S.. Hacked documents reveal that the Integrity Initiative is cultivating powerful allies inside the State Department, top D.C. think tanks, the FBI and the Department of Homeland Security, where it has gained access to Katharine Gorka and her husband, the fascist-linked cable news pundit Sebastian Gorka

The Integrity Initiative has spelled out plans to expand its network across the U.S., meddling in American politics and recruiting “a new generation of Russia watchers” behind the false guise of a non-partisan charity. Moreover, the group has hired one of the most notorious American “perception management” specialists, John Rendon, to train its clusters of pundits and cultivate relationships with the media. 

Back in the U.K., Member of Parliament Chris Williamson has clamored for an investigation into the Integrity Initiative’s abuse of public money.

In a recent editorial, Williamson drew a direct parallel between the group’s collaboration with journalists and surreptitious payments the CIA made to reporters during the Cold War.

“These tactics resemble those deployed by the CIA in Operation Mockingbird that was launched at the height of the cold war in the early 1950s. Its aims included using the mainstream news media as a propaganda tool,” Williamson wrote.

“They manipulated the news agenda by recruiting leading journalists to write stories with the express purpose of influencing public opinion in a particular way,” the Labour parliamentarian continued. “Now it seems the British Establishment have dusted off the CIA’s old playbook and is intent on giving it another outing on this side of the Atlantic.”

Unmasking a Smear Machine

The existence of the Integrity Initiative was virtually unknown until this November, when the email servers of a previously obscure British think tank called the Institute for Statecraft were hacked, prompting allegations of Russian intrusion. When the group’s internal documents appeared at a website hosted by Anonymous Europe, the public learned of a covert propaganda network seed-funded to the tune of over $2 million dollars by the Tory-controlled U.K. Foreign Office, and run largely by military-intelligence officers.

Through a series of cash inducements, off-the-record briefings and all-day conferences, the Integrity Initiative has sought to organize journalists across the West into an international echo chamber hyping up the supposed threat of Russian disinformation—and to defame politicians and journalists critical of this new Cold War campaign. 

bid for funding submitted by the Integrity Initiative in 2017 to the British Ministry of Defense promised to deliver a “tougher stance on Russia” by arranging for “more information published in the media on the threat of Russian active measures.”

The Integrity Initiative has also worked through its fronts in the media to smear political figures perceived as a threat to its militaristic agenda. Its targets have included a Spanish Department of Homeland Security appointee, Pedro Banos, whose nomination was scuttled thanks to a media blitz it secretly orchestrated; Jeremy Corbyn, whom the outfit and its media cutouts painted as a useful idiot of Russia; and a Scottish member of parliament, Neil Findlay, whom one of its closest media allies accused of adopting “Kremlin messaging” for daring to protest the official visit of the far-right Ukrainian politician Andriy Parubiy — the founder of two neo-Nazi parties and author of a white nationalist memoir, “View From The Right.”

These smear campaigns and many more surreptitiously orchestrated by the Integrity Initiative offer a disturbing preview of the reactionary politics it plans to inject into an already toxic American political environment. 

Aggressive Expansion

A newly released Integrity Initiative document reveals that the outfit plans an aggressive expansion across the U.S. 

The Integrity Initiative claims to have already established a “simple office” in Washington, D.C., though it does not say where. It also boasts of partnerships with top D.C. think tanks like the Atlantic Council, the Center for European Policy Analysis, Center for Naval Analyses (CNA) and its close relationships with U.S. officials. 

A major hub of Integrity Initiative influence is the State Department’s Global Engagement Center, a de facto U.S. government propaganda operation that was established by President Barack Obama to battle online ISIS recruitment, but which was rapidly repurposed to counter Russian disinformation following the election of Trump.

The Integrity Initiative has also recruited one of the most infamous American PR men to organize its clusters of journalists and political figures. 

He is John Rendon, best known as “The Man Who Sold The War”— several wars, in fact, but most notoriously the Iraq invasion. Rendon was the self-described “information warrior” who planted fake news in major U.S.-U.K. media about non-existent WMD threats. With deep ties to the CIA and other military-intelligence agencies, his PR firm was paid $100 million to organize and sell Ahmed Chalabi’s Iraqi National Congress. In 2002, The New York Times exposed a Pentagon program using Rendon to plant “disinformation” — including “false stories” and “the blackest of black PR” — in media outlets around the world, in order to shape public opinion and sell the Iraq invasion. 

John Rendon (left) with Maj. Gen. Michael Snodgrass, US Africa Command Chief of Staff (US Africom Public Affairs)

Journalist James Bamford outlined a catalogue of disinformation feats Rendon performed for the Pentagon, such as identifying “the biases of specific journalists and potentially obtain an understanding of their allegiances, including the possibility of specific relationships and sponsorships.” Bamford also found proposals and programs Rendon was involved in that aimed to “‘coerce’ foreign journalists and plant false information overseas… [and] find ways to ‘punish’ those who convey the ‘wrong message.’”

These tactics seem particularly relevant to his work with the Integrity Initiative, especially considering the internal documents that reveal further Rendon-style plans to produce reports and studies to be “fed anonymously into local media.” (Among the outlets listed as friendly hosts in Integrity Initiative internal memos are Buzzfeed and El Pais, the center-left Spanish daily.)

Keeping up With the Gorkas

Sebastian Gorka, in Vitezi Rend garb, with his wife, Katharine, on Election Night.

Internal documents also refer to interactions between Integrity Initiative Director Chris Donnelly and top Trump officials such as Katharine Gorka, a vehemently anti-Muslim Department of Homeland Security official, as well as her husband, Sebastian, who earned right-wing fame during his brief tenure in Trump’s White House. 

The latter Gorka is an open supporter of the Hungarian Vitezi Rend, a proto-fascist order that collaborated with Nazi Germany during its occupation of Hungary. Following Trump’s election victory in 2016, Gorka appeared for televised interviews in a black Vitezi Rend uniform. 

Gorka was among the first figures listed on an itinerary for Donnelly to Washington this Sept. 18 to 22. The itinerary indicates that the two had breakfast before Donnelly delivered a presentation on “Mapping Russian Influence Activities” at the federally funded military research center, CNA.

According to the itinerary, Donnelly was granted access to Pentagon officials such as Mara Karlin,an up-and-coming neoconservative cadre, and John McCain Institute Executive Director Kurt Volker, another neoconservative operative who also serves as the U.S. special representative for Ukraine. Numerous meetings with staffers inside the State Department’s Office of Global Engagement were also detailed. 

Foreign Agent in State?

Of all the State Department officials named in Integrity Initiative documents, the one who appeared most frequently was Todd Leventhal. Leventhal has been a staffer at the State Department’s Global Engagement Center, boasting of “20 years of countering disinformation, misinformation, conspiracy theories, and urban legends.” In an April 2018 Integrity Initiative memo, he is listed as a current team member:

Funded to the tune of $160 million this year to beat back Russian disinformation with “counter-propaganda,” the State Department’s Global Engagement Center has refused to deny targeting American citizens with information warfare of its own. “My old job at the State Department was as chief propagandist,” confessed former Global Engagement Center Director Richard Stengel. “I’m not against propaganda. Every country does it and they have to do it to their own population and I don’t necessarily think it’s that awful.”

Like so many of the media and political figures involved in the Integrity Initiative’s international network, the Global Engagement Center’s Leventhal has a penchant for deploying smear tactics against prominent voices that defy the foreign policy consensus. Leventhal appeared in an outtake of a recent NBC documentary on Russian disinformation smugly explaining how he would take down a 15-year-old book critical of American imperialism in the developing world. Rather than challenge the book’s substance and allegations, Leventhal boasted how he would marshal his resources to wage an ad hominem smear campaign to destroy the author’s reputation. His strategic vision was clear: when confronting a critic, ignore the message and destroy the messenger.

Integrity Initiative documents reveal that Leventhal has been paid $76,608 dollars (60,000 British pounds) for a 50 percent contract. 

While those same documents claim he has retired from the State Department, Leventhal’s own Linkedin page lists him as a current “Senior Disinformation Advisor” to the State Department. If that were true, it would mean that the State Department was employing a de facto foreign agent.

As a cut-out of the British Foreign Office and Defense Ministry, the Integrity Initiative’s work with current and former U.S. officials and members of the media raises certain legal questions. For one, there is no indication that the group has registered under the Justice Department’s Foreign Agent Registration Act, as most foreign agents of influence are required to do.

Grants from Neocon Foundation

An Integrity Initiative memo states that the right-wing Smith Richardson Foundation has also committed to ponying up funding for its U.S. network as soon as the group receives 501 c-3 non-profit status. The foundation has already provided it with about $56,000 for covert propaganda activities across Europe.

The Smith Richardson Foundation has old ties to the U.S. intelligence community and controversial cold war influence operations. According to reporter Russ Bellant, the foundation was secretly bankrolling radical right-wing “indoctrination campaigns for the American public on Cold War and foreign policy issues”— programs that got the attention of Senator William Fulbright, who warned then-President John F. Kennedy of their dangers. At one of these indoctrination seminars, a Smith Richardson Foundation director “told attendees that ‘it is within the capacity of the people in this room to literally turn the State of Georgia into a civil war college,’ in order to overcome their opponents.”

Smith Richardson has funded a who’s who of the neoconservative movement, from hyper-militaristic think tanks like the American Enterprise Institute to the Institute for the Study of War. “To say the [Smith Richardson] foundation was involved at every level in the lobbying for and crafting of the so-called global war on terror after 9/11 would be an understatement,” wrote journalist Kelley Vlahos.

Besides Smith Richardson, the Integrity Initiative has stated its intention to apply for grants from the State Department “to expand the Integrity Initiative activities both within and outside of the USA.” This is yet another indicator that the U.S. government is paying for propaganda targeting its own citizens. 

‘Main Event’ in Seattle

An Integrity Initiative internal document argues that because “DC is well served by existing US institutions, such as those with which the Institute [for Statecraft] already collaborates,” the organization should “concentrate on extending the work of the Integrity Initiative into major cities and key State capitals [sic] across the USA.”

This Dec. 10, the Integrity Initiative organized what it called its “main event” in the U.S. It was a conference on disinformation held in Seattle, under the auspices of a data firm called Adventium Labs. Together with the Technical Leadership Institute at the University of Minnesota, the Integrity Initiative listed Adventium Labs as one of its “first partners outside DC.”

Adventium is a Minneapolis-based research and development firm that has reaped contracts from the U.S. military, including a recent $5.4 million cyber-security grant from the Pentagon’s Defense Advanced Research Projects Agency, or DARPA. 

Inside a modest-sized hotel conference room, the Adventium/Integrity event began with a speech by the Integrity Initiative’s Simon Bracey-Lane. Two years prior, Bracey-Lane appeared on the American political scene as a field worker for Bernie Sanders’ 2016 presidential primary run, earning media write-ups as the “Brit for Bernie.” Now, the young operator was back in the U.S. as the advance man for a military-intelligence cut-out that specialized in smearing left-wing political figures like Jeremy Corbyn, the Labour leader widely regarded as the British version of Sanders.

Bracey-Lane opened his address by explaining that Integrity Initiative director Chris Donnelly had been unable to appear at the event, possibly because he was bogged down in the scandal back home. He proceeded to read remarks prepared by Donnelly that offered a window into the frighteningly militaristic mindset the Integrity Initiative aims to impose on the public through their media and political allies.

According to Donnelly’s comments, the West was no longer in a “peace time, rules based environment.” From the halls of government to corporate boardrooms to even the U.K.’s National Health System, “the conclusion is that we have to look for people who suit a wartime environment rather than peacetime.”

During a Q&A, Bracey-Lane remarked that “we have to change the definition of war to encompass everything that war now encompasses,” referring vaguely to various forms of “hybrid warfare.” 

“There is a great deal to be done in communicating that to young people,” he continued. “When we mean being at war we don’t mean sending our boys off to fight. It’s right here in our homes.”

The emphasis on restructuring society along martial lines mirrored the disturbing thinking also on display in notes of a private meeting between Donnelly and Gen. Richard Barrons in 2016. During that chat, the two officers decided that the British military should be removed from democratic supervision and be able to operate as “an independent body outside politics.”

While Bracey-Lane’s presentation perfectly captured the military mindset of the Integrity Initiative, the speakers that followed him offered a diverse array of perspectives on the concept of disinformation, some more nuanced than others. But one talk stood out from the rest — not because of its quality, but because of its complete lack thereof.

Alexander Reid Ross (left) and Emmi Bevensee at the Integrity Initiative’s “main event” in Seattle.

Theorist of ‘Red-Brown’ Networks

The presentation was delivered by Alexander Reid Ross, a half-baked political researcher who peddles computer-generated spiderweb relationship charts to prove the existence of a vast hidden network of “red-brown” (or fascist-communist) alliances and “syncretic media” conspiracies controlled by puppeteers in Moscow. 

Ross is a lecturer on geography at Portland State University with no scholarly or journalistic credentials on Russia. But with a book, “Against the Fascist Creep,” distributed by the well-known anarchist publishing house, AK Press, the middling academic has tried to make his name as a maverick analyst. 

Before the Integrity Initiative was exposed as a military-intelligence front operation, Ross was among a small coterie of pundits and self-styled disinformation experts that followed the group’s Twitter account. The Integrity Initiative even retweeted his smear of War Nerd podcast co-host John Dolan.

In a series of articles for the Southern Poverty Law Center last year, Ross attempted to bring his warmed-over Cold War theories to the broader public. He wound up trashing everyone from the co-author of this piece, Max Blumenthal, to Nation magazine publisher Katrina Vanden Heuvel to Harvard University professor of international relations Stephen Walt as hidden shadow-fascists secretly controlled by the Kremlin. 

The articles ultimately generated an embarrassing scandal and a series of public retractions by the editor-in-chief of the Southern Poverty Law Center, Richard Cohen. And then, like some Dr. Frankenstein for discredited and buried journalism careers, the British Ministry of Defense-backed Integrity Initiative moved in to reanimate Ross as a sought-after public intellectual. 

Before the Integrity Initiative-organized crowd, Ross offered a rambling recitation of his theory of a syncretic fascist alliance puppeteered by Russians: “The alt right takes from both this ‘red-brown,’ it’s called, or like left-right syncretic highly international national of nationalisms, and from the United States’ own paleoconservative movement, and it’s sort of percolated down through college organizing, um, and anti-interventionism meets anti-imperialism. Right?”

In a strange twist, Ross appeared on stage at the Integrity Initiative’s Seattle event alongside Emmi Bevensee, a contributor to the left-libertarian Center for a Stateless Society (C4SS) think tank, whose tagline, “a left market anarchist think-tank” expresses its core aim of uniting far-left anarchists with free-market right-libertarians. 

Bevensee, a PhD candidate at the University of Arizona and self-described “Borderlands anarcho into tech and crypto,” concluded her presentation by asserting a linkage between the alternative news site, Zero Hedge, and the “physical militarized presence in the borderlands” of anti-immigrant vigilantes.

 Like Bevensee, Ross has written for C4SS in the past. 

The irony of contributors to an anarchist group called the “Center for a Stateless Society” auditioning before The State – the most jackbooted element of it, in fact – for more opportunities to attack anti-war politicians and journalists, can hardly be overstated.

But closer examination of the history of C4SS veers from irony into something much darker and more unsettling.

White Nationalist Associates

C4SS was co-founded in 2006 by a confessed child rapist and libertarian activist, Brad Spangler, who set the group up to promote “Market anarchism” to “replace Marxism on the left.”

When Spangler’s child rape confessions emerged in 2015, the Center for Stateless Society founder was finally drummed out by his colleagues. 

There’s more: Spangler’s understudy and deputy in the C4SS, Kevin Carson — currently listed as the group’s “Karl Hess Chair in Social Theory” — turned out to be a longtime friend and defender of white nationalist Keith Preston. Preston’s name is prominently plastered on the back of Kevin Carson’s book, hailing the C4SS man as “the Proudhon of our time” — a loaded compliment, given the unhinged anti-Semitism of Pierre-Joseph Proudhon, the influential 19thCentury French anarchist.

Carson only disowned Preston in 2009, shortly before Preston helped white nationalist leader Richard Spencer launch his alt-right webzine, Alternative Right.

The C4SS group currently participates in the annual Koch-backed International Students For Liberty conference in Washington, D.C., LibertyCon, a who’s who of libertarian think-tank hacks and Republican Party semi-celebrities like Steve Forbes, FCC chairman Ajit Pai, and Alan Dershowitz.

In 2013, C4SS’s Kevin Carson tweeted out his dream fantasy that four Jewish leftists—Mark Ames, co-author of this article; Yasha Levine; Corey Robin, and Mark Potok — would die in a plane crash while struggling over a single parachute. Potok was an executive editor at the Southern Poverty Law Center, which last year retracted every one of the crank articles that Alexander Reid Ross published with them and formally apologized for having run them.

For some reason, the super-sleuth Ross conveniently failed to investigate the libertarian group, C4SS, that he has chosen to partner with and publish in. That ability to shamelessly smear and denounce leftists over the most crudely manufactured links to the far-right—while cozying up to groups as sleazy as C4SS and authoritarian as the Integrity Initiative —is the sort of adaptive trait that MI6 spies and the Rendon Group would find useful in a covert domestic influence operation.

Ross did not respond to our request for comment on his involvement with the Integrity Initiative and C4SS.

Disinformation for Democracy

As it spans out across the U.S., the Integrity Initiative has stated its desire to “build a younger generation of Russia watchers.” Toward this goal, it is supplementing its coterie of elite journalists, think tank hacks, spooks and State Department info-warriors with certifiable cranks like Ross. 

Less than 24 hours after Ross’s appearance at the Integrity Initiative event in Seattle, he sent a menacing email to the co-author of this article, Ames, announcing his intention to recycle an old and discredited smear against him and publish it in The Daily Beast — a publication that appears to enjoy a special relationship with Integrity Initiative personnel. 

Despite the threat of investigation in the U.K., the Integrity Initiative’s “network of networks” appears to be escalating its covert, government-funded influence operation, trashing the political left and assailing anyone that gets in its way; all in the name of fighting foreign disinformation. 

“We have to win this one,” Integrity Initiative founder Col. Chris Donnelly said“because if we don’t, democracy will be undermined.”

Published:1/11/2019 1:16:48 AM
[Markets] The Secret Logistics Of America's Global Deep State

Authored by Eric Zuesse via The Strategic Culture Foundation,

Why is America’s Baghdad Embassy the world’s largest embassy — and the largest by far?

"It's as if the US Embassy is there not only to protect American interests, but to manage the entire world from the heart of the capital, Baghdad.”

— Iraqi Sheikh Qassim Al Ta’ee, as quoted on 27 December 2011 in Al Iraq News and translated by Ibrahim Zaidan from the original Arabic by Nicholas Dagher 

Zaidan’s article went on to say:

The world's largest embassy is situated in the Green Zone and fortified by three walls, another barrier of concrete slabs, followed by barbed wire fences and a wall of sandbags. It covers an area of 104 acres, six times larger than UN headquarters in New York and ten times larger than the new embassy Washington is building in Beijing – which is just 10 acres.

[Editor's' Note: The ten-acre US Embassy in Beijing is the second largest overseas construction project in the history of the Department of State — and the 104-acre US Embassy in Iraq is the largest.]

So, America's largest diplomatic mission is surrounded by high concrete walls, is painted in black, brown and grey and is completely isolated from its environment... The United States announced several months ago that between diplomats and employees, its embassy would include 16,000 people after the pullout of US forces.

On January 1st, Will Sillitoe headlined at the Helsinki Times, "What does the US embassy in Baghdad export to Finland and dozens of other countries?” and he reported that:

More than a million kilograms of cargo were shipped from Baghdad to different parts of the world, reveals US embassies procurement documents.

Mysterious cargo shipments from the US Embassy in Baghdad to other American embassies and consulates around the world have been revealed on a Wikileaks' database. Procurement orders of US embassies are public documents, but Wikileaks put them in a searchable database making it easier to analyse.

The database displaying worldwide US embassy orders of goods and services reveals Baghdad as a postal and shipping centre for tonnes of freight.

Though military freight might be expected between the US and Iraq, records show that embassies across Europe, Asia, the Middle East, the Americas and Africa are all receiving deliveries from Baghdad too.

According to Wikileaks' database, orders to ship more than 540 tonnes of cargo to the US were made in May 2018. The same document shows other main delivery destinations included 120 tonnes of freight to Europe, and 24 tonnes to South Africa, South America and Central Africa respectively...

On December 29th, Sillitoe had headlined "Guarded warehouse near airport and mysterious cargos from Baghdad; what is the US embassy in Helsinki up to?” and he opened:

Why does the US Embassy in Helsinki need a big warehouse near Malmi Airport and what are the contents of thousands of kilograms of cargo sent to Helsinki from Baghdad?

A dilapidated warehouse in Malmi is being used by the US Embassy for unknown operations after a Wikileaks release revealed its location.

The anonymous looking building on Takoraudantie is notable only for the new 427 meter perimeter fence that according to the Wikileaks' database was ordered by the US Embassy in April 2018.

Situated across the street from the main entrance of Malmi Airport, the warehouse with its 3 meter high security fence appears an unlikely location for official embassy business. Neighbouring companies include a car yard and a tyre warehouse.

Helsinki Times visited the perimeters this weekend. Security personnel, young Finns in uniforms with American flags on their arms, appeared nervous and suspicious when asked to comment on the warehouse. ...

Sillitoe closed that article by saying: “The searchable Wikileaks database and info about Finland related activities can be found HERE.”

That link leads to a “US Embassy Shopping List” of 24 separate documents, one of which is "RFP 191Z1018R0002 Mission Iraq Shipping Transportation Services”, dated “5/17/18."

Item 2 there is “Packing of unaccompanied air baggage (UAB) – Throughout Iraq – US Embassy Baghdad, Baghdad International Zone, US Consulate General in Basrah, US Consulate General in Erbil, US Baghdad Diplomatic Support Center, US Erbil Diplomatic Support Center (Note: under the specified unit of measure the US Government contemplates ‘per kilogram’ of gross weight in kilograms)”

The “Quantity Estimated” is “100,000” and the “Unit of Measure” is “kilogram.”

Item 7 is “Storage Services – Monthly Storage of containers – Throughout Iraq – US Embassy Baghdad, Baghdad International Zone, US Consulate General in Basrah, US Consulate General in Erbil, US Baghdad Diplomatic Support Center, US Erbil Diplomatic Support Center.”

The “Quantity Estimated” is “100” and the “Unit of Measure” is “40’ Container.”

Item “Section B.5 Sub-CLIN:84E” is “From Republic of Iraq to Western European Countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, Andorra, Liechtenstein, Malta, Monaco, San Marino, and Vatican City, Nicosia)”

The “Quantity Estimated” is “5,000” and the “Unit of Measure” is “kilogram.”

Item “Section B.5 Sub -CLIN:84 F” is “From Republic of Iraq to Eastern European Countries (Armenia, Azerbaijan, Belarus, Estonia, Georgia, Latvia, Lithuania, Moldova, Russia, Ukraine, Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia, Kosovo)”

The “Quantity Estimated” is “5,000” and the “Unit of Measure” is “kilogram.”

By far the biggest categories for shipments are to the eastern US states: “From Republic of Iraq to the Unites [sp.] States Eastern Time-Zone – the following States: VT, ME, NH, MA, RI, CT, NJ, DE, MD, DC, NY, PA, VA, NC, SC, GA, FL, WV, MI, OH, IN, KY, GA” 

There are 11 such categories:

"Section B.5 Sub-CLIN:85A”

"Section B.5 Sub-CLIN:86A”

"Section B.6 Sub-CLIN:84A”

"Section B.6 Sub-CLIN:85A"

"Section B.6 Sub-CLIN:86A”

"Section B.7 Sub-CLIN:84A”

"Section B.7 Sub-CLIN:85A”

"Section B.7 Sub-CLIN:86A”

"Section B.8 Sub-CLIN:84A”

"Section B.8 Sub-CLIN:85A”

"Section B.8 Sub-CLIN:86A”

Each one of those eleven will receive 30,000 kilograms, under the contract.

In each of the eleven, the products will be going “From Republic of Iraq to the Unites [sp.] States Eastern Time-Zone – the following States: VT, ME, NH, MA, RI, CT, NJ, DE, MD, DC, NY, PA, VA, NC, SC, GA, FL, WV, MI, OH, IN, KY, GA”

That’s a total of 330,000 kilograms. That’s 727,525 pounds, or 364 tons, which are going from the world’s largest Embassy, America’s in Baghdad, to America’s eastern states.

In addition, around another 1,091,287 pounds are going from the Baghdad Embassy to other locations throughout the world.

The RFP, or Request For Proposal, informs its recipient that “The Contractor shall provide the services for the base period of the contract,” but “base period” isn’t defined in the RFP. However, the contract does specify that there shall be “a firm fixed unit price for any contract line item number in the Base Year,” and therefore the obligations under any contract will continue for at least one year, but possibly longer (if renewed). Furthermore, the “Type of Solicitation” here is not “Sealed Bid (IFB),” but instead “Negotiated (RFP),” which means that the US Government officials who are “Soliciting” these offers will choose whom to request to present an offer; and, if two or more recipients are being approached and make an offer, then the US official will select the winner that he or she prefers, and won’t be required to accept the lowest-priced one, but can instead take some sort of kickback, as long as there is no evidence of having done that. It can easily be arranged. Furthermore, private arrangements bond the two parties, even if the arrangement is just a one-time deal, because neither party will want the private arrangement to be made public, and if ever it does become public, then both parties will be revealed as guilty; it’ll hurt both parties. Moreover, since any contract may be renewed, the offeror of the contract, which is the Embassy employee, holds the power to affect that — the length of term, and everything that’s associated with it, will be controlled by the Embassy’s side, and not by the contractor’s side. And no matter how brief a contract-term might be, and no matter how many non-Americans might be signing any particular type of contract during any given period of years, none of the private parties will have any motive to make public any kickback. Consequently, there is every motive to keep these arrangements private; and the Embassy employee will always be the more powerful one in any private arrangement that is made with any contractor. 

Prior RFPs are also online, for example this one from 16 November 2014. The annual amounts seem to be fairly stable.

On 10 October 2007, while the US Embassy in Iraq was still building, the Congressional Research Service issued to Congress their report, “US Embassy in Iraq”, and it said:

The US Ambassador to Iraq (currently Ambassador Ryan Crocker) has full authority for the American presence in Iraq with two exceptions: 1 — military and security matters which are under the authority of General Patraeus, the US Commander of the Multinational Force-Iraq (MNF-I), and 2 — staff working for international organizations.

In areas where diplomacy, military, and/or security activities overlap, the Ambassador and the US Commander cooperate to provide co-equal authority regarding what is best for America and its interests in Iraq.

By “Patraeus” it meant David Petraeus. He was the person who designed the torture-system that was applied by his assistant James Steele and used in Iraq to extract from prisoners everything they knew about Saddam Hussein’s assistance to the 9/11 event. Petraeus subsequently became a regular participant in the annual meetings of the private and secretive Bilderberg group of representatives of the US and allied nations’ billionaires that constitute The West’s Deep State. Prior to that, Petraeus and Steele had organized and instituted in El Salvador that Government’s death-squads, to eradicate opponents of US control over that country.

The most corrupt parts of the US Government are usually in the military, because the entire Defense Department isn’t audited. It is instead financially an enormous dark hole, even to US Senators and Representatives, and even to the US President. Only members of the US Deep State might have an approximate idea of how much money is getting ‘lost’ in it. After all, the Deep State isn’t, at all, answerable to the public. Since it operates in secret, it can’t be. The consequences of the Deep State, however, can become public, and may contradict what is shown in publicly available documents and public statements, which have been circulated, to the public, by the press. In any nation where a Deep State rules, such contradictions, between public assertions and the actual outcomes, are so commonplace as hardly to be even news at all, if and when they appear, at all.

On 2 July 2017, the great investigative reporter Dilyana Gaytandzhieva headlined "350 Flights Carry Weapons Diplomatic for Terrorists”, and provided documentation of the US CIA’s intricate global network, which secretly “sends $1 billion worth of weapons” through many countries to jihadists in Syria to take down Syria’s Government. Iraq was mentioned 6 times in the original publication of her article, and is mentioned 9 times in the 29 April 2018 updated version. That secret US supply of weapons to jihadist groups to overthrow Bashar al-Assad and his secular, non-sectarian, Baathist Party, is a secret operation, just like the US State Department’s Baghdad Embassy’s operations are, and that Embassy could even be this particular operation’s headquarters. 

The 200-page, December 2017, study, “Weapons of the Islamic State: A three-year investigation”, by Conflict Armament Research Ltd., states in its Conclusion:

IS forces, like most non-state armed groups, acquire significant quantities of weapons and ammunition on the battlefield… Evidence presented in this report, however, confirms that many of the group’s weapons — and notably its ammunition — are newly manufactured, having been delivered to the region since the start of the Syrian conflict in 2011. These weapons originate in transfers made by external parties, including Saudi Arabia and the United States, to disparate Syrian opposition forces arrayed against the regime of President Bashar al-Assad.

Here are just a few of the details that this passage in the summary was based upon and summarizing:

On pages 36-9, it says:

CAR has documented and traced numerous weapon systems in service with IS forces. Many derive from shipments made to the US government, or to entities operating under US government contracts. The United States has acknowledged its support to Syrian opposition forces, orchestrated primarily through resupply from the territories of Jordan and Turkey.26 All of the shipments originated in EU Member States; in most cases, US retransfers (exports made after purchase by the United States) contravened clauses in end-user certificates (EUCs) issued by the United States to EU supplier governments. The United States signed these certificates prior to transfer, stated that it was the sole end user of the materiel, and committed not to retransfer the materiel without the supplier government’s prior consent. It did not notify the supplier states concerned before [violating that, and] retransferring the materiel. …

On 21 December 2016, Jaysh al-Nasr, a Syrian armed opposition faction active in the Hama Governorate of Syria, published a set of photographs of its fighters.29 In one of these, Jaysh al-Nasr fighters are operating a 9M111MB-1 ATGW30 bearing an identical lot number and a serial number (365) close in sequence to the one CAR documented (286) in Iraq, suggesting both were part of the same supply chain. …

In May 2015, Syrian YPG forces recovered a PG-7T 40 mm rocket from IS forces near Al Hasakah, Syria, where CAR documented it on 20 May 2015. The Government of Bulgaria confirmed that it exported the item to the US Department of the Army through the US company Kiesler Police Supply. The application for the export licence was accompanied by the original EUC issued by the US Department of the Army (with a non-re-export clause) as well as a delivery verification certificate. The item was exported on 23 June 2014.32 … CAR has yet to receive a reply to a trace request sent to the United States regarding these rockets.

Page 54 says:

Like the United States, Saudi Arabia has provided support to various factions in the Syrian conflict, including through the supply of weapons. Working with the Bulgarian authorities, CAR has traced numerous items deployed by IS forces to initial exports from Bulgaria to Saudi Arabia. These transfers were uniformly subject to non-retransfer clauses concluded between Saudi Arabia and the Government of Bulgaria prior to export. In this respect, onward retransfers by Saudi Arabia of these weapons contravene its commitments to the Government of Bulgaria not to re-export the materiel in question without Bulgaria’s prior consent.

Just like in the case of the Baghdad Embassy’s agreements with contractors, the powerful party in any contract will be the party whose side is paying (the buyer), and not the party whose side is supplying the service or goods (the seller). Money always rules.

The CAR report, which was issued just months after Dilyana Gaytandzhieva’s report, was entirely consistent with, and largely overlapped, hers. The US and Saudi Governments were not only using Al Qaeda as their main proxy in southwestern Syria to lead the jihadist groups to overthrow Syria’s non-sectarian Government, but were also using ISIS in northeastern Syria as their main proxy forces there to overthrow Syria’s Government. After Russia’s entry into the war on 30 September 2015 on the side of Syria’s Government, America’s assistance to Al Qaeda in Syria (Al Nusra) continued in order to help replace that Government by one which would be controlled by the Sauds. And America’s assistance to ISIS was almost totally replaced then by its assistance to ethnocentric Syrian Kurds in the northeast as the Syrian Democratic Forces, which were fighting against both the Government and ISIS. Russia, of course, was against both Al Qaeda-led jihadists and against ISIS jihadists. (Turkey was against ethnocentric Kurds, because those people want to take a chunk out of four nations: Turkey, Syria, Iraq, and Iran. The CIA edited and written Wikipedia’s article on Kurdistan conveniently doesn’t even make note of that key fact.) So: America was using a complex combination in order to take over Syria for the Sauds ultimately to control. But Russia’s entry into Syria’s air-war on 30 September 2015 has overcome that U.S-led and Saudi financed combination against Syria.

Would any secret facility, anywhere in the world, be better situated to manage that operation, on America’s side, than America’s Baghdad Embassy?

So, the question then arises: who benefits from this enormous Embassy, and from the Deep State of which it is a part? The American public certainly do not.

Generally speaking, the people who get paid to promote endless wars, such as sellers of the constantly receding (propagandistic) “light at the end of the tunnel”, support continuing if not intensifying such wars. Typical is the neoconservative (in foreign affairs) and neoliberal (in domestic affairs) David Bradley, who controls and is the Chairman of Atlantic Media, which publishes the neocon-neolib The Atlantic, and many other public-affairs magazines and websites. His “Defense One” site posted, on 22 March 2018, from its Executive Editor, "The War in Iraq Isn’t Done. Commanders Explain Why and What’s Next”, and closed with “‘We need to be very careful about rushing to the exit, and secure this win,’ said the senior US military official. ‘This is a significant win.’” The “senior US military official” wasn’t identified, other than to say that he “spoke only on background.” But, of course, George W. Bush had already told the world all about this “win,” back in 2003. Salespeople just continue their pitches; it’s what they are paid to do, and so they never stop.

The annual military costs alone, for the US to keep being, as its propaganda euphemistically puts the matter, “policeman for the world” (such as, in the Syrian case, by means of those proxy boots-on-the-ground warriors, the jihadists, and the ethnocentrists among Syria’s Kurds) are actually sufficient, even on their own, to cause America’s soaring federal debt - and that’s not a benefit, but an extreme harm, to the public. Future generations of Americans will be paying the tab for this. And the costs for being “policeman for the world” are enormous. Even just militarily, they’re over a trillion dollars each and every year.

Though current US Defense Department budgets are around $700 billion annually, the United States is actually spending closer to $1.2 trillion annually on the military when all of the nation’s military spending (such as for military retirements, which are paid by the Treasury Department not by the Defense Department) are factored in. The only people who benefit from being “policeman for the world” are the billionaires of the US and (though to only a lesser extent) of its allied countries. And, of course, they pay their lobbyists and propagandists. It’s really being policeman for those billionaires, who own and control all of the international corporations that are headquartered in this alliance. The US public isn’t paying the tab by any cash-and-carry basis; instead, future generations of Americans will be paying the tab, for today’s US-and-allied billionaires. Those billionaires today are the chief beneficiaries. It’s all being done for them and their retinues. That’s why America’s Founders didn’t want there to be any “standing army” at all. They didn’t want there to be any permanent-war government. They wanted military only for national defense — not for any billionaires’ protection or ‘insurance policy’, or what might actually be publicly paid and armed thugs in service abroad as if they were the nation’s armed forces — when, in fact, they are the armed forces for only those billionaires and their servants. America’s Founders wanted no military at all that serves the aristocracy. They wanted no aristocracy, at all. They wanted no “standing army” whatsoever. They wanted only a military that protects the public, when a real military danger, from abroad, to the domestic public, exists. Of course, that’s possible only in a democracy, but the US is no democracy now, even if it might have been in the past.

On 11 December 2017, Montana State University headlined “MSU SCHOLARS FIND $21 TRILLION IN UNAUTHORIZED GOVERNMENT SPENDING; DEFENSE DEPARTMENT TO CONDUCT FIRST-EVER AUDIT”, but the Pentagon’s promised audit has failed to materialize. A major accounting firm was hired for the task but soon quit, saying that the Defense Department’s books were too incomplete to proceed further. Three days before that article was published, a colleague of that MSU team headlined at Forbes”Has Our Government Spent $21 Trillion Of Our Money Without Telling Us?” and said that the answer was yes. All of this ‘lost’ money was spent merely by the Department of Defense. Just managing the more-than-a-thousand US military bases worldwide requires a lot of money. Any actual war-fighting adds to that US military-base cost — the war-fighting costs are extra. Those military bases etc. are the “standing army.” Protection of our billionaires’ investments abroad, and of their access to raw materials in underdeveloped countries (such as to manufacture cellphones), is an enormously expensive operation. Basically, the American public are hugely subsidizing America’s billionaires. But only future generations of Americans will be paying that debt — plus, of course, the accumulated interest on it. 

The Department of Defense isn’t the only federal Department that has ever been unauditable. On 18 June 2013, Luke Johnson and Ryan Grim at Huffington Post bannered “GAO Cannot Audit Federal Government, Cites Department Of Defense Problems” and opened: “The Government Accountability Office said Thursday that it could not complete an audit of the federal government, pointing to serious problems with the Department of Defense. Along with the Pentagon, the GAO cited the Department of Homeland Security as having problems so significant that it was impossible for investigators to audit it. The DHS got a qualified audit for fiscal year 2012, and is seeking an unqualified audit for 2013.” However, on 17 November 2014, the Washington Post headlined “Homeland Security earns clean audit two years running”, and Jerry Markon reported that, “For the second straight year, the Department of Homeland Security has achieved a much sought-after clean audit of its financial statements by an independent auditor.” Furthermore: “for nearly all of its first decade of existence, DHS was unable to achieve a clean audit because it had been created by combining 22 federal agencies and components into one massive department. That led to inherent challenges.” That wasn’t the situation at the Defense Department, which was far different. On 8 December 2017, NPR headlined “Pentagon Announces First-Ever Audit Of The Department Of Defense”, and opened: “‘The Defense Department is starting the first agency-wide financial audit in its history,’ the Pentagon's news service says.” However, almost as soon as the auditing team began their work, they quit it, because the Department’s books were garbage. Only the DOD is like that — almost entirely corrupt. 

On 2 October 2018, Project Censored headlined “$21 Trillion in Unaccounted-for Government Spending from 1998 to 2015”. However, it falsified. It opened: “Two federal government agencies, the Department of Defense and the Department of Housing and Urban Development (HUD), may have accumulated as much as $21 trillion in undocumented expenses between 1998 and 2015.” None of that was actually HUD, it was 100% DOD. And all of “the alleged irregularities in DoD and HUD spending” were not merely “alleged,” but they were, in fact, carefully checked and repeatedly verified, and were only at DOD, despite what Project Censored published. This inaccuracy is important. If people don’t know that DOD is the only unaudited federal Department, then they can’t possibly understand why that is the case. The reason it is the case, is that almost all of the “waste, fraud, and abuse” in the US federal government is at the Defense Department. It has never been auditable. How much do America’s ‘news’-media report this reality?

DOD is consistently, year after year, and decade after decade, the federal Department or federal or local governmental function, that Gallup’s polling has shown to be more respected by the US public than is any other. (It’s identified there as “The military”. It beats, for examples: “The Supreme Court,” “Congress,” “The public schools,” “The presidency,” “The police,” and “The criminal justice system.”) The most corrupt isn’t the most despised; it is the opposite — it is the most respected.

Secret government tends to be costly for taxpayers, and also tends to add a lot to the governmental debt. An unauditable governmental department, such as the Defense Department is, cannot function, at all, without an enormous amount of corruption. This is the reality about America’s military. However, there’s much propaganda contradicting it. The news-media also serve those same billionaires.

How likely, then, is it, that America’s Baghdad Embassy serves the US public? It certainly does not serve the Iraqi public. But it does serve the people — whomever they are — who control the US Government. And that’s the Deep State. That’s the reality, but what’s promoted is fantasyland. And this fantasyland, which is promoted, is called “American democracy”. Just ask Big Brother, and he’ll tell you all about it. He always does.

Published:1/10/2019 11:10:34 PM
[Markets] Beware The Emergency State: Imperial, Unaccountable, And Unconstitutional

Authored by John Whitehead via The Rutherford Institute,

For seven decades we have been yielding our most basic liberties to a secretive, unaccountable emergency state – a vast but increasingly misdirected complex of national security institutions, reflexes, and beliefs that so define our present world that we forget that there was ever a different America. ... Life, liberty, and the pursuit of happiness have given way to permanent crisis management: to policing the planet and fighting preventative wars of ideological containment, usually on terrain chosen by, and favorable to, our enemies. Limited government and constitutional accountability have been shouldered aside by the kind of imperial presidency our constitutional system was explicitly designed to prevent.”

- David C. Unger, The Emergency State: America’s Pursuit of Absolute Security at All Costs

It's all happening according to schedule.

The civil unrest, the national emergencies, “unforeseen economic collapse, loss of functioning political and legal order, purposeful domestic resistance or insurgency, pervasive public health emergencies, and catastrophic natural and human disasters,” the government’s reliance on the armed forces to solve domestic political and social problems, the implicit declaration of martial law packaged as a well-meaning and overriding concern for the nation’s security…

The government has been planning and preparing for such a crisis for years now.

No matter that this crisis is of the government’s own making.

To those for whom power and profit are everything, the end always justifies the means.

This latest brouhaha over President Trump’s threat to declare a national emergency in order to build a border wall is more manufactured political theater, a Trojan Horse intended to camouflage the real threat to our freedoms: yet another expansion of presidential power exposing us to constitutional peril.

This is not about illegal immigration or porous borders or who will pay to build that wall.

This is about unadulterated power and the rise of an “emergency state” that justifies all manner of government tyranny in the so-called name of national security.

The seeds of this present madness were sown more than a decade ago when George W. Bush stealthily issued two presidential directives that granted the president the power to unilaterally declare a national emergency, which is loosely defined as "any incident, regardless of location, that results in extraordinary levels of mass casualties, damage, or disruption severely affecting the U.S. population, infrastructure, environment, economy, or government functions."

Comprising the country's Continuity of Government (COG) plan, these directives (National Security Presidential Directive 51 and Homeland Security Presidential Directive 20), which do not need congressional approval, provide a skeletal outline of the actions the president will take in the event of a "national emergency."

Mind you, that national emergency can take any form, can be manipulated for any purpose and can be used to justify any end goal—all on the say so of the president.

This is exactly the kind of mischief that Thomas Jefferson warned against when he cautioned, “In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.”

Power corrupts.

Absolute power corrupts absolutely.

Thus far, we have at least pretended that the government abides by the Constitution.

Despite the many attempts by government leaders to claim broader powers for themselves during wartime, the Constitution allows for only one emergency power: “The privilege of the writ of habeas corpus shall not be suspended, unless when in cases of rebellion or invasion the public safety may require it” (Article 1, Section 9, Clause 2).

Those who wrote our Constitution sought to ensure our freedoms by creating a document that protects our God-given rights at all times, even when we are engaged in war, whether that is a so-called war on terrorism, a so-called war on drugs, or a so-called war on illegal immigration.

This threat by Trump to rule by fiat merely plays into the hands of those who would distort the government’s system of checks and balances and its constitutional separation of powers beyond all recognition.

Apart from the fact that this highly politicized, shamelessly contrived border crisis does not in any way constitute a national emergency, to allow such a manufactured emergency to override constitutional constraints and the rule of law will push the nation that much closer to outright totalitarianism.

To be clear, this is not a criticism of Trump or a disavowal of the need for better vigilance at the nation’s border.

Rather this is a word of warning.

Remember, these powers do not expire at the end of a president’s term. They remain on the books, just waiting to be used or abused by the next political demagogue.

So, too, every action taken by the Trump administration to weaken the system of checks and balances, sidestep the rule of law, and expand the power of the president makes us that much more vulnerable to those who would abuse those powers in the future.

No matter whether you consider Trump to be a demagogue or a die-hard patriot, there will come a day when Trump no longer occupies the White House, and then what?

We’ve been down this road before.

Although the Constitution invests the President with very specific, limited powers, in recent years, American presidents (Trump, Obama, Bush, Clinton, etc.) have claimed the power to completely and almost unilaterally alter the landscape of this country for good or for ill.

Should the Trump Administration act on its threat to build a border wall using the president’s emergency powers, it would constitute yet another gross perversion of what limited power the Constitution affords the executive branch.

The powers amassed by each successive president through the negligence of Congress and the courts—powers which add up to a toolbox of terror for an imperial ruler—empower whomever occupies the Oval Office to act as a dictator, above the law and beyond any real accountability.

As law professor William P. Marshall explains, “every extraordinary use of power by one President expands the availability of executive branch power for use by future Presidents.” Moreover, it doesn’t even matter whether other presidents have chosen not to take advantage of any particular power, because “it is a President’s action in using power, rather than forsaking its use, that has the precedential significance.”

In other words, each successive president continues to add to his office’s list of extraordinary orders and directives, expanding the reach and power of the presidency and granting him- or herself near dictatorial powers.

This abuse of presidential powers has been going on for so long that it has become the norm, the Constitution be damned.

We no longer have a system of checks and balances.

“The system of checks and balances that the Framers envisioned now lacks effective checks and is no longer in balance,” concludes Marshall. “The implications of this are serious. The Framers designed a system of separation of powers to combat government excess and abuse and to curb incompetence. They also believed that, in the absence of an effective separation-of-powers structure, such ills would inevitably follow. Unfortunately, however, power once taken is not easily surrendered.”

All of the imperial powers amassed by Barack Obama and George W. Bush—to kill American citizens without due process, to detain suspects indefinitely, to strip Americans of their citizenship rights, to carry out mass surveillance on Americans without probable cause, to suspend laws during wartime, to disregard laws with which he might disagree, to conduct secret wars and convene secret courts, to sanction torture, to sidestep the legislatures and courts with executive orders and signing statements, to direct the military to operate beyond the reach of the law, to operate a shadow government, and to act as a dictator and a tyrant, above the law and beyond any real accountability—have become a permanent part of the president’s toolbox of terror.

These presidential powers—acquired through the use of executive orders, decrees, memorandums, proclamations, national security directives and legislative signing statements and which can be activated by any sitting president—enable past, president and future presidents to operate above the law and beyond the reach of the Constitution.

America, meet your new dictator-in-chief: imperial, unaccountable and unconstitutional.

If we continue down this road, there can be no surprise about what awaits us at the end.

After all, it is a tale that has been told time and again throughout history.

For example, over 80 years ago, the citizens of another democratic world power elected a leader who promised to protect them from all dangers. In return for this protection, and under the auspice of fighting terrorism, he was given absolute power.

This leader went to great lengths to make his rise to power appear both legal and necessary, masterfully manipulating much of the citizenry and their government leaders.

Unnerved by threats of domestic terrorism and foreign invaders, the people had little idea that the domestic turmoil of the times—such as street rioting and the fear of Communism taking over the country—was staged by the leader in an effort to create fear and later capitalize on it. In the ensuing months, this charismatic leader ushered in a series of legislative measures that suspended civil liberties and habeas corpus rights and empowered him as a dictator.

On March 23, 1933, the nation's legislative body passed the Enabling Act, formally referred to as the "Law to Remedy the Distress of the People and the Nation," which appeared benign and allowed the leader to pass laws by decree in times of emergency.

What it succeeded in doing, however, was ensuring that the leader became a law unto himself.

The leader's name was Adolf Hitler.

The rest, as they say, is history. Yet history has a way of repeating itself.

Hitler's rise to power should serve as a stark lesson to always be leery of granting any government leader sweeping powers.

Clearly, we are not heeding that lesson.

Indeed, all of those dastardly seeds we have allowed the government to sow under the guise of national security are bearing demon fruit.

Brace yourself.

There is something being concocted in the dens of power, far beyond the public eye, and it doesn’t bode well for the future of this country.

Anytime you have an entire nation so mesmerized by the antics of the political ruling class that they are oblivious to all else, you’d better beware.

Anytime you have a government that operates in the shadows, speaks in a language of force, and rules by fiat, you’d better beware.

And anytime you have a government so far removed from its people as to ensure that they are never seen, heard or heeded by those elected to represent them, you’d better beware.

As I make clear in my book Battlefield America: The War on the American People, we are at our most vulnerable right now.

The gravest threat facing us as a nation is not extremism but despotism, exercised by a ruling class whose only allegiance is to power and money.

Published:1/10/2019 9:35:19 PM
[Markets] PG&E Gets AIG-ed: Moody's Downgrade Triggers $800MM Collateral Call, Liquidity Crisis

For PG&E, just like for AIG ten years ago, this is the beginning of the end.

As we discussed on Tuesday, one of the biggest surprises involving the ongoing collapse of troubled California utility PG&E is how it was possible, that with the company reportedly contemplating a DIP loan ahead of a possible bankruptcy filing which sent PCG stock plunging and its bonds cratering to all time lows, that rating agencies still had the company rated as investment grade.

 

Late on Monday, this question got some closure after S&P became the first rating agency to take a machete to its rating for PG&E, when it downgraded the company by five notches, from BBB- to B, the fifth-highest junk rating while warning that more cuts are imminent. But while S&P slashed PG&E's IG ratings, Fitch and Moody bizarrely had yet to do so, well over a month into the company's death spiral. And when they do, both management, shareholders and bondholders would have nightmare on their hands because a similar "junking" by Moody’s to high-yield would result in a rerun of the AIG death sprial, as at least once cash collateral call for PG&E of at least $800 million - to guarantee power contracts - would be triggered according to a regulatory filing.

Well, PG&E's AIG moment hit late on Thursday, when Moody’s did precisely what S&P did two days earlier, and cut the utility's credit rating to junk citing the electric company’s potential wildfire liabilities. The credit grader lowered PG&E’s rating by five notches, to B2 from Baa3, and the utility Pacific Gas & Electric rating four levels to Ba3. Like S&P, the bond grader said it may (read: will) cut the company further, sending PG&E shares and bonds sliding after hours.

But it wasn't the prospect of more downgrades that spooked the market: it was the fact that with two junk ratings, PG&E will now be required to use cash as collateral to guarantee power contracts, according to the company’s latest quarterly filing, which estimates the utility will have to fully collateralize as much as $800 million of positions.

That... is a problem because PG&E had only $430 million of cash on its books in September, precipitating what now appears to be an imminent liquidity crisis, one which as a result of some $30 billion in wildfire legal liabilities will quickly escalate into a solvency inferno, to use a term closely associated with California utility companies.

Meanwhile, assuming that PG&E somehow survives the upcoming insolvency, its junk credit ratings will assure that the company will have to pay more to borrow for years to come. In fact, the company's 3.5% bonds due next year are currently yielding more than 9.9%, far above where most high-yield securities are paying and a level reserved for deeply distressed credits. As shown in the chart below, B-rated debt, the mid-tier of junk bonds, yields on average 7.5% as of Monday’s close, according to Bloomberg index data.

Of course, the above take assumes PG&E will survive a few quarters, which thanks to nearly $1 billion in cash collateral the company must somehow find and post immediately, it won't.

Not even Moody's could find a silver lining in this liquidity bonfire: “We see a much more challenging environment for PG&E,” said Moody’s analyst Jeff Cassella in the statement. “The company is increasingly reliant on extraordinary intervention by legislators and regulators, which may not occur soon enough or be of sufficient magnitude to address these adverse developments."

Meanwhile, even as shareholders - among which bizarrely is value investing "god" Seth Klarman - hold on to hope, bondholders appear to have given up: with $18.4 billion of long-term debt, PG&E most actively-traded bonds plunged sharply after the downgrade: Pacific Gas & Electric bonds with coupons of 6.05 percent due in 2034 fell as much as 4.5 cents on the dollar to 85 cents, the lowest level since the financial crisis.

And speaking of the financial crisis, while Lehman was the spark, its was the bailout of AIG that really precipitated the most violent part of the 2008 crisis. While most analysts see PG&E as an isolated case, now that the biggest California utility is on the verge of insolvency and bankruptcy, and is about to have its own AIG moment, one wonders just how "contained" this particular shock to the system will be.

One thing is clear, however: the shock to California residents, or rather their wallets, will be most unpleasant, as their rates are about to surge one way or another.

Published:1/10/2019 9:05:39 PM
[Left Column] Climate scientist retires, then declares ‘I am a skeptic’ – Offers to debate – Rejects ‘denier’ label: ‘We don’t live in medieval times’

aatsonis

Dr. Anastasios Tsonis, emeritus distinguished professor at the University of Wisconsin-Milwaukee. Authored more than 130 peer-reviewed papers and nine books:

'I am a skeptic not just about global warming but also about many other aspects of science...Climate is too complicated to attribute its variability to one cause. We first need to understand the natural climate variability (which we clearly don’t; I can debate anybody on this issue). Only then we can assess the magnitude and reasons of climate change.'

'If science were settled, then we should pack things up and go home.'

'It is my educated opinion that many forces have shaped global temperature variation. Human activity, the oceans, extraterrestrial forces (solar activity and cosmic rays) and other factors are all in the mix...We should be skeptical of claims that the science of a complicated and unpredictable system is settled.'

'We may form an opinion based on the existing scientific evidence in hand, current knowledge, possible theories and hypotheses...The fact that scientists who show results not aligned with the mainstream are labeled deniers is the backward mentality. We don’t live in medieval times'

Published:1/10/2019 1:04:58 PM
[Markets] Here's Where The Next Crisis Starts

Authored by James Rickards via The Daily Reckoning,

The case for a pending financial collapse is well grounded. Financial crises occur on a regular basis including 1987, 1994, 1998, 2000, 2007-08. That averages out to about once every five years for the past thirty years. There has not been a financial crisis for ten years so the world is overdue. It’s also the case that each crisis is bigger than the one before and requires more intervention by the central banks.

The reason has to do with the system scale. In complex dynamic systems such as capital markets, risk is an exponential function of system scale. Increasing market scale correlates with exponentially larger market collapses.

This means a market panic far larger than the Panic of 2008.

Today, systemic risk is more dangerous than ever because the entire system is larger than before. Due to central bank intervention, total global debt has increased by about $150 trillion over the past 15 years. Too-big-to-fail banks are bigger than ever, have a larger percentage of the total assets of the banking system and have much larger derivatives books.

Each credit and liquidity crisis starts out differently and ends up the same. Each crisis begins with distress in a particular overborrowed sector and then spreads from sector to sector until the whole world is screaming, “I want my money back!”

First, one asset class has a surprise drop. The leveraged investors sell the sinking asset, but soon the asset is unwanted by anyone. Margin calls roll in. Investors then sell good assets to raise cash to meet the margin calls. This spreads the panic to banks and dealers who were not originally involved with the weak asset.

Soon the contagion spreads to all banks and assets, as everyone wants their money back all at once. Banks begin to fail, panic spreads and finally central banks step in to separate winners and losers and re-liquefy the system for the benefit of the winners.

Typically, small investors (and some bankrupt banks) get hurt the worst while the big banks get bailed out and live to fight another day.

That much panics have in common. What varies in financial panics is not how they end but how they begin. The 1987 crash started with computerized trading. The 1994 panic began in Mexico. The 1997–98 panic started in Asian emerging markets but soon spread to Russia and the big banks. The 2000 crash began with dot-coms. The 2008 panic was triggered by defaults in subprime mortgages.

The problem is that regulators are like generals fighting the last war. In 2008, the global financial crisis started in the U.S. mortgage market and spread quickly to the overleveraged banking sector.

Since then, mortgage lending standards have been tightened considerably and bank capital requirements have been raised steeply. Banks and mortgage lenders may be safer today, but the system is not. Risk has simply shifted.

What will trigger the next panic?

Prominent economist Carmen Reinhart says the place to watch is U.S. high-yield debt, aka “junk bonds.”

I’ve also raised the same argument. We’re facing a devastating wave of junk bond defaults. The next financial collapse will quite possibly come from junk bonds.

Let’s unpack this…

Since the great financial crisis, extremely low interest rates allowed the total number of highly speculative corporate bonds, or “junk bonds,” to rise about 60% — a record high. Many businesses became extremely leveraged as a result. Estimates put the total amount of junk bonds outstanding at about $3.7 trillion.

The danger is that when the next downturn comes, many corporations will be unable to service their debt. Defaults will spread throughout the system like a deadly contagion, and the damage will be enormous.

This is from a report by Mariarosa Verde, Moody’s senior credit officer:

This extended period of benign credit conditions has helped many weak, highly leveraged companies to avoid default… A number of very weak issuers are living on borrowed time while benign conditions last… These companies are poised to default when credit conditions eventually become more difficult… The record number of highly leveraged companies has set the stage for a particularly large wave of defaults when the next period of broad economic stress eventually arrives.

If default rates are only 10% — a conservative assumption — this corporate debt fiasco will be at least six times larger than the subprime losses in 2007-08.

Many investors will be caught completely unprepared. Once the tsunami hits, no one will be spared. The stock market is going to collapse in the face of rising credit losses and tightening credit conditions.

But corporate debt is not the only dagger hanging over the economy. Credit conditions have already begun to affect the real economy. Student loan losses are also skyrocketing. Losses are also soaring on subprime auto loans, which has put a lid on new car sales. As these losses ripple through the economy, mortgages and credit cards will be the next to feel the pinch.

Have we already seen the beginning of the next crisis? No one knows for sure, but the time to prepare is now. Once the market falls apart, it’ll be too late to act.

That’s why the time to buy gold is now, while it’s cheap. When you need it most, once the crisis hits, it’ll cost a fortune.

Both the panics of 1998 and 2008 began over a year before they reached the level of an acute global liquidity crisis.

Investors has ample time to reduce risky positions, increase cash and gold allocations and move to the sidelines until the crisis abated. At that point there were bargains galore for those with cash.

An investor with cash in 2008 could have preserved wealth during the crisis and nearly quadrupled his money since then by buying the Dow Jones index at 6,550 (even with the recent turmoil, today it’s still around 23,600).

Relatively few investors did this. Instead they suffered from “fear of missing out” as markets rose until the panic began. They persisted in the mistaken belief that they could “get out in time” if markets reversed, not realizing that reversals happen much faster than rallies. They held onto losing positions hoping they would “come back” (they did after 10 years) and so on.

Simple behavioral biases stand in the way of doing the right thing almost every time.

For now, it’s not clear which way things will break next. Volatility is back and markets are still in a precarious position. Fed chairman Jay Powell threw markets a bone last Friday when he basically said all rate hikes are off until further notice and that he’s willing to scale back QT “if needed.” Markets have naturally rallied since Powell’s remarks.

If you still need proof that today’s rigged markets still require support from the Fed, here it is. But it’s far from clear the next crisis can be avoided at this point.

You don’t want to be heavily exposed to these markets. It’s far better to get out too early than too late. You should not be the last to be get ready. Start now to decrease equity allocations and increase your allocations to cash and gold so you can weather the coming storm.

Preparation means 10% percent of your investible assets in gold or silver and another 30% in cash. That allocation will preserve wealth and provide dry powder for bottom-fishing in the crisis to come.

Published:1/10/2019 8:15:12 AM
[Markets] Paul Craig Roberts: Majority Of Americans Do Not Believe The Official 9/11 Story

Authored by Paul Craig Roberts,

TruePublica, a British website that has avoided the 9/11 issue, has had its fill of ignorant journalists at the BBC, Huffington Post and other propagandists for the military/security complex. The constant, shrill demeaning of experts and distinguished people who have raised questions about the official story has convinced TruePublica that skeptics who need so much shouting down must have a point.

The media has NEVER EXAMINED the evidence or explained the analysis provided by scientists, architects, engineers, pilots, and the first responders who experienced the explosions of the World Trade Center twin towers. The media has never asked for the release of the multiple videos that recorded whatever struck the Pentagon. The media has never investigated whether cell phones worked in 2001 from the altitudes at which the official story claims calls were made.

Instead two-bit punk presstitutes, such as the BBC’s Chris Bell and the Huffington Post’s Jess Brammer andl Chris York, label experts with knowledge and integrity “conspiracy theorists.” These presstitutes knowingly use a cover-up term that the CIA put into use via its media assets to discredit the expert skeptics of the Warren Commission Report on the assassination of President Kennedy.

The fact that the carefully presented evidence is NEVER ENGAGED EXCEPT WITH NAME-CALLING is a strong indication that the evidence is true and cannot be refuted.

TruePublica is such a mainline site that, in its own words, it does not even “publish news sourced by RT,” a far more reliable source of news than the BBC, CNN, or New York Times. However, it has dawned on TruePublica that after 18 years an ad hominum attack remains the only defense of the official story. The official account has NO EVIDENCE WHATSOEVER. It rests entirely on the AVOIDANCE OF EVIDENCE and on unverified assertions.

The success of the 9/11 Lawyers’ Committee in obtaining the consent of the US Attorney for the Southern District of New York to “comply with the provisions of 18 U.S.C. 3332,” which requires the convening of a federal grand jury to examine the unexamined 9/11 evidence, has impressed TruePublica as no US attorney would convene a grand jury on the basis of a conslpiracy theory. Clearly compelling evidence has been presented to the US Attorney.

Obviously, Washington expects the Justice (sic) Department to escape from the bind into which it has been put by the Lawyer’s Committee, an escape that the presstitute media will aid and abet. Nevertheless, the escape will likely reinforce the public’s view that the government is afraid of the evidence and is no more likely to follow it than in the case of President Kennedy’s assassination, Robert Kennedy’s assassination, the Israeli attack on the USS Liberty and a large number of other officially covered up crimes.

More and more people will come to realize that ad hominum name-calling is not an acceptable response to evidence.

Some Interesting New Information About 9/11

TruePublica.org.uk

TruePublica Editor: We have published almost nothing about 9/11 on TruePublica. When independent news outlets do, they are immediately branded by the mainstream media and so-called ‘fact-checkers’ as conspiracy theorists. The BBC makes this point precisely in a 2018 article that starts like this –

 “On 11 September 2001, four passenger planes were hijacked by radical Islamist terrorists – almost 3,000 people were killed as the aircraft were flown into the World Trade Centre, the Pentagon and a Pennsylvania field. Just hours after the collapse of New York’s Twin Towers, a conspiracy theory surfaced online which persists more than 16 years later.”

The entire article is dedicated to all the ‘conspiracy theories’ involved in 9/11 and makes a mockery of anyone or anything that questions the official government line. They even heavily mock the brother of one man killed in 9/11 and frankly, true or not, the BBC’s report itself is rather sickening to read.

And yet, here we are, all these years later and it’s hardly surprising the theories of a conspiracy continue.

A 2016 study from Chapman University in California, found more than half of the American people believe the government is concealing information about the 9/11 attacks. This is in part because, large sections of the official US government report were redacted for years – and is still missing to this day.

The big problem is that the government is withholding crucial evidence. And then there’s other evidence the state and mainstream media refuse to even consider.

Paul Craig Roberts is an American economist and former United States Assistant Secretary of the Treasury for Economic Policy under President Reagan. Roberts was an associate editor and columnist for The Wall Street Journal and columnist for Business Week and has received the Warren Brookes Award for Excellence in Journalism. In 1993 the Forbes Media Guide ranked him as one of the top seven journalists in the United States.

Roberts wrote this really interesting piece of information just a few days ago that the mainstream media has been completely silent about:

 “Although the United States is allegedly a democracy with a rule of law, it has taken 17 years for public pressure to bring about the first grand jury investigation of 9/11. Based on the work of Architects & Engineers for 9/11 Truth led by Richard Gage, first responder and pilots organizations, books by David Ray Griffin and others, and eyewitness testimony, the Lawyers’ Committee for 9/11 Inquiry has presented enough hard facts to the US Attorney for the Southern District of New York to force his compliance with the provisions of federal law that require the convening of a federal grand jury to investigate for the first time the attacks of September 11, 2001. https://www.lawyerscommitteefor9-11inquiry.org

This puts the US Justice (sic) Department in an extraordinary position. There will be tremendous pressures on the US Attorney’s office to have the grand jury dismiss the evidence as an unpatriotic conspiracy theory or otherwise maneuver to discredit the evidence presented by the Lawyers’ Committee, or modify the official account without totally discrediting it.

“What the 9/11 truthers and the Lawyers’ Committee have achieved is the destruction of the designation of 9/11 skeptics as “conspiracy theorists.” No US Attorney would convene a grand jury on the basis of a conspiracy theory. Clearly, the evidence is compelling that has put the US Attorney in an unenviable position.”

If the Lawyers’ Committee and the 9/11 truthers trust the US Attorney to go entirely by the facts, little will come of the grand jury. If the United States had a rule of law, something as serious as 9/11 could not have gone for 17 years without investigation.”

Three weeks before Roberts’ made this statement a letter was published by Off-Guardian about a Huffington Post hit piece about an academic teaching journalism. Its first paragraph explains entirely its own position.

“An academic teaching journalism students at one of the UK’s top universities has publicly supported long-discredited conspiracy theories about the 9/11 terror attack, HuffPost UK can reveal.”

This entire article, like that of the BBC’s, vigorously attacks any individual or organisation that has the temerity to question the ‘official’ narrative on any major incident as offered up by the state, such as the Skripal poisonings, Syria’s chemical weapons, Iraq and Chilcot Report.

HuffPost even uses an unnamed former head of MI6 and an unnamed former Supreme Commander of Nato to dispel such challenges to this narrative and then attacks other sources of news such as RT as nothing more than Russian propaganda irrespective of the source. As a rule, TruePublica does not publish news sourced by RT but that does not make all of its content propaganda.

David Ray Griffin, a retired American professor and political writer who founded the Center for Process Studies which seeks to promote the common good by means of the relational approach found in process thought was the co-author of the book ‘9/11 Unmasked’ – part of the attack piece was centred on by the HuffPost hit piece.

The head of the 9/11 Consensus Panel, the other co-author, responded to the HuffPost.  For information, the goal of the Consensus Panel is to “provide a ready source of evidence-based research to any investigation that may be undertaken by the public, the media, academia, or any other investigative body or institution.”

That letter is as follows:

Jess Brammer, UK Huffington Post
Chris York, UK Huffington Post

Dear Ms. Brammar and Mr. York:

I was the head information specialist serving the Medical Health Officers of British Columbia, Canada, for 25 years.

Your attack piece on Professor Piers Robinson and on the scholarly work of Dr. David Ray Griffin is the least accurate and the lowest quality published article I have ever seen.

I have assisted Dr. Griffin with 10 of his investigative books into the events of 9/11. In 2011 we decided to create the international 9/11 Consensus Panel to review and evaluate the official claims relating to September 11, 2001. The Panel we formed has 23 members, including people from the fields of physics, chemistry, structural engineering, aeronautical engineering, piloting, airplane crash investigation, medicine, journalism, psychology, and religion.

In seeking a consensus methodology, I was advised by the former provincial epidemiologist of British Columbia to employ a leading model that is used in medicine to establish the best diagnostic and treatment evidence to guide the world’s doctors using medical consensus statements.

The Panel methodology has produced, seven years later, 51 refutations of the official claims, which were published as 911 Unmasked: An International Review Panel Investigation in September, 2018.https://www.amazon.com/11-Unmasked-International-Review-Investigation/dp/1623719747

Each Consensus Point, now a chapter in this book, was given three rounds of review and feedback by the Panel members. The panelists were blind to one another throughout the process, providing strictly uninfluenced individual feedback. Any Points that did not receive 85% approval by the third round were set aside.

The Honorary Members of the Panel include the late British (and longest-serving) parliamentarian Michael Meacher, the late evolutionary biologist Lynn Margulis, and the late Honorary President of the Italian Supreme Court, Ferdinando Imposimato.

The Huffington Post drastically lowered its standards to publish this hit piece, and what influenced it to do so is a question worth pursuing.
Yours truly,
Elizabeth Woodworth, Co-author with Dr. David Ray Griffin of 9/11 Unmasked

TruePublica continues:

It is over 18 years now since the world-changing event of 9/11. One wonders when the information held by the American government, that continues to anger so many people affected by it will ever emerge.

However, one reason why such questions persist is precisely that of the actions of the US government itself. One should not forget those so-called ‘conspiracy theories’ that actually came true that continues to pour petrol on the flames of doubt.

For example, the American government killed thousands by poisoning alcohol to prove its point that alcohol was bad for the general public during prohibition. This was a ‘conspiracy theory’ that went on for decades – until it was proven to be true. https://slate.com/technology/2010/02/the-little-told-story-of-how-the-u-s-government-poisoned-alcohol-during-prohibition.html

Then, you can take your pick of the lies government tells when it comes to starting wars – how about the lie the Saddam Hussain and Iraq had WMD ready to fire at Western targets. Total deaths exceeded 1 million. Yet another classic American lie was the Gulf of Tonkin incident in August 1964, as a pretext for escalating the country’s involvement in the Vietnam War that killed 60,000 American soldiers. Total deaths racked up 1.35 million, all based on a lie. That incident only came about because of an unintentional declassification of an NSA file in 2005.

Edward Snowden proved with his revelations in 2013 that the government was spying on everyone when the government had denied they had ever done so. It took a whistleblower to let us all know. The UK government has been found by the highest courts in the land to have broken numerous privacy and surveillance laws as a result of mass civilian surveillance systems.

Operation Mockingbird was a US government operation where journalists were paid to publish CIA propaganda, only uncovered by the Watergate scandal. It took a thief to unknowingly capture secret documents and recordings for the public to find out.

The list goes on and on – just as 9/11 will, so it will be interesting to see how the US Attorney, presented with evidence from so many prominent professionals will bury yet more 9/11 evidence. Don’t hold your breath though, the same questions will, no doubt, still be being asked in another 18 years time.

Published:1/9/2019 11:00:12 PM
[Markets] Mattis: One More General For The "Self-Licking Ice Cream Cone"

Authored by Kelley Beaucar Vlahos via The American Conservative,

Big brass and government executives play both sides of the military revolving door, including "the only adult in the room."

Before he became lionized as the “only adult in the room” capable of standing up to President Trump, General James Mattis was quite like any other brass scoping out a lucrative second career in the defense industry. And as with other military giants parlaying their four stars into a cushy boardroom chair or executive suite, he pushed and defended a sub-par product while on both sides of the revolving door. Unfortunately for everyone involved, that contract turned out to be an expensive fraud and a potential health hazard to the troops.

According to a recent report by the Project on Government Oversight, 25 generals, nine admirals, 43 lieutenant generals, and 23 vice admirals retired to become lobbyists, board members, executives, or consultants for the defense industry between 2008 and 2018. They are part of a much larger group of 380 high-ranking government officials and congressional staff who shifted into the industry in that time.

To get a sense of the demand, according to POGO, which had to compile all of this information through Freedom of Information requests, there were 625 instances in 2018 alone in which the top 20 defense contractors (think Boeing, General Dynamics, Lockheed Martin) hired senior DoD officials for high-paying jobs—90 percent of which could be described as “influence peddling.”

Back to Mattis. In 2012, while he was head of Central Command, the Marine General pressed the Army to procure and deploy blood testing equipment from a Silicon Valley company called Theranos. He communicated that he was having success with this effort directly to Theranos’s chief executive officer. Even though an Army health unit tried to terminate the contract due to it’s not meeting requirements, according to POGO, Mattis kept the pressure up. Luckily, it was never used on the battlefield.

Maybe it shouldn’t be a surprise but upon retirement in 2013, Mattis asked a DoD counsel about the ethics guiding future employment with Theranos. They advised against it. So Mattis went to serve on its board instead for a $100,000 salary. Two years after Mattis quit to serve as Trump’s Pentagon chief in 2016, the two Theranos executives he worked with were indicted for “massive” fraud, perpetuating a “multi-million dollar scheme to defraud investors, doctors and patients,” and misrepresenting their product entirely. It was a fake.

But assuming this was Mattis’s only foray into the private sector would be naive. When he was tapped for defense secretary—just three years after he left the military—he was worth upwards of $10 million. In addition to his retirement pay, which was close to $15,000 a month at the time, he received $242,000 as a board member, plus as much as $1.2 million in stock options in General Dynamics, the Pentagon’s fourth largest contractor. He also disclosed payments from other corporate boards, speech honorariums—including $20,000 from defense heavyweight Northrop Grumman—and a whopping $410,000 from Stanford University’s public policy think tank the Hoover Institution for serving as a “distinguished visiting fellow.”

Never for a moment think that Mattis won’t land softly after he leaves Washington—if he leaves at all. Given his past record, he will likely follow a very long line, as illustrated by POGO’s explosive report, of DoD officials who have used their positions while inside the government to represent the biggest recipients of federal funding on the outside. They then join ex-congressional staffers and lawmakers on powerful committees who grease the skids on Capitol Hill. And then they go to work for the very companies they’ve helped, fleshing out a small army of executives, lobbyists, and board members with direct access to the power brokers with the purse strings back on the inside. 

Welcome to the Swamp

“[Mattis’s’ career course] is emblematic of how systemic the problem is,” said Mandy Smithberger, POGO’s lead on the report and the director of its Center for Defense Information.

“Private companies know how to protect their interests. We just wish there were more protections for taxpayers.”

When everything is engineered to get more business for the same select few, “when you have a Department of Defense who sees it as their job to promote arms sales…does this really serve the interest of national security?”

That is something to chew on. If a system is so motivated by personal gain (civil servants always mindful of campaign contributions and private sector job prospects) on one hand, and big business profits on the other, is there room for merit or innovation? One need only look at Lockheed’s F-35 joint strike fighter, the most expensive weapon system in history, which was relentlessly promoted over other programs by members of Congress and within the Pentagon despite years of test failures and cost overruns, to see what this gets you: planes that don’t fly, weapons that don’t work, and shortfalls in other parts of the budget that don’t matter to contractors like pilot training and maintenance of existing systems.

“It comes down to two questions,” Smithberger noted in an interview with TAC.

Are we approving weapons systems that are safe or not? And are we putting [servicemembers’] lives on the line” to benefit the interests of industry?

All of this is legal, she points out. Sure, there are rules—”cooling off” periods before government officials and members of Congress can lobby, consult, or work on contracts after they leave their federal positions, or when industry people come in through the other side to take positions in government. But Smithberger said they are “riddled with loopholes” and lack of enforcement. 

Case in point: current acting DoD Secretary Patrick Shanahan spent 31 years working for Boeing, which gets about $24 billion a year as the Pentagon’s second largest contractor. He was Boeing’s senior vice president in 2016 just before he was confirmed as Trump’s deputy secretary of defense in 2017. Last week he recused himself from all matters Boeing, but he wasn’t always so hands off. At one point, he “prodded” for the purchase of 12 $1.2 billion Boeing F-15X fighter planes, according to Bloomberg.

But the revolving door is so much more pervasive and insidious than POGO could possibly catalogue. So says Franklin “Chuck” Spinney, who worked as a civilian and military officer in the Pentagon for 31 years, beginning in 1968. He calls the military industrial complex a “quasi-isolated political economy” that is in many ways independent from the larger domestic economy. It has its own rules, norms, and culture, and unlike the real world, it is self-sustaining—not by healthy competition and efficiency, but by keeping the system on a permanent war footing, with money always pumping from Capitol Hill to the Pentagon to the private sector and then back again. Left out are basic laws of supply and demand, geopolitical realities, and the greater interest of society.

“That’s why we call it a self-licking ice cream cone,” Spinney explained to TAC.

[This report] is just the tip of the iceberg. There’s a lot more subtle stuff going on. When you are in weapons development like I was at the beginning of my career, you learn about this on day one, that having cozy relationships with contractors is openly encouraged. And then you get desensitized. I was fortunate because I worked for people who did not like it and I caught on quickly.”

While the culture has evolved, basic realities have persisted since the massive build-up of the military and weapons systems during the Cold War. The odds of young officers in the Pentagon making colonel or higher are slim. They typically retire out in their 40s. They know implicitly that their best chance for having a well-paid second career is in the only industry they know—defense. Most take this calculation seriously, moderating their decisions on program work and procurement and communicating with members of Congress as a matter of course. 

Let’s just say there’s a problem [with a program]. Are you going to come down hard on a contractor and try to hold his feet to the fire? Are you going to risk getting blackballed when you are out there looking for a job? Sometimes there is no word communicated, you just don’t want to be unacceptable to anyone,” said Spinney. It’s ingrained, from the rank of lieutenant colonel all the way up to general.

So the top five and their subsidiaries continue to get the vast majority of work, usually in no-bid contracts ($100 billion worth in 2016 alone), and with cost-plus structures that critics say encourage waste and never-ending timetables, like the $1.5 trillion F-35. “The whole system is wired to get money out the door,” said Spinney. “That is where the revolving door is most pernicious. It’s everywhere.”

The real danger is that under this pressure, parties work to keep bad contracts alive even if they have to cook the books. “Essentially from the standpoint of Pentagon contracting you are not going to have people writing reports saying this product is a piece of shit,” said Spinney. Worse, evaluations are designed to deflect criticism if not oversell success in order to keep the spigot open. The most infamous example of this was the rigged tests that kept the ill-fated “Star Wars” missile defense program going in the 1980s.

*  *  *

Everyone talks about generals like Mattis as though they’re warrior-gods. But for decades, many of them have turned out to be different creatures altogether - creatures of a semi-independent ecosystem that operates outside of the normal rules and benefits only a powerful minority subset: the military elite, defense contractors, and Congress. More recently, the defense-funded think tank world has become part of this ecology, providing the ideological grist for more spending and serving as a way-station for operators moving in and out of government and industry.

Call it the Swamp, the Borg, or even the Blob, but attempting to measure or quantify the revolving door in the military-industrial complex can feel like a fool’s errand. Groups like POGO have attempted to shine light on this dark planet for years. Unfortunately, there is little incentive in Capitol Hill or at the Pentagon to do the very least: pull the purse strings, close loopholes, encourage real competition, and end cost-plus practices.

“We generally need to see more (political) championing on this issue,” Smithberger said. Until then, all outside efforts “can’t result in any meaningful change.”

Published:1/9/2019 8:59:23 PM
[Markets] How The US Spent Billions To Change The Outcome Of Elections Around The World: A Review

Authored by Danny Haiphong via BlackAgendaReport.com,

The U.S. military state overthrows democratically-elected governments that it deems to be a threat to corporate interests.

“There is plenty of evidence that the United States is the most depraved and dangerous “meddler” in the affairs of other nations that history has ever known.”

Dan Kovalik is a labor and human rights lawyer, but most of all he is an anti-imperialist and an author of three books. Kovalik’s first two books tackled the specific US war drives against Russia and Iran. His third installment, The Plot to Control the World: How the US Spent Billions to Change the Outcome of Elections Around the World, addresses the broad scope of US election meddling abroad. The book provides much needed political and ideological life support to an anti-war movement in the U.S that has been rendered nearly invisible to the naked eye.

The Plot to Control the World is as detailed in its critique of U.S. imperialism as it is concise. In just over 160 pages, Kovalik manages to analyze the various ways that the U.S. political and military apparatus interferes in the affairs of nations abroad to achieve global hegemony. He wastes no time in exposing the devastating lie that is American exceptionalism, beginning appropriately with the U.S. imperialist occupations of Haiti and the Philippines at the end of the 19thcentury and beginning of the 20th. The U.S. would murder millions of Filipinos and send both nations into a spiral of violence, instability, and poverty that continues to this day. As Kovalik explains regarding Haiti, “While the specific, claimed justifications for [U.S.] intervention changed over time- e.g., opposing the end of slavery, enforcing the Monroe Doctrine, fighting Communism, fighting drugs, restoring law and order -- the fact is that the interventions never stopped and the results for the Haitian people have been invariably disastrous.”

“Kovalik wastes no time in exposing the devastating lie that is American exceptionalism.”

US expansionism has relied upon the ideology of American exceptionalism to silence criticism and weaken anti-war forces in the United States. American exceptionalism claims that the U.S. is a force for good in the world and completely justified in its wars of conquest draped in the cover of spreading “democracy and freedom” around the world. Kovalik challenges American exceptionalism by showing readers just how much damage that US expansionism and militarism has caused for nations and peoples in every region of the planet. Russia, Honduras, Guatemala, the Democratic Republic of the Congo, Vietnam and many other nations have seen their societies devastated by U.S. “election meddling.” In Honduras, for example, a U.S.-backed coup of left-wing President Manuel Zelaya in 2009 made the nation one of the most dangerous places in the world to be a journalist, indigenous person, or trade-union/environmental activist. Thousands of Hondurans have been displaced, disappeared, or assassinated since the coup.

Another important aspect of The Plot to Control the World is its exposure of U.S hypocrisy surrounding the subject of “election meddling.” Since the end of the 2016 Presidential elections, the U.S. military, political, and media branches of the imperialist state have accused Russia of virtually implanting Donald Trump into the Oval office. The U.S. public has been fed a steady dose of anti-Russia talking points in an apparent effort on the part of the elites to beat the drums of war with the nuclear-armed state. No evidence has been presented to prove the conspiracy, as a recent National Public Radio (NPR) analysis states plainly. However, there is plenty of evidence that the United States is the most depraved and dangerous “meddler” in the affairs of other nations that history has ever known.

“The author shows readers just how much damage that US expansionism and militarism has caused for nations and peoples in every region of the planet.”

Just ask the much-vaunted Russians. Kovalik devotes an entire chapter to the 1996 Presidential election in Russia that re-elected the wildly unpopular Boris Yeltsin. The fall of the Soviet Union in 1991 began an era of “shock therapy” in the newly erected Russian Federation, a euphemism for the wholesale theft and transfer of socialized wealth into the hands of oligarchs and multinational corporations. Millions would perish in Russia from an early death due to the sudden loss of healthcare, housing, jobs, and other basic services. In 1996, President Bill Clinton ensured that Yeltsin maintained his near total grip on state power in Russia by providing the Russian President with a team of U.S. political consultants and over a billion dollars’ worth of IMF monies directly to the campaign. U.S. political and monetary support allowed Yeltsin to rig the election in his favor despite his dwindling popularity. Kovalik shows that if anyone should worry about election meddling, it should be the people of Russia and not the US elites that control Washington.

The Plot to Control the World takes readers into the Democratic Republic of Congo, where the CIA’s coup of revolutionary Patrice Lumumba continues to haunt the resource rich nation in the form of endless US-backed genocide. It travels to Guatemala, where the CIA overthrow of Jacobo Arbenz led to a U.S.-backed slaughter of a quarter million Guatemalans under the auspices of several military dictatorships. Kovalik shows us that the election of the fascistic Jair Bolsonaro in Brazil was no aberration, as the U.S. was primarily responsible for the rise in fascism in Brazilthrough its direct role in placing the nation under the control of a military dictatorship in 1964. The military dictatorship predated the CIA’s ouster of Chile’s Salvador Allende in 1973, which handed the once socialist state to Augusto Pinochet’s murderous and repressive leadership.

“The mission is always the same: to destabilize independent nations that refuses to bow down to the dictates of U.S. imperialism.”

The entire skeleton of the U.S. military state is on full display in The Plot to Control the World. The U.S. military state utilizes an array of tools to overthrow democratically-elected governments that it deems to be a threat to corporate interests. These tools include the U.S. intelligence agencies, so-called Non-governmental Organizations (NGOs) such as the National Endowment for Democracy, and the various branches of the military itself, to name a few. Regardless of the tools employed, the mission is always the same: to destabilize independent nations that refuses to bow down to the dictates of U.S. imperialism.Thus, while Nicaragua, the Democratic Republic of Congo, and Vietnam may possess unique histories, their economic and political development has been shaped by the destructive interference of the United States.

Dan Kovalik is not likely to be reviewed in the New York Timesor other corporate outlets. That’s because Kovalik unapologetically speaks out against U.S. empire and all that upholds it. In doing so, Kovalik’s The Plot to Control the World walks in the footsteps of anti-imperialists such as Michael Parenti and William Blum. Blum, a former State Department employee, spent his post-State Department life providing humanity with knowledge about how US imperialism operates on the global stage. The New York Timeswasted no time in slandering Blum in their obituary . This showed the great lengths that the ruling elites will go to discredit, defame, and condemn critics of the military industrial complex and how important it is for those who oppose war let go of any expectation that the corporate media will cover Kovalik’s work or anyone else who speaks out against war.

“White supremacy is the biggest lie of all and is completely embedded in the ideology of American exceptionalism.”

With that said, one of the reasons that the left in the U.S. is so weak is because it has been numerically and politically isolated by the lies of the Empire. White supremacy is the biggest lie of all and is completely embedded in the ideology of American exceptionalism. Despite the ruthlessness of the austerity and incarceration regimes, many Americans continue to be convinced that the U.S. is the most exceptional nation in the world and do not balk when its military wages wars abroad at the expense of U.S. tax dollars and civilian lives. U.S. imperialism has made sure that Americans feel that they are special colonizers who see the victims of the U.S. military state as savages worthy of slaughter. The Plot to Control the World is based on a different premise: internationalism. The book links the struggle against US imperialism to the needs of the oppressed and working class living in the heart of empire, making it an essential read for those who are sick and tired of the prevailing narrative of American exceptionalism and want to be armed with knowledge that is essential toward changing it.

Published:1/8/2019 10:54:58 PM
[Markets] S&P Downgrades PG&E To Junk, Launching Countdown To $800 Million Collateral Call

One of the biggest surprises involving the ongoing collapse of troubled California utility PG&E is how it was possible, that with the company reportedly contemplating a DIP loan ahead of a possible bankruptcy filing which sent PCG stock plunging and its bonds cratering to all time lows, that rating agencies still had the company rated as investment grade.

Late on Monday, this question got some closure after S&P became the first rating agency to take a machete to its rating for PG&E, when it downgraded the company by five notches, from BBB- to B, the fifth-highest junk rating; S&P warned that more cuts are imminent.

As we reported previously, PG&E's shares plunged as much as 25% then as much as another 17% on Tuesday, to their lowest level since 2003, as investors worried about the potential for the company to file for bankruptcy as California investigators have been looking into whether the utility’s equipment ignited the deadliest blaze in state history in 2018 as well as fires in 2017, probes that could leave the company with legal liabilities topping $30 billion.

A spokesman for PG&E said in an email Tuesday the company’s board is “actively assessing” operations, finances, management, structure and governance while maintaining a commitment to improving safety.

As Bloomberg notes, PG&E’s record-low bond prices underscore how much more the company will have to pay to borrow in the future, even if California comes up with a legislative bailout. "It also highlights how vulnerable even highly regulated, traditionally dependable stocks like utilities can be to natural disasters such as wildfires and hurricanes."

Meanwhile, as we discussed last Friday, whatever PG&E ultimate fate, it "will ultimately increase costs to California ratepayers and taxpayers, which already face a high cost of living,” S&P analyst Gabriel Petek, who rates the state of California, not PG&E, said in an email Monday. “The important takeaway to me is that these fires and how the ‘fire season’ is virtually a year-round phenomenon now represent a material consequence of climate change.”

In addition to the plunge in the utility's notes due in 2034, the company's 3.5% bonds due next year are currently yielding more than 9.9%, far above where most high-yield securities are paying and a level reserved for deeply distressed credits. As shown in the chart below, B-rated debt, the mid-tier of junk bonds, yields on average 7.5% as of Monday’s close, according to Bloomberg index data.

But while S&P took the axes to its ratings of PG&E, Fitch and Moody have yet to slash the company's investment grade. And when they do, the next major headache will emerge for both management, shareholders and bondholders, as a similar "junking" by Moody’s to high-yield would result in a rerun of the AIG death sprial, as at least once cash collateral call for PG&E of at least $800 million - to guarantee power contracts - will be triggered according to a regulatory filing (according to Bloomberg no other ratings triggers have been disclosed, although as AIG demonstrated, these tend be hidden deep inside ancillary contracts and only a downgrade will reveal just how insolvent the company is).

An $800 million collateral call would be a major problem for PG&E, as the company only had $430 million of cash on its books at the end of September. To preserve liquidity, PG&E suspended its dividend and fully drew its lines of credit, an event which we said is the first flashing red light that a liquidity crisis now appears inevitable. Meanwhile, as reported last Friday, the company is considering filing for bankruptcy as soon as February.

And while state lawmakers and regulators are looking at options including allowing the company to issue bonds to pay its liabilities, or breaking up the utility, no decision had been reached yet.

At the end of the day, however, even the $800 million urgent cash need would merely be a milestone on the company roads to assured bankruptcy if PG&E is ultimately held responsible for the Camp Fire, as that would put it on the hook for billions of dollars of potential liabilities, by some calculations far more than the company has access to. Yet because the company has filed for bankruptcy before, it and lawmakers would probably try to avoid a repeat, said Ryan Brist, head of global investment-grade credit and portfolio manager at Western Asset Management, who however likely understands that a bankruptcy may be inevitable.

“That was a disastrous time for all participants involved,” Pasadena, California-based Brist said. “It would be my guess that the same parties would want to pursue a much less volatile solution this go around when faced with the tough problems of statewide wildfires.”

However, with about $18.6 billion of long-term debt as of the end of September, PG&E may be incentivized to file for bankruptcy, CreditSights analyst Andy DeVries said in a report Monday. Such a filing would give the company bargaining power with insurance companies as it tries to settle customer claims at a discount, he said.

But before any possible filing, the next immediate step will be more downgrades by rating agencies, perhaps as soon as tomorrow.

Fitch analyst Philip Smyth said that a determination by California regulators that PG&E’s equipment was involved in the Tubbs Fire in 2017 or last year’s Camp Fire would be the strongest impetus to cut the rating.

“Right now, there is no investigation that says with any clarity that has determined that their equipment was the catalyst,” Smyth said in an interview Monday. “Since we downgraded in November, I don’t think things have gotten meaningfully worse since then.”

Finally, the imminent - and aptly called - fall from grace for PG&E is just the harbinger of the mass downgrade wave among investment-grade rated companies, expected to hit once the economic cycle turns, potentially flooding the more than $1.19 trillion high-yield market with new issues (as Jeff Gundlach discussed earlier today). The silver lining here, if any, is that PG&E’s relatively small debt load on its own wouldn’t bring the flood that strategists at Morgan Stanley have warned could exceed $1.1 trillion.

Xerox was the most recent company to join the "fallen angel" ranks, while Altria was downgrade from single A to BBB. Whether PG&E avoids bankruptcy remains to be seen, but one thing is certain: the California utility will be the next prominent "Fallen Angel."

Published:1/8/2019 10:23:50 PM
[Markets] Students Hate 'Trump' Immigration, Border-Wall Quotes... Don't Realize They're From Dems

Authored by Cabot Phillips via Campus Reform,

This month, the federal government entered a partial shutdown after Congress was unable to reach a budget agreement, primarily on funding for President Donald Trump’s proposed wall along the southern border.

The wall, a key talking point for Trump throughout the campaign, has been decried by leaders in the Democrat party as anti-American and immoral, among other things.

But their opposition to the wall and embrace of looser immigration laws seems to be a new development. 

In recent years, Senate Minority Leader Chuck Schumer, President Barack Obama, and Secretary Hillary Clinton have all stated the danger in embracing illegal immigration and ignoring the laws we have on the books.

Such quotes include:

“Illegal Immigration is wrong, plain and simple. Until the American people are convinced we will stop future flows of illegal immigration, we will make no progress.” -Senator Chuck Schumer, 2009

“We simply cannot allow people to pour into the United States undetected, undocumented and unchecked” -Barack Obama, 2005

“I voted numerous times… to spend money to build a barrier to try to prevent illegal immigrants from coming in. And I do think you have to control your borders.” -Hillary Clinton, 2008

Wanting to know if opponents of Trump’s border wall had opinions on these past quotes from Democrat leaders, Campus Reform's Cabot Phillips headed to American University.

But there’s a catch… the students were told the quotes actually came from President Trump.

Upon hearing the quotes, students said Trump’s words were “dehumanizing,” “problematic,” and “jingoist.”

“I just really think it’s hateful speech,” one student said, while another added, “the way he’s referring to people across the wall is dehumanizing.”

One student said the comments held racist undertones, claiming “there are racial biases deeply embedded in there.”

But this was all before they knew these quotes were actually coming from political idols of theirs. 

Watch the full video to see their reactions to being told Democrats actually the statements. 

Published:1/8/2019 6:54:37 PM
[Markets] The WWI Conspiracy - Part One: To Start A War

Via CorbettReport.com,

Each year, we lay the wreath. We hear “The Last Post.” We mouth the words “never again” like an incantation. But what does it mean? To answer this question, we have to understand what WWI was.

WWI was an explosion, a breaking point in history. In the smoldering shell hole of that great cataclysm lay the industrial-era optimism of never-ending progress. Old verities about the glory of war lay strewn around the battlefields of that “Great War” like a fallen soldier left to die in No Man’s Land, and along with it lay all the broken dreams of a world order that had been blown apart. Whether we know it or not, we here in the 21st century are still living in the crater of that explosion, the victims of a First World War that we are only now beginning to understand.

What was World War One about? How did it start? Who won? And what did they win? Now, 100 years after those final shots rang out, these questions still puzzle historians and laymen alike. But as we shall see, this confusion is not a happenstance of history but the wool that has been pulled over our eyes to stop us from seeing what WWI really was.

This is the story of WWI that you didn’t read in the history books. This is The WWI Conspiracy...

But for this cabal, 1914 was just the start of the story. In keeping with their ultimate vision of a united Anglo-American world order, the jewel in the crown of the Milner Group was to embroil the United States in the war; to unite Britain and America in their conquest of the German foe.

Across the Atlantic, the next chapter in this hidden history was just getting underway.

See Part Two tomorrow...

Published:1/8/2019 1:19:08 AM
[Markets] Zuesse: Why One Should Distrust The News

Authored by Eric Zuesse via The Strategic Culture Foundation,

An article by the BBC on “The world’s most nutritious foods" ranks the healthfulness of foods on the basis of an article at the supposedly scientific PLOSone journal, titled "Uncovering the Nutritional Landscape of Food”. That study is based on a dataset that entirely ignores antioxidant-content of foods. Antioxidant-content has come to be recognized during recent decades as constituting perhaps the most important factor in nutrition. It’s probably even more important than vitamin-content and than mineral-content and than protein, carbohydrate, and fat content. So, the basis upon which the article’s ranking was done is the factors that were known about, in 1950, to be important, but that are now known to be far less determinative of a person’s health and longevity than are foods’ anti-oxidant contents. Neither the article nor its underlying dataset even so much as just mentions “oxidant” anywhere. The authors of the BBC and PLOSone articles and of the underlying dataset were apparently entirely ignorant of the findings in nutritional research during the past 60+ years — findings about antioxidants, which have transformed our understanding of nutrition. (Furthermore, there were many other important methodological flaws producing that PLOSone ranking, not only its ignoring antioxidants.)

This is not unusual.

(Incidentally, “ORAC Values: Antioxidant Values of Foods & Beverages" is a ranking of foods on the basis of antioxidant-contents, as measured by ORAC; and this is likely a far more accurate indicator of the relative healthfulness of foods than is the ridiculous BBC-PLOSone ranking — but far fewer people are being exposed to it.)

Here’s another example of the untrustworthiness of news-media and of other allegedly nonfiction presentations, even in many ‘scientific’ journals — but this one will be an example from what has become overwhelmingly the world’s leading encyclopedia: Wikipedia.

The CIA-edited and -written Wikipedia writes about the anti-CIA Michel Chossudovsky, by saying against his organization, the Centre for Research on Globalization, that it “promotes a variety of conspiracy theories and falsehoods.[7][19][8][20][21][22][23].” However (just to take one example there), the 22nd footnote “[22]” brings the reader to a lying 11 September 2013 article in the neoconservative The New Republic. This TNR article says against the progressive organization Veteran Intelligence Professionals for Sanity(VIPS) that “The sources for VIPS' most sensational claims, it turns out, are Canadian eccentric Michel Chossudovsky’s conspiracy site Global Research and far-right shock-jock Alex Jones’s Infowars.”

Wikipedia’s linking to that lying TNR article is part of Wikipedia’s ‘proof’ that both of those ‘conspiracy’ sites (the leftist Chossudovsky’s and the rightist Jones’s) are false (in other words: Wikipedia there is blatantly deceiving its readers, and is even assuming they’re stupid enough to believe such a ridiculous thing as that and wouldn’t even bother to check out Wikipedia's sources to find whether Wikipedia is the liar there, and not Chosudovsky’s site that is the liar).

It’s also assuming that the Obama regime was truthful when saying that Bashar al-Assad was behind the 21 August 2013 sarin gas attack in Ghouta Syria. However, that second assumption is likewise demonstrably false. The TNR’s article and its allegation against Assad regarding Ghouta were, in fact, disproven, on 14 January 2014, when leading US weapons-scientists Theodore Postol and Richard Lloyd studied closely all the evidence on that event and the US Government’s evidence that Assad had been associated with causing it, and the Lloyd-Postol finding was unequivocal that “the US Government’s Interpretation of the Technical Intelligence It Gathered Prior to and After the August 21 Attack CANNOT POSSIBLY BE CORRECT.”

Furthermore, Obama actually knew that he was falsifying. Seymour Hersh’s 17 April 2014 article in the London Review of Books, proved this. Obama was lying. Neither Lloyd-Postol nor Hersh is even referred to in today’s Wikipedia’s article. It still trusts Obama’s and TNR's proven lie that Assad (instead of Obama’s ‘Syrian rebels’ — a.k.a.: jihadists) had done that sarin attack. Wikipedia smears Chossudovsky with that proven lie, by simply reasserting the lie, and by assuming that Chossudovsky’s site is less trustworthy than Wikipedia (which is yet another lie). But that’s merely one of many lies that are in the Wikipedia article against Chossudovsky. No intelligent reader trusts Wikipedia — or any source (except sources that the reader has repeatedly confirmed to be true and never to have asserted falsehoods — unlike Wikipedia, which is full of distortions, cover-ups, and lies).

Intelligent skeptics dig down like this (which can be done only online, which is why print and broadcast ‘news’ is even less trustworthy than online news), and routinely find that there’s a very selective use of ‘evidence’ that’s behind most claims, and that the reality is that the ‘news’ is often false, and, worse than that, the ‘news’ is usually false for a purpose or purposes — that the ’news' is often fraudulent, that it is propaganda, PR, often even of the lying sort, instead of being honest and carefully verified research and reporting, such as it claims to be.

Usually, it’s false because the intention is to deceive, not because Wikipedia (or whatever other news-and-public-affairs medium one happens to be considering) merely goofed. As was noted here, Wikipedia is edited, and even written, by the CIA. (Remember what a “slam-dunk” about “Saddam’s WMD” they delivered to the George W. Bush regime in 2002?) Only sources that are approved by the CIA are linked to there. Some of the sources are true, but many are not. The article on Chossudovsky was done for the CIA by an asset of the CIA, about a critic of the CIA. The CIA represents America’s billionaires, and Chossudovsky doesn’t.

Extremely wealthy people buy, advertise their corporations in, and/or donate to, public-affairs media, not in order to profit from them as owners of them, so much as in order to influence public affairs by means of them. This is one of the ways in which to grab hold not only of the government, but even of the people who vote for the government and who also buy those billionaires’ corporations’ products and services. 

Trust should never be given; it should only be earned. Regarding what is public, trust is earned only rarely — and is never earned when that trust is in the major ‘news’-media (all of which are owned and controlled by billionaires and centi-millionaires who actually have interests in many corporations, including some they don’t control but only serve or else invest in). The major ‘news’-media don’t always lie, but they often lie - especially about foreign affairs, which are the main focus and concern of international corporations.

For example: where do you ever see, in the major ‘news’-media in The West, such high quality news-reporting as this, at the obscure news-site 21st Century Wire, from the great investigative journalist Vanessa Beeley? What even comes close to such honesty, at CBS, ABC, NBC, Fox, MSNBC, CNN, BBC, New York Times, Washington Post, Guardian, The Times, New Yorker, The Atlantic, The Nation, Mother Jones, The Public Interest, National Review, Rolling Stone, Truthout, Truthdig, Alternet, Salon, etc.? Obviously, nothing, ever.

So: that’s why one should always distrust the news. The system here is designed for deceit of the public.

Here are other recent articles from me, describing other instances of this phenomenon, the routine deceiving of the public:

“Chomsky’s Unearned Prestige”

“MH17 TURNABOUT: Ukraine’s Guilt Now PROVEN. Ukraine Downed MH17 Malaysian Airliner in 2014. Conclusive Evidence Suppressed by Western Media. Blatant Misrepresentations in Sanctions on Russia.”

And here is something that brings together both Wikipedia and the MH17: 

“Wikipedia As Propaganda Not History — Mh17 As An Example”

Published:1/7/2019 11:18:55 PM
[World] [Ilya Somin] Eminent Domain, Emergency Powers, and Trump's Wall

Can Trump really exploit emergency powers to use eminent domain to build his wall without additional congressional authorization? If he succeeds, conservatives are likely to regret the precedent he sets.

President Donald Trump claims he can use an "emergency" declaration to secure funding to use eminent domain to acquire land for his border wall, even without any additional congressional authorization. The validity of this claim is dubious at best. It is far from clear that emergency powers can be used to build the wall. Even if they can, it is questionable whether that would authorize the use of eminent domain to seize private property. And if the president succeeds in using an emergency declaration for such dubious purposes, it would set a precedent that conservative Republicans are likely to have reason to regret the next time a liberal Democrat occupies the White House.

In a recent New York Times op ed, Yale Law School Prof. Bruce Ackerman outlines some reasons why it would be illegal for Trump to use an emergency declaration to build the wall:

President Trump on Friday said that he was considering the declaration of a "national emergency" along the border with Mexico, which he apparently believes would allow him to divert funds from the military budget to pay for a wall, and to use military personnel to build it...

Begin with the basics. From the founding onward, the American constitutional tradition has profoundly opposed the president's use of the military to enforce domestic law. A key provision, rooted in an 1878 statute and added to the law in 1956, declares that whoever "willfully uses any part of the Army or the Air Force" to execute a law domestically "shall be fined under this title or imprisoned not more than two years" — except when "expressly authorized by the Constitution or Act of Congress...."

In response to the Hurricane Katrina disaster in New Orleans, Congress created an express exception to the rules, and authorized the military to play a backup role in "major public emergencies." But in 2008 Congress and President Bush repealed this sweeping exception. Is President Trump aware of this express repudiation of the power which he is threatening to invoke?

The statute books do contain a series of carefully crafted exceptions to the general rule. Most relevantly, Congress has granted the Coast Guard broad powers to enforce the law within the domestic waters of the United States. But there is no similar provision granting the other military services a comparable power to "search, seize and arrest" along the Mexican border.

Gerald Dickinson of the University of Pittsburgh (probably the leading academic expert on legal issues related to eminent domain and the wall) makes similar points here. On the other hand, Ackerman's Yale colleague John Fabian Witt argues that the issues are not as clear as the former suggests:

The truth is that the White House's emergency gambit reveals the full extent of Congress's dangerous delegation of emergency powers to the executive branch of the federal government. Elizabeth Goitein of the Brennan Center has collected a daunting list of statutes authorizing emergency powers, which is super helpful on this point. (Liza summarizes the statutes in a recent article at The Atlantic.) The upshot? Declaring a national emergency to build the president's ridiculous wall would be a national embarrassment. It ought to be unlawful, too. But whether declaring a national emergency to build a wall actually is unlawful under current circumstances turns out to be much closer question than it should be. The key statutory provisions are 10 U.S.C. 2808 (authorizing emergency reallocation of certain military construction funds) and 33 U.S.C. 2293 (authorizing emergency reallocation of certain civil works project funds).

A closer look at the two laws cited by Witt suggests it is far from evident that they authorize the diversion of funds to build a border wall. Section 2808 states that, if the president declares a "national emergency" that "requires the use of the armed forces," he can use military construction funds to "undertake military construction projects, and may authorize the Secretaries of the military departments to undertake military construction projects, not otherwise authorized by law that are necessary to support such use of the armed forces." It is far from clear whether any supposed emergency caused by undocumented immigration really "requires the use of the armed forces" or that a wall would be "necessary to support such use" of them. Indeed, as Ackerman points out, federal law actually forbids the use of the armed forces for domestic law enforcement within the United States (and immigration enforcement qualifies as such). Section 2293 also only applies to a declared war or emergency that "requires or may require use of the Armed Forces." Even then, it only allows diversion of funds to build "authorized civil works, military construction, and civil defense projects that are essential to the national defense" (emphasis added). In this context, "authorized" likely means "authorized" by Congress, not just by the executive branch.

It is also worth noting that nothing remotely resembling a national security "emergency" is actually occurring at the southern border, and that a border wall would do virtually nothing to protect the US against any kind of terrorism or security risk. It may well not even do much to reduce undocumented immigration.

Thus, I would tentatively conclude that Trump cannot use these provisions to appropriate funds for the construction of a border wall - even if he does declare a "national emergency." However, courts often give presidents undue deference on national security and immigration issues, and that problem could recur here. I would be lying if I said I could confidently predict the outcome of a legal battle over this issue. I should also emphasize that I am far from being an expert on the full range of dubious emergency powers Congress has delegated to the president. So it's possible I am overlooking some other possible source of wall-building authority.

Even if Trump can otherwise use an emergency declaration to transfer funds to build a border wall, it does not follow that he can seize property through the use of eminent domain. As the Supreme Court has long held, the power to use eminent domain has to be "expressly authorized" under the law. Such authorization cannot simply be assumed or inferred. None of the emergency delegations of power for construction projects discussed above "expressly" authorize the use of eminent domain for purposes that are not otherwise authorized by Congress. If it is not clear whether eminent domain is authorized or not, courts are generally required to conclude that it isn't. Congress could, of course, solve that problem by giving Trump the authorization he needs. But the whole reason why Trump is considering using an emergency declaration is because Congress refuses to do that.

Finally, as Gerald Dickinson points out in an insightful Washington Post column, under the original meaning of the Constitution, it is likely that the federal government does not even have the power to use eminent domain within states (as opposed to on federal territories) in the first place. Dickinson relies on an important Yale Law Journal article on this subject by my Volokh Conspiracy co-blogger Will Baude (I discussed the implications of Will's work on this here). As Dickinson recognizes, it is highly unlikely that the Supreme Court will overturn longstanding precedent granting the federal government that power (even if wrongly). Still, it is ironic that conservative Republicans who claim to be originalists are willing to endorse what would be a massive constitutionally dubious use of eminent domain by the federal government - one of the largest federal takings in all of American history.

As Dickinson has emphasized in previous works on this subject (see here and here), the federal government owns less than one third of the land needed to build the wall. The rest would have to be seized from numerous private owners, Native American tribes, and state governments. That is likely to be both costly and time-consuming. It would also open the door to serious abuses of the kind we have seen in many previous eminent domain cases, including those undertaken for past, much smaller border barriers, in which the Department of Homeland Security compiled an awful record of violating procedural rules and undercompensating owners.

If Trump is able to overcome legal obstacles and use an emergency declaration to secure funds for the wall without congressional authorization and use eminent domain to seize the land he needs, conservatives are likely to have good reason to regret the precedent it would set. The same powers could easily be used by the next Democratic president for purposes that the right would hate.

Consider a scenario where Elizabeth Warren wins the presidency in 2020, but Republicans in Congress refuse to allocate funds she claims are necessary to combat climate change and institute the gigantic "Green New Deal" program many progressives advocate. President Warren could then declare climate change to be a "national emergency" and start reallocating various military and civilian funds to build all kinds of "green" construction projects. She could declare that climate change is a threat to national security, and use the Army Corps of Engineers and other military agencies to participate in the project.

Indeed, the claim that climate change is a menace to national security is at least as plausible as the claim that undocumented immigrants on the Mexican border are. The Obama Administration Department of Defense even published a report on the subject in 2014. And, of course, if President Warren decides she needs to seize some private property to carry out her plans, she could cite the Trump precedent to use eminent domain for that purpose.And this is just one of many ways in which liberal Democrats could exploit the sorts of powers Trump claims here.

Both Democrats and Republicans often fail to consider the long-term effects of presidential power-grabs they support when their party occupies the White House. Many conservatives seem intent on repeating that mistake here.

Published:1/7/2019 4:48:15 PM
[Entertainment] 5 new books not to miss this week, including Gwyneth Paltrow's 'Clean Plate' cookbook Look for 'The Clean Plate,' a cookbook from Gwyneth Paltrow, and a nonfiction thriller from Brad Meltzer. Plus more new books on sale Jan. 8.
     
 
 
Published:1/6/2019 5:39:20 AM
[Markets] A Visual History Of The 20 Internet Giants That Ruled The Web From 1998 To 2018

Submitted by Visual Capitalist

With each passing year, an increasingly large segment of the population no longer remembers images loading a single pixel row at a time, the earsplitting sound of a 56k modem, or the domination of web portals.

Many of the top websites in 1998 were basically news aggregators or search portals, which are easy concepts to understand. Today, brand touch-points are often spread out between devices (e.g. mobile apps vs. desktop site) and a myriad of services and sub-brands (e.g. Facebook’s constellation of apps). As a result, the world’s biggest websites are complex, interconnected web properties.

Today’s visualization, inspired by an earlier work published by WaPo, looks at which of the internet giants have evolved to stay on top, and which have faded into internet lore.

America Moves Online

For millions of curious people the late ’90s, the iconic AOL compact disc was the key that opened the door to the World Wide Web. At its peak, an estimated 35 million people accessed the internet using AOL.

By 1999, the AOL rode the Dot-com bubble to dizzying heights, with a valuation of $222 billion dollars.

AOL’s brand may not carry the caché it once did, but the brand never completely faded into obscurity. The company continually evolved, finally merging with Yahoo after Verizon acquired both of the legendary online brands. Verizon has high hopes for the company – called Oath – to evolve into a “third option” for advertisers and users who are fed up with Google and Facebook.

A City of Gifs and Web Logs

As internet usage began to reach critical mass, web hosts such as AngelFire and GeoCities made it easy for people to create a new home on the Web.

GeoCities, in particular, made a huge impact on the early internet, hosting millions of websites and giving people a way to actually participate in creating online content. If the web host was a physical place, it would’ve been the third largest city in America, just after Los Angeles.

This early online community was at risk of being erased permanently when GeoCities was finally shuttered by Yahoo in 2009, but the nonprofit Internet Archive took special efforts to create a thorough record of GeoCities-hosted pages.

From A to Z

In December of 1998, long before Amazon became the well-oiled retail machine we know today, the company was in the midst of a massive holiday season crunch.

In the real world, employees were pulling long hours and even sleeping in cars to keep the goods flowing, while online, Amazon.com had become one of the biggest sites on the internet as people began to get comfortable with the idea of purchasing goods online. Demand surged as the company began to expand their offering beyond books.

Digital Magazine Rack

Meredith – with the possible exception of Oath – may be the most unrecognizable name to many people looking at today’s top 20 list. While Meredith may not be a household name, the company controls many of the country’s most popular magazine brands (People, Sports Illustrated, Health, etc.) including their sizable digital footprints. The company also has a slew of local television networks around the United States.

After its acquisition of Time Inc. in 2017, Meredith became the largest magazine publisher in the world.

“Hey, Google”

When people have burning questions, they increasingly turn to the internet for answers, but the diversity of sources for those answers is shrinking.

Even as recently as 2013, we can see that About.com, Ask.com, and Answers.com were still among the biggest websites in America. Today though, Google appears to have cemented its status as a universal wellspring of answers.

As smart speakers and voice assistants continue penetrate the market and influence search behavior, Google is unlikely to face any near-term competition from any company not already in the top 20 list.

New Kids on the Block

Social media has long since outgrown its fad stage and is now a common digital thread connecting people across the world. While Facebook rapidly jumped into the top 20 by 2007, other social media infused brands took longer to grow into internet giants.

In 2018, Twitter, Snapchat, and Facebook’s umbrella of platforms were are all in the top 20, with LinkedIn and Pinterest not far behind.

Published:1/5/2019 7:35:56 PM
[Markets] Xi Jinping Thinks China Is World's Only Sovereign State

Authored by Gordon Chang via The Gatestone Institute,

  • The trend of Chinese ruler Xi Jinping's recent comments warns us that his China does not want to live within the current Westphalian system of nation states or even to adjust it. From every indication, Xi is thinking of overthrowing it altogether.

  • Beijing now thinks it can, with impunity, injure Americans. In the first week of May, the Pentagon said that China, from its base in Djibouti, lasered a C-130 military cargo plane, causing eye injuries to two American pilots.

  • The laser attack in the Horn of Africa, far from any Chinese boundaries, highlights Beijing's unstated position that the U.S. military has no right to operate anywhere and that China is free to do whatever it wants anyplace it chooses. And let us understand the severity of the Chinese act: an attempt to blind pilots is akin to an attempt to bring down their planes, and an attempt to bring down planes is an assertion China has the right to kill.

The trend of Chinese ruler Xi Jinping's recent comments warns us that his China does not want to live within the current Westphalian system or even to adjust it. From every indication, Xi is thinking of overthrowing it altogether. Pictured: Xi Jinping (center) at a Chinese Communist Party event on January 2, 2019 in Beijing. (Photo by Mark Schiefelbein-Pool/Getty Images)

"I hear prominent Americans, disappointed that China has not become a democracy, claiming that China poses a threat to the American way of life," Jimmy Carter wrote on the last day of 2018 in a Washington Post op-ed.

That claim, Carter tells us, is a "dangerous notion."

There is nothing more dangerous than a notion from the 39th president, even on China. China, despite what he said, threatens not only America's way of life but also the existence of the American republic. Chinese ruler Xi Jinping has, in recent years, been making the extraordinary case that the U.S. is not a sovereign state.

The breathtaking position puts China's aggressive actions into a far more ominous context.

Carter, and almost all others who comment on Chinese foreign policy, see Beijing competing for influence in the current international order. That existing order, accepted virtually everywhere, is based on the Treaty of Westphalia of 1648, which recognizes the sovereignty of individual states that are supposed to refrain from interfering in each other's internal affairs. Those states now compete and cooperate in a framework, largely developed after World War II, of treaties, conventions, covenants, and norms.

Many Chinese policymakers believe they are entitled to dominate others, especially peoples on their periphery. That concept underpinned the imperial tributary system in which states near and far were supposed to acknowledge Chinese rule. Although there is no "cultural DNA" that forces today's communist leaders to view the world as emperors did long ago, the tributary system nonetheless presents, as Stephen Platt of the University of Massachusetts points out, "a tempting model" of "a nostalgic 'half-idealized, half-mythologized past.' "

In that past, there were no fixed national boundaries. There was even no concept of "China." There was, as Yi-Zheng Lian wrote in the New York Times, "a sovereignty system with the emperor's compound in the middle." Around that were concentric rings. "The further from the center, the less the center's control and one's obligations to it," Lian noted. The Chinese, in fact, were perhaps the first to develop the idea of a borderless world.

In short, Chinese emperors claimed they had the Mandate of Heaven over tianxia, or "All Under Heaven," as they believed they were, in the words of Fei-Ling Wang of Georgia Tech, "predestined and compelled to order and rule the entire world that is known and reachable, in reality or in pretension." As acclaimed journalist Howard French writes in Everything Under the Heavens, "One can argue that there has never been a more universal conception of rule."

Unfortunately, the current Chinese leader harbors ambitions of imposing the tianxia model on others. As Charles Horner of the Hudson Institute told me, "The Communist Party of China remains committed to ordering the People's Republic of China as a one-party dictatorship, and that is perforce its starting point for thinking about ordering the world." In other words, a dictatorial state naturally thinks about the world in dictatorial terms. Tianxia is by its nature a top-down, dictatorial system.

Xi Jinping has employed tianxia language for more than a decade, but recently his references have become unmistakable. "The Chinese have always held that the world is united and all under heaven are one family," he declared in his 2017 New Year's Message. He recycled tianxia themes in his 2018 New Year's message and hinted at them in his most recent one as well.

Xi has also used Chinese officials to explain the breathtaking scope of his revolutionary message. Foreign Minister Wang Yi, in Study Times, the Central Party School newspaper, in September 2017 wrote that Xi Jinping's "thought on diplomacy"—a "thought" in Communist Party lingo is an important body of ideological work—"has made innovations on and transcended the traditional Western theories of international relations for the past 300 years." Wang with his time reference is almost certainly pointing to the Westphalian system of sovereign states. His use of "transcended," consequently, hints that Xi wants a world without sovereign states—or at least no more of them than China.

The trend of Xi's recent comments warns us that his China does not want to live within the current Westphalian system or even to adjust it. From every indication, Xi is thinking of overthrowing it altogether, trying to replace Westphalia's cacophony with tianxia's orderliness.

Xi not only spouts tianxia-like statements, his regime also employs scholars to study the application of tianxia to the world.

He also acts tianxia. His China in December 2016 seized a U.S. Navy drone in international water in the South China Sea. Chinese spokesman Yang Yujun said, according to the official Xinhua News Agency, that one of its navy's lifeboats "located an unidentified device" and retrieved it "to prevent the device from causing harm to the safety of navigation and personnel of passing vessels."

In fact, China's ships had over a long period tailed the USNS Bowditch, an unarmed U.S. Navy reconnaissance vessel. The American crew, who at the time were trying to retrieve the drone, repeatedly radioed the Chinese sailors, who ignored their calls and, within 500 yards of the U.S. craft, went into the water in a small boat to seize it. The Chinese by radio told the Bowditch they were keeping the drone.

The site of the seizure, about 50 nautical miles northwest of Subic Bay, was so close to the shoreline of the Philippines that it was beyond China's expansive "nine-dash line" claim. There was absolutely no justification for the Chinese navy to grab the drone. The intentional taking of what the Defense Department termed a "sovereign immune vessel" of the United States showed that Beijing thought it was not bound by any rules of conduct.

Beijing now thinks it can, with impunity, injure Americans. In the first week of May, the Pentagon said that China, from its base in Djibouti, lasered a C-130 military cargo plane, causing eye injuries to two American pilots.

The laser attack in the Horn of Africa, far from any Chinese boundaries, highlights Beijing's unstated position that the U.S. military has no right to operate anywhere and that China is free to do whatever it wants anyplace it chooses. And let us understand the severity of the Chinese act: an attempt to blind pilots is akin to an attempt to bring down their planes and an attempt to bring down planes is an assertion China has the right to kill.

China has been called a "trivial state," one which seeks nothing more than "perpetuation of the regime itself and the protection of the county's territorial integrity." This view fundamentally underestimates the nature of the Chinese challenge. China, under Xi Jinping, has become a revolutionary regime that seeks not only to dominate others but also take away their sovereignty.

Xi at this moment cannot compel others to accept his audacious vision of a China-centric world, but he has put the world on notice.

These events together mean, once again, that Carter has failed to understand a hardline regime. In his op-ed, he warns America against starting "a modern Cold War" with China. Washington, in reality, cannot start anything. There already is a struggle that Xi Jinping has made existential.

Published:1/4/2019 9:30:17 PM
[Markets] The Problem With Wall Street's Forecasts

Authored by Lance Roberts via RealInvestmentAdvice.com,

Over the last few weeks, I have been asked repeatedly to publish my best guess as to where the market will wind up by the end of 2019.

Here it is:

“I don’t know.”

The reality is that we can not predict the future. If it was actually possible, fortune tellers would all win the lottery.  They don’t, we can’t, and we aren’t going to try.

However, this reality certainly does not stop the annual parade of Wall Street analysts from pegging 12-month price targets on the S&P 500 as if there was actual science behind what is nothing more than a “WAG.” (Wild Ass Guess).

The biggest problem with Wall Street, both today and in the past, is the consistent disregard of the possibilities for unexpected, random events. In a 2010 study, by the McKinsey Group, they found that analysts have been persistently overly optimistic for 25 years. During the 25-year time frame, Wall Street analysts pegged earnings growth at 10-12% a year when in reality earnings grew at 6% which, as we have discussed in the past, is the growth rate of the economy.

Ed Yardeni published the two following charts which show that analysts are always overly optimistic in their estimates.

This is why using forward earnings estimates as a valuation metric is so incredibly flawed – as the estimates are always overly optimistic roughly 33% on average.

Most importantly, the reason earnings only grew at 6% over the last 25 years is because the companies that make up the stock market are a reflection of real economic growth. Stocks cannot outgrow the economy in the long term…remember that.

The McKenzie study noted that on average “analyst’s forecasts have been almost 100% too high” which leads investors into making much more aggressive bets in the financial markets which has a general tendency of not working as well as planned.

However, since “optimism” is what sells products, it is not surprising, as we head into 2019, to see Wall Street once again optimistic about higher markets even after massively missing 2018’s outcome.

But, that was so last year.

For 2019, analysts have outdone themselves on scrambling to post the most bullish of outcomes that I can remember. Analysts currently expect a median projected return of 23.66% from the 2018 close.

No…seriously. This is what Wall Street is currently expecting despite the fact that foreign and domestic economic data is weakening, corporate profit growth is likely peaking, trade wars are heating up and the Federal Reserve is tightening monetary policy. As Greg Jensen, co-chief investment officer of Bridgewater Associates, the biggest hedge fund in the world, recently stated: 

“The biggest theme developing is that you are going to have significantly weaker growth, near recession-level growth in 2019, based on our measures, and the markets are generally not pricing that in.

Although the movement has been in that direction, the degree of [ the market’s decline] is still small relative to what we are seeing in terms of the shifts in likely economic conditions.  2019 will be a year of weaker growth and central banks struggling to move from their current tightening stance to easing and finding it difficult to ease because they have very little ammunition to ease.”

All of this should sound very familiar if you have been reading our work over the past year.

The problem with the year-end “guesses” above is they are based on “forward operating earnings estimates” which is another set of severely flawed “WAG’s” on top of a “WAG.”

Let me explain.

First, operating earnings are at best a myth, and mostly a lie. As opposed to reported earnings, operating earnings are essentially “earnings if everything goes right with all the bad stuff excluded.”

Secondly, operating earnings are cooked, baked, and fudged in more ways than you can imagine to win the “beat the estimate gaime.” The Wall Street Journal confirmed as much in a 2012 article entitled “Earnings Wizardry” which stated:

“If you believe a recent academic study, one out of five [20%] U.S. finance chiefs have been scrambling to fiddle with their companies’ earnings. Not Enron-style, fraudulent fiddles, mind you. More like clever—and legal—exploitations of accounting standards that ‘manage earnings to misrepresent [the company’s] economic performance,’ according to the study’s authors, Ilia Dichev and Shiva Rajgopal of Emory University and John Graham of Duke University. Lightly searing the books rather than cooking them, if you like.”

This should not come as a major surprise as it is a rather “open secret.” Companies manipulate bottom line earnings by utilizing “cookie-jar” reserves, heavy use of accruals, and other accounting gimmicks to either increase or depress, earnings.

“The tricks are well-known: A difficult quarter can be made easier by releasing reserves set aside for a rainy day or recognizing revenues before sales are made, while a good quarter is often the time to hide a big ‘restructuring charge’ that would otherwise stand out like a sore thumb. What is more surprising though is CFOs’ belief that these practices leave a significant mark on companies’ reported profits and losses. When asked about the magnitude of the earnings misrepresentation, the study’s respondents said it was around 10% of earnings per share.”

Since company executives are highly compensated by rising stock prices, it should not be surprising to see 93% of the respondents pointing to “influence on stock price” and “outside pressure” as reasons for manipulating earnings.

Note: For fundamental investors, this manipulation of earnings skews valuation analysis particularly with respect to P/E’s, EV/EBITDA, PEG, etc.

This was brought to the fore in 2015 by the Associated Press in: “Experts Worry That Phony Numbers Are Misleading Investors:”

“Those record profits that companies are reporting may not be all they’re cracked up to be.

As the stock market climbs ever higher, professional investors are warning that companies are presenting misleading versions of their results that ignore a wide variety of normal costs of running a business to make it seem like they’re doing better than they really are.

What’s worse, the financial analysts who are supposed to fight corporate spin are often playing along. Instead of challenging the companies, they’re largely passing along the rosy numbers in reports recommending stocks to investors.

Here were the key findings of the report:

  • Seventy-two percent of the companies reviewed by AP had adjusted profits that were higher than net income in the first quarter of this year.

  • For a smaller group of the companies reviewed, 21 percent of the total, adjusted profits soared 50 percent or more over net income. This was true of just 13 percent of the group in the same period five years ago.

  • From 2010 through 2014, adjusted profits for the S&P 500 came in $583 billion higher than net income. It’s as if each company in the S&P 500 got a check in the mail for an extra eight months of earnings.

  • Fifteen companies with adjusted profits actually had bottom-line losses over the five years. Investors have poured money into their stocks just the same.

  • Stocks are getting more expensive. Three years ago, investors paid $13.50 for every dollar of adjusted profits for companies in the S&P 500 index, according to S&P Capital IQ. Now, they’re paying nearly $18.

These “gimmicks” to boost earnings, combined with artificially suppressed interest rates and massive rounds of monetary interventions, unsurprisingly pushed asset prices to historically high levels. However, as noted, the boost to “profitability” did not come from organic economic growth. As I showed previously:

“Since the recessionary lows, much of the rise in ‘profitability’ has come from a variety of cost-cutting measures and accounting gimmicks rather than actual increases in top-line revenue. While tax cuts certainly provided the capital for a surge in buybacks; revenue growth, which is directly connected to a consumption-based economy, has remained muted. 

Here is the real kicker. Since 2009, the reported earnings per share of corporations has increased by a total of 391%. This is the sharpest post-recession rise in reported EPS in history. However, the increase in earnings did not come from a commensurate increase in revenue which has only grown by a marginal 44% during the same period. This is an important point when you realize only 11% of total reported EPS growth actually came from increased revenues.”

“While stock buybacks, corporate tax cuts, and debt-issuance can create an illusion of profitability in the short-term, the lack of revenue growth the top line of the income statement suggests a much weaker economic environment over the long-term.”

Way Too Optimistic

With share buyback activity already beginning to slow, the Federal Reserve extracting liquidity from the financial markets, and the Administration continuing their “trade war,” the risks to extremely elevated forward earnings estimates remain high. We are already seeing the early stages of these actions through falling home prices, automobile sales, and increased negative guidance for corporations.

If history, and logic, is any guide, we will likely see the U.S. economy pushing into a recession in 2019 particularly as the global economy continues to weaken. This is something both domestic and global yield curves are already screaming is an issue, but to which few are listening.

Currently, analysts’ forward earnings estimates are still way too lofty going into 2019. As I noted in the recent missive on rising headwinds to the market, earnings expectations have already started to get markedly ratcheted down for the end of 2019. In just the last 45-days the estimates for the end of 2019 have fallen by more than $14/share. The downside risk remains roughly $10/share lower than that and possibly much more if a recession hits.

As stated, beginning in 2019, the estimated quarterly rate of change in earnings will drop markedly and head back towards the expected rate of real economic growth. (Note: these estimates are as of 12/31/18 from S&P and are still too high relative to expected future growth. Expect estimates to continue to decline which allow for continued high levels of estimate “beat” rates.)

The end of the boost from tax cuts has arrived.

Since the tax cut plan was poorly designed, to begin with, it did not flow into productive investments to boost economic growth. As we now know, it flowed almost entirely into share buybacks to boost executive compensation. This has had very little impact on domestic growth.

The “sugar high” of economic growth seen in the first two quarters of 2018 has been from a massive surge in deficit spending and the rush by companies to stockpile goods ahead of tariffs. These activities simply pull forward “future” consumption and have a very limited impact but leave a void which must be filled in the future.

Nearly a full year after the passage of tax cuts, we face a nearly $1 Trillion deficit, a near-record trade deficit, and, as expected, economic and earnings reports are now showing markedly weaker projections. Apple (AAPL) is just the first of many companies that will confirm this in the coming weeks.

It is all just as we predicted.

The problem when it comes to blindly invest in markets without a thorough understanding of underlying dynamics is much the same as playing “leapfrog with a unicorn,” eventually, there is a very negative outcome.

As we head into 2019, all of the anecdotal evidence continues to suggest weaker markets rather than a surging recovery.

But, that is just a guess.

As I said, I honestly “don’t know.”

What I do know is that I will continue to manage our portfolios for the inherent risks to capital, take advantage of opportunities when I see them, and will allow the market to “tell me” what it wants to do rather than “guessing” at it.

While I read most of the mainstream analyst’s predictions to get a gauge on the “consensus.”  This year, more so than most, the outlook for 2019 is universally, and to many degrees, exuberantly bullish.

What comes to mind is Bob Farrell’s Rule #9 which states:

“When everyone agrees…something else is bound to happen.”

Published:1/4/2019 1:39:08 PM
[Markets] China Announces RRR Cut Plans To Cover Lunar New Year Liquidity

US equity futures extended gains in a kneejerk reaction to headlines proclaiming China cutting the reserve requirement ratio.

The headline looks impressive...

  • CHINA CUTS BANK RESERVE RATIO BY 1 PERCENTAGE POINT

And the algos liked it...

However, two points make this less exciting "stimulus" news than we suspect the narrative will proclaim.

First is that, according to a statement from the central bank, the RRR cuts of 0.5 percentage point each will occur on Jan. 15 and Jan. 25 in a move to offset liquidity fluctuations ahead of Chinese Lunar New Year.

  • PBOC says the RRR cuts to replace medium-term lending facilities maturing in 1Q

  • PBOC says it will continue prudent monetary policy and won’t flood economy with liquidity

  • PBOC says move to boost financial support for small and private companies

  • PBOC to ensure reasonable growth of credit and aggregate financing

  • PBOC to stabilize macro leverage ratio

In other words this is 'business as usual' monetary injection to cover an increasingly panicked financial system dry of liquidity.

And second is that, recent previous monetary and fiscal easing efforts have utterly failed to generate any material economic activity pick up. As we noted previously, since June 2018, China has been loosening monetary and fiscal policies in an attempt to refloat the sinking red ponzi amid the shadow banking system's deflation.

As the following chart from Goldman Sachs shows, it is not working as the Current Activity Indicator continues to slump...

It seems no matter what China throws at it, the economy (or the market) won't behave as the text-books say it should.

As Goldman previously concluded: "There are reasons to be concerned [that easing is becoming less effective]..."

Published:1/4/2019 4:25:55 AM
[Markets] Eurozone PMI Plunges To Four Year Lows

US, China, and now European composite PMIs have all tumbled in December with Eurozone PMI slipping to 51.1 - its weakest in four years

Growth in manufacturing and services slowed more than initially reported in December - weighed down by public protests in France, Germany’s continued struggles in the car industry, and renewed weakness in Italy. Composite gauges for output expectations and new orders were the worst since late 2014.

Under the hood, the European nations are highly varied (from best to worst):

  • Ireland: 55.5 (9-month low)

  • Spain: 53.4 (3-month low)

  • Germany: 51.6 (66-month low)

  • Italy: 50.0 (3-month low)

  • France: 48.7 (49-month low)

Chris Williamson, Chief Business Economist at IHS Markit said:

The eurozone economy moved down another gear at the end of 2018, with growth down considerably from the elevated rates at the start of the year. December saw business activity grow at the weakest rate since late-2014 as inflows of new work barely rose. Levels of unfinished business are now falling for the first time in nearly four years as previously-received orders are not being fully replaced with new work.

“While a drop in business activity in France could be partly blamed on the ‘yellow vest’ protests, the rest of the region lacks any such mitigating factors, albeit with the recent weakness of the autos sector hopefully a temporary set-back.

Importantly, with expectations of output dropping to the lowest for over four years, companies are not anticipating any imminent revival in demand. Worries reflect multiple headwinds from trade wars, Brexit, heightened political uncertainty, financial market volatility and slower global economic growth.

“Employment growth has already taken a knock as companies take a more cautious approach to hiring in the face of weaker order books. Jobs growth has hit a two-year low.

Better news came in the form of an easing in price pressures to the lowest for over a year, which should provide some breathing space for the European Central Bank to review its policy guidance.”

Finally, Williamson confirms this survey signals weakness ahead...

“The data are consistent with eurozone GDP rising by just under 0.3% in the fourth quarter, but with quarterly growth momentum slowing to 0.15% in December.

How long before Draghi reverses to easing again?

Published:1/4/2019 3:29:06 AM
[Markets] Bloodbath: Stocks Crater As Perfect Storm Of Apple And Recession Fear Strikes

If today is any indication of what to expect from the rest of 2019, then hold on to your hats.

Stocks were already on the backfoot after Monday's shocking Apple revenue guidance cut and the overnight volley of currency flash crashes, yet just as they were attempting to stage a modest rebound following news of Bristol-Myers massive $74 billion acquisition of Celgene and the best ADP payrolls report since February 2018, the hammer hit after the ISM reported a plunge in the December manufacturing ISM, which tumbled to 54.1, the lowest print since Nov 2016 and the biggest monthly drop since the financial crisis.

That was enough to crush any fledgling animal spirits and steamroll any BTFDers, and as fears of an imminent economic recession re-emerged, markets tumbled, with the Dow Jones promptly dropping as much as 650 points lower and after a modest attempt to rebound around noon, it resumed its slide to close at session lows, down 662 points, or 2.84%, with the S&P down 2.5%.

It wasn't just Apple, however, as poor guidance from Delta crushed the airlines, and sending the Airline sector on its biggest one day drop since 2016...

... while autos were hit by disappointing December auto sales, with Ford announcing that just like GM it too would stop reporting monthly auto sales suggesting that the worst is yet to come.

And speaking of economic fears, both of Bloomberg's two main Economic surprise indexes turned negative for the first time since Trump was elected, wiping out all economic optimism since the Trump election.

Apple, understandably, did not help, and tumbled 10% its biggest one day drop since 2013, wiping out $75 billion in market cap, roughly equivalent to the market cap of Lockheed Martin's or Caterpillar's market cap.

Apple's plunge was not contained, and went so far as to hit the stock of its 3rd largest shareholder, Berkshire, whose Class A stock tumbled 5%, its 2nd biggest drop since 2011.

While Apple was the biggest hit to the Dow, responsible for 100 points of the drop, it was a bad day overall, with just one Dow company - dividend-paying Verizon - in the green.

Apple's plunge predictably hit the Nasdaq the hardest, which fell 3.1%, even as some other sectors performed relatively well, with the banks, housing and small caps dropping just oveer 1%.

Much of the volatility in today's market could have been avoided if traders had only heeded the signs of the past few months: as Alec Young, managing director at FTSE Russell told Bloomberg, "the market is the wisdom of all investors -- it was discounting this type of news-flow with the sharp and violent sell-off we got in December. When it makes a big move, up or down, it’s telling you positive or negative things about future developments. The extreme move down was telling you we’d get this type of news-flow."

Of course, it's always easier to make such profoundly philosophical observations in retrospect.

But while much of the drama was confined to stocks, the true chaos was in rates, where shorts were crushed (recall "Sorry Jeff: The Treasury Short Squeeze Hasn't Even Begun Yet") and a furious buying spree repriced the entire curve sharply lower...

... and while the 10Y yield plunged from 2.62% as low as 2.54%, closing around 2.56%...

... the real fireworks were in the short end, where the 2-Year, 3-Year, and 5-Year yields all dropped below the effective Fed Funds rate.

Meanwhile, anticipated nothing short of armageddon, the market has now priced out any future rate hikes, and not only sees 7% odds of a March rate cut, but is now pricing in a full rate cut by April 2020, suggesting it is convinced the recession will hit some time in the next 12 months.

In a surprising twist, however, instead of seeing the usual flight to safety into the dollar, the greenback tumbled today sliding to the lowest level since early November.

Meanwhile, with risk assets broadly liquidated, it will come as no surprise that credit was hammered as spreads on both Investment Grade and High Yield continued to blow out wider.

With nothing else working, traders rediscovered a true flight to safety, namely gold and silver, both of which surged to the highest levels since June and gold is now knocking on $1300.

And with another dramatic nightmare session, where scarce liquidity and surging volatility left traders begging for dramamine in the history books, everyone is wondering just what asset class will flash crash in the liquidity vacuum just before 6pm ET....

Published:1/3/2019 3:26:32 PM
[World] In One Chart: The government shutdown already ranks as the 2nd-longest in 20 years At 13 days in length as of Thursday, the current partial government shutdown is starting to move up the record books.
Published:1/3/2019 2:22:57 PM
[Markets] The European Union: An Authoritarian Body With A Humanitarian Face

Authored by Jiri Payne via The Gatestone Institute,

  • What the Lisbon Treaty actually created was an authoritarian political system that infringes on human and political rights.

  • Article 4 states in part: "...The Member States shall facilitate the achievement of the Union's tasks and refrain from any measure which could jeopardise the attainment of the Union's objectives." In other words, the interests of the Union are above the interests of individual states and citizens.

  • In a democratic system with a healthy balance of power, a ruling coalition can be challenged or replaced by the opposition. This is precisely what is lacking in the EU, as the Treaty of Lisbon requires that European Commission members be selected on the basis of their "European commitment." This means, in effect, that anyone with a dissenting view may never become a member of the Commission. As history repeatedly demonstrates, where there is no opposition, freedom is lost.

The Treaty of Lisbon considers the interests of the European Union to be above the interests of individual states and citizens. Jean-Claude Juncker, president of the European Commission, complained in 2016: "Too many politicians are listening exclusively to their national opinion. And if you are listening to your national opinion you are not developing what should be a common European sense..." (Photo by Dan Kitwood/Getty Images)

The Treaty of Lisbon -- drafted as a replacement to the 2005 Constitutional Treaty and signed in 2007 by the leaders of the 27 European Union member states -- describes itself as an agreement to "reform the functioning of the European Union... [it] sets out humanitarian assistance as a specific Commission competence."

What the Lisbon Treaty actually created, however, was an authoritarian political system that infringes on human and political rights.

Take the mandate of the European Commission (EC), for instance. According to Article 17 of the Treaty:

"The Commission shall promote the general interest of the Union... In carrying out its responsibilities, the Commission shall be completely independent... the members of the Commission shall neither seek nor take instructions from any Government or other institution, body, office or entity."

Then there is Article 4, which states in part:

"...The Member States shall facilitate the achievement of the Union's tasks and refrain from any measure which could jeopardise the attainment of the Union's objectives."

In other words, the interests of the Union are above the interests of individual states and citizens. This is not mere speculation. The president of the European Commission, Jean-Claude Juncker, openly stated in 2016:

"Too many politicians are listening exclusively to their national opinion. And if you are listening to your national opinion you are not developing what should be a common European sense and a feeling of the need to put together efforts. We have too many part-time Europeans."

The same year, Emmanuel Macron -- at the time France's Economy Minister -- gave an interview to Time magazine, in which he warned against the U.K.'s upcoming Brexit referendum by arguing:

"You can suddenly have a series of countries waking up and saying, 'I want the same status as the Brits,' which will be de facto the dismantling of the rest of Europe. We should not replicate the situation where one country is in a situation to hijack the rest of Europe, because they organize a referendum."

Macron's attitude is reflected in the Lisbon Treaty, which imposes regulations on member states to ensure they fulfill tasks determined by the European Commission.

It is noteworthy in this context that of the 36 times that the word "responsibility" appears in the Treaty, only once does it refer to a Commission obligation -- which is that it, "as a body, shall be responsible to the European Parliament." The other 35 refer to obligations of the member states.

In a democratic system with a healthy balance of power, a ruling coalition can be challenged or replaced by the opposition. This is precisely what is lacking in the EU, as the Treaty of Lisbon requires that European Commission members be selected on the basis of their "European commitment." This means, in effect, that anyone with a dissenting view may never become a member of the Commission -- something eerily reminiscent of Communism. Article 4 of the Czechoslovak Constitution of 1960, for instance, specifies:

"The leading force in society and in the state is the vanguard of the working class, the Communist Party of Czechoslovakia, a voluntary combat union of the most active and knowledgeable citizens of the ranks of workers, peasants and intelligentsia."

Article11 of the North Korean Constitution includes a similar directive:

"The Democratic People's Republic of Korea shall conduct all activities under the leadership of the Workers' Party of Korea."

As history repeatedly demonstrates, where there is no opposition, freedom is lost.

In his 1840 book, Democracy in America, the renowned French diplomat and historian Alexis de Tocqueville wrote:

"...If despotism were to establish itself in today's democratic nations, it would probably have a different character. It would be more extensive and more mild, and it would degrade men without tormenting them...

"The sovereign, after taking individuals one by one in his powerful hands and kneading them to his liking, reaches out to embrace society as a whole. Over it he spreads a fine mesh of uniform, minute, and complex rules, through which not even the most original minds and most vigorous souls can poke their heads above the crowd. He does not break men's wills but softens, bends, and guides them. He seldom forces anyone to act but consistently opposes action. He does not destroy things but prevents them from coming into being. Rather than tyrannize, he inhibits, represses, saps, stifles, and stultifies, and in the end he reduces each nation to nothing but a flock of timid and industrious animals, with the government as its shepherd..."

De Tocqueville penned these nearly two full centuries ago, but they could easily -- and frighteningly -- be applied to Europe today.

Published:1/3/2019 1:20:17 AM
[Markets] Break The Cycle: In 2019, Say No To The Government's Cruelty, Brutality. And Abuse

Authored by John Whitehead via The Rutherford Institute,

The greater the power, the more dangerous the abuse.—Edmund Burke

Folks, it’s time to break the cycle.

Let’s make 2019 the year we say no to the laundry list of abuses - cruel, brutal, immoral, unconstitutional and unacceptable - that have been heaped upon us by the government for way too long.

Let’s make 2019 the year we stop living in a state of utter denial, desensitized to the government’s acts of violence, accustomed to reports of government corruption, and anesthetized to the sights and sounds of Corporate America marching in lockstep with the police state.

Let’s make 2019 the year we refuse to allow the government’s abusive behavior to be our new normal. There is nothing normal about egregious surveillance, roadside strip searches, police shootings of unarmed citizens, censorship, retaliatory arrests, the criminalization of lawful activities, warmongering, indefinite detentions, SWAT team raids, asset forfeiture, police brutality, profit-driven prisons, or pay-to-play politicians.

Here’s just a small sampling of what we suffered through in 2018.

The government failed to protect our lives, liberty and happiness. The predators of the police state wreaked havoc on our freedoms, our communities, and our lives. The government didn’t listen to the citizenry, refused to abide by the Constitution, and treated the citizenry as a source of funding and little else. Police officers shot unarmed citizens and their household pets. Government agents—including local police—were armed to the teeth and encouraged to act like soldiers on a battlefield. Bloated government agencies were allowed to fleece taxpayers. Government technicians spied on our emails and phone calls. And government contractors made a killing by waging endless wars abroad.

The president became more imperial. Although the Constitution invests the President with very specific, limited powers, in recent years, American presidents (Trump, Obama, Bush, Clinton, etc.) have claimed the power to completely and almost unilaterally alter the landscape of this country for good or for ill. The powers amassed by each successive president through the negligence of Congress and the courts—powers which add up to a toolbox of terror for an imperial ruler—empower whomever occupies the Oval Office to act as a dictator, above the law and beyond any real accountability. The presidency itself has become an imperial one with permanent powers.

Police became a power unto themselves. Lacking in transparency  and accountability,  protected by the courts and legislators, and rife with misconduct, America’s police forces were a growing menace to the citizenry and the rule of law.  Shootings of unarmed citizens,  police misconduct and the use of excessive force continued to claim lives and make headlines. One investigative report found that police shoot Americans more than twice as often as previously known, a number that is underreported and undercounted.  That doesn’t account for the alarming number of unarmed individuals who died from police using tasers on them.

911 calls turned deadly. Here’s another don’t to the add the growing list of things that could get you or a loved one tasered, shot or killed, especially if you are autistic, hearing impaired, mentally ill, elderly, suffer from dementia, disabled or have any other condition that might hinder your ability to understand, communicate or immediately comply with an order: don’t call the cops.

Traffic stops took a turn for the worse. Police officers have been given free range to pull anyone over for a variety of reasons and subject them to forced cavity searches, forced colonoscopies, forced blood draws, forced breath-alcohol tests, forced DNA extractions, forced eye scans, forced inclusion in biometric databases. This free-handed approach to traffic stops has resulted in drivers being stopped for windows that are too heavily tinted, for driving too fast, driving too slow, failing to maintain speed, following too closely, improper lane changes, distracted driving, screeching a car’s tires, and leaving a parked car door open for too long. Unfortunately, traffic stops aren’t just dangerous. They can be downright deadly at a time when police can do no wrong—at least in the eyes of the courts, police unions and politicians dependent on their votes—and a “fear” for officer safety is used to justify all manner of police misconduct.

The courts failed to uphold justice. A review of critical court rulings over the past decade or so, including some ominous ones by the U.S. Supreme Court, reveals a startling and steady trend towards pro-police state rulings by an institution concerned more with establishing order and protecting the ruling class and government agents than with upholding the rights enshrined in the Constitution. For example, despite the fact that a 26-year-old man was gunned down by police who banged on the wrong door at 1:30 am, failed to identify themselves as police, and then repeatedly shot and killed the innocent homeowner who answered the door while holding a gun in self-defense, the justices of the high court refused to intervene to address police misconduct. Despite the fact that police shot and killed nearly 1,000 people nationwide for the third year in a row (many of whom were unarmed, mentally ill, minors or were shot merely because militarized police who were armed to the hilt “feared” for their safety), the Supreme Court has failed to right the wrongs being meted out by the American police state.

The Surveillance State rendered Americans vulnerable to threats from government spies, police, hackers and power failures. Thanks to the government’s ongoing efforts to build massive databases using emerging surveillance, DNA and biometrics technologies, Americans have become sitting ducks for hackers and government spies alike. Billions of people were affected by data breaches and cyberattacks in 2018. On a daily basis, Americans are being made to relinquish the most intimate details of who we are—our biological makeup, our genetic blueprints, and our biometrics (facial characteristics and structure, fingerprints, iris scans, etc.)—in order to navigate an increasingly technologically-enabled world. The Department of Homeland, which has been leading the charge to create a Surveillance State, began deploying mandatory facial recognition scans at airports and improperly gathering biometric data on American travelers. Police were gifted with new surveillance gadgets that allows them to scan vehicles for valuable goods and contraband. Even churches got in on the game, installing “crime cameras” to monitor church property and churchgoers. The Corporate State tapped into our computer keyboards, cameras, cell phones and smart devices in order to better target us for advertising. Social media giants such as Facebook granted secret requests by the government and its agents for access to users’ accounts. Triggered by background noise, Google Assistant has been actively recording phone users’ conversations. And our private data—methodically collected and stored with or without our say-so—was repeatedly compromised and breached.

Mass shootings claimed more lives. Mass shootings have taken place at churches, in nightclubs, on college campuses, on military bases, in elementary schools, in government offices, and at concerts. In almost every instance, you can connect the dots back to the military-industrial complex, which continues to dominate, dictate and shape almost every aspect of our lives.

The rich got richer, and the poor went to jail. Not content to expand the police state’s power to search, strip, seize, raid, steal from, arrest and jail Americans for any infraction, no matter how insignificant, the Trump administration gave state courts the green light to resume their practice of jailing individuals who are unable to pay the hefty fines imposed by the American police state. These debtors’ prisons play right into the hands of those who make a profit by jailing Americans.  This is no longer a government “of the people, by the people, for the people.” It is fast becoming a government “of the rich, by the elite, for the corporations,” and its rise to power is predicated on shackling the American taxpayer to a debtors’ prison guarded by a phalanx of politicians, bureaucrats and militarized police with no hope of parole and no chance for escape.

The cost of endless wars drove the nation deeper into debt. America’s war spending has already bankrupted the nation to the tune of more than $20 trillion dollars. Policing the globe and waging endless wars abroad hasn’t made America—or the rest of the world—any safer, but it has made the military industrial complex rich at taxpayer expense. Approximately 200,000 US troops are stationed in 177 countries throughout the world, including Africa, where troops reportedly carry out an average of 10 military exercises and engagements daily. Meanwhile, America’s infrastructure is falling apart. The interest on the money America has borrowed to wage its wars will cost an estimated $8 trillion.

“Show your papers” incidents skyrocketed. We are not supposed to be living in a “show me your papers” society. Despite this, the U.S. government has introduced measures allowing police and other law enforcement officials to stop individuals (citizens and noncitizens alike), demand they identify themselves, and subject them to patdowns, warrantless searches, and interrogations. These actions fly in the face of longstanding constitutional safeguards forbidding such police state tactics.

The plight of the nation’s homeless worsened. In communities across the country, legislators adopted a variety of methods (parking meters, zoning regulations, tickets, and even robots) to discourage the homeless from squatting, loitering and panhandling. One of the most common—and least discussed—practices: homeless relocation programs that bus the homeless outside city limits.

The government waged war on military veterans. The government has done a pitiful job of respecting the freedoms of military veterans and caring for their needs once out of uniform. Despite the fact that the U.S. boasts more than 20 million veterans who have served in World War II through the present day, the plight of veterans today is America’s badge of shame, with large numbers of veterans impoverished, unemployed, traumatized mentally and physically, struggling with depression, suicide, and marital stress, homeless, subjected to sub-par treatment at clinics and hospitals, left to molder while their paperwork piles up within Veterans Administration offices, and increasingly treated like criminals— targeted for surveillance, censorship, threatened with incarceration or involuntary commitment, labeled as extremists and/or mentally ill, and stripped of their Second Amendment rights—for daring to speak out against government misconduct.

Free speech was dealt one knock-out punch after another. Protest laws, free speech zones, bubble zones, trespass zones, anti-bullying legislation, zero tolerance policies, hate crime laws and a host of other legalistic maladies dreamed up by politicians and prosecutors (and championed by those who want to suppress speech with which they might disagree) have conspired to corrode our core freedoms, purportedly for our own good. On paper—at least according to the U.S. Constitution—we are technically free to speak. In reality, however, we are only as free to speak as a government official—or corporate entities such as Facebook, Google or YouTube—may allow. The reasons for such censorship varied widely from political correctness, safety concerns and bullying to national security and hate crimes but the end result remained the same: the complete eradication of free speech.

Police became even more militarized and weaponized. Despite concerns about the government’s steady transformation of local police into a standing military army, local police agencies continued to acquire weaponry, training and equipment suited for the battlefield—with full support from the Trump Administration. Even purely civilian government agencies are arming their employees to the hilt with guns, ammunition and military-style equipment, authorizing them to make arrests, and training them in military tactics. There are now reportedly more bureaucratic (non-military) government civilians armed with high-tech, deadly weapons than U.S. Marines. For instance, the IRS has 4,487 guns and 5,062,006 rounds of ammunition in its weapons inventory.

The government waged a renewed war on private property. The battle to protect our private property has become the final constitutional frontier, the last holdout against our freedoms being usurped. We no longer have any real property rights. That house you live in, the car you drive, the small (or not so small) acreage of land that has been passed down through your family or that you scrimped and saved to acquire, whatever money you manage to keep in your bank account after the government and its cronies have taken their first and second and third cut…none of it is safe from the government’s greedy grasp. At no point do you ever have any real ownership in anything other than the clothes on your back. Everything else can be seized by the government under one pretext or another (civil asset forfeiture, unpaid taxes, eminent domain, public interest, etc.).

Police waged a war on kids. So-called school “safety” policies, which run the gamut from zero tolerance policies that punish all infractions harshly to surveillance cameras, metal detectors, random searches, drug-sniffing dogs, school-wide lockdowns, active-shooter drills and militarized police officers, turned schools into prisons and young people into prisoners. The Justice Department announced that it will provide funding for schools that want to hire more resource officers, while President Trump indicated that he wants to “harden” the schools. What exactly does hardening the schools entail? More strident zero tolerance policiesgreater numbers of school cops, and all the trappings of a prison complex (unsurmountable fences, entrapment areas, no windows or trees, etc.). According to the Washington Postmore than 4 million children endured lockdowns last school year, leaving many traumatized.

The Deep State took over. The American system of representative government was overthrown by the Deep State—a.k.a. the police state a.k.a. the military industrial complex—a profit-driven, militaristic corporate state bent on total control and global domination through the imposition of martial law here at home and by fomenting wars abroad. When in doubt, follow the money trail. It always points the way.

The takeaway: Everything the founders of this country feared has come to dominate in modern America.

Yet as I make clear in my book Battlefield America: The War on the American People, if freedom is to survive at all, “we the people” will need to stop thinking as Democrats and Republicans and start thinking like true patriots. As Edward Abbey warned, “A patriot must always be ready to defend his country against his government.”

Let’s not take the mistakes, carnage, toxicity and abuse of this past year into 2019.

As long as we continue to allow callousness, cruelty, meanness, immorality, ignorance, hatred, intolerance, racism, militarism, materialism, meanness and injustice—magnified by an echo chamber of nasty tweets and government-sanctioned brutality—to trump justice, fairness and equality, there can be no hope of prevailing against the police state.

Published:1/2/2019 10:52:47 PM
[Markets] Why Has Global Liquidity Crashed Again?

Authored by Michael Howell via CrossBorder Capital,

All around is crashing: Can the centre hold?

  • Global Liquidity falling at its fastest rate since 2007/08 Crisis

  • Over-zealous Central Banks are largely to blame. Not a broken banking system like 2007/08 Crisis

  • Squeeze evidenced by flat yield curves and negative ‘real’ term premia

  • In the US, the impact of ‘reverse’ QE is equivalent to another 10 rate hikes

We will enter 2019 with Global Liquidity tumbling at its fastest rate since the 2007/08 Financial Crisis. Yet again investors are learning the hard lesson that low nominal interest rates are a dangerously ambiguous guide to monetary conditions.

Already risk asset markets are skidding, in response to tight liquidity, and economic slowdown and probable recessions lie ahead. The future looks especially bad for those economies, firms and institutions that have spent the last decade kicking the proverbial debt can down the road. High debt levels always demand high liquidity to facilitate re-financing. Systemic risks rise if debt cannot be re-scheduled.

Figure1 shows the scale of the recent drop in Global Liquidity. Liquidity here refers to funding liquidity, rather than market liquidity, although the two are closely linked. Since end-January 2018, World private sector liquidity has fallen by some US$3 trillion, with roughly two thirds of the drop coming from the Developed economies, while World Central Bank liquidity has fallen by another US$1.1 trillion, with two-thirds of its drop recorded in Emerging Markets, paced by their large foreign reserve losses. Added together, Global Liquidity has in total fallen by just over US$4 trillion to US$124.1 trillion.

This 3% drop looks more serious when set against its 7% ‘normal’ trend. Put another way, after its brief recovery Global Liquidity has fallen back again to stand some 25% below its long-term trend. The table reports the latest weekly activities of the key Central Banks: only China’s People’s Bank (PBoC) is still expanding its balance sheet. And, measured in current US dollars, latest data show World Central Bank money is down by nearly 10% at an annualised 3-month clip.

What to Watch?

We monitor Global Liquidity by closely watching three channels:

  • Central Bank liquidity injections

  • Private sector liquidity provision

  • Cross-border capital flows

The first channel is now fashionably dubbed ‘QE’ or quantitative easing and measures the activities of policy makers in the money, repo and debt markets. The second looks beyond credit at all forms of cash generation by the private sector. It embraces bank credit, shadow bank credit and household and corporate savings flows in retail and, particularly, wholesale markets, and covers a history of financial engineering that extends back to the UK fringe banks in the 1970s and Japanese zaitech in the 1980s. Cross-border flows include all forms of net investment, but they are noteworthy because foreign currency borrowings, e.g. Eurodollars, are often used as collateral and levered up by domestic credit providers. It follows that Central Bank liquidity and cross-border flows represent what we term primary liquidity, while banks and shadow banks provide secondary liquidity.

We define Liquidity broadly to include ‘global’ or cross-border effects, and deeply, insofar that it extends beyond the traditional financial sector, to include corporate cash flows, and beyond retail banking by embracing wholesale money and repo markets.

The link between the volume of liquidity and interest rates was anyway never one-to-one: a fact that is especially true in the post-2008 period. Moreover, the link between bank reserves, money and liquidity has been similarly blurred; with the size of Central Bank balance sheets playing a more complex role in the funding structure since they simultaneously affect both the supply of cash and the availability of collateral. According to Adrian and Shin (2009):“The money stock is a measure of the liabilities of deposit-taking banks, and so may have been useful before the advent of the market-based financial system. However, the money stock will be of less use in a financial system such as that in the US. More useful may be measures of collateralized borrowing, such as the weekly series of primary dealer repos.” Adrian and Shin, Money, Liquidity And Monetary Policy, New York Fed Staff Papers, January 2009 Funding and the specific role played by Central Banks are critical factors explaining the liquidity cycle.

Central Banks have an outsized-effect in deregulated financial systems, where retail deposits are not the sole funding source, because what matters most is the ability to re-finance positions and at the margin Central Banks are the marginal suppliers of liquidity. Put another way liquidity is not fungible in crises, the very times that it matters most, and so Central Bank interventions are required. Since the supply of liquidity to roll-over existing positions matters more than the demand for finance for new projects, the size of the Central Bank balance sheet often outweighs the impact of interest rates. It follows that the relationship between interest rates and the supply of liquidity is rarely one-to-one. Central Bank interventions into the money markets significantly affect the elasticity of the financial system: in short, quantities matter and Central Banks increasingly determine the volume of funding liquidity and often directly impact the amount of market liquidity in modern financial systems.

Figure 2 shows the dramatic expansion in the size of the US dollar money markets to around US$9 trillion and the dominant role played by the US Federal Reserve in the period since 1980. These markets have increasingly supplemented retail deposits and now fund a rising proportion of US credit and liquidity, notably wholesale lending activity. Admittedly, following the 2007/08 Crisis, they have essentially flat-lined in size. Although the money markets are exploited by both traditional banks and shadow banks as financing pools, what sets traditional banks apart from all other financial institutions is their ability to issue liabilities, e.g. demand deposits, that serve the non-bank sector as a means of payment. Consequently, traditional banks do not face the same funding constraints as other financial intermediaries, so making their lending more elastic. In theory, as long as capital requirements are met, the traditional banking system can accommodate additional credit demands by simply creating new means of payment in the process of making new loans.

What shadow banks do is to transform these bank assets and liabilities and refinance them as longer and more complex intermediation chains, e.g. A lends to B who lends to C, etc. In doing this they provide alternative stores of value, e.g. asset backed securities, to institutional investors that do not want to hold all of their liquid assets as (uninsured) demand deposits. However, shadow banks largely repackage and recycle existing savings. By lengthening intermediation chains they became involved in large volumes of wholesale funding, without creating much new lending. The data show that they are involved in 66% of gross funding, but directly account for barely 15% of new lending. Shadow banks, therefore, increase the elasticity of the traditional banking system by relaxing banks’ capital requirements, through, say, selling loans externally to GSEs or internally to off balance sheet vehicles, so boosting the credit multiplier.

A speculative appetite to borrow always exists and seemingly is independent of interest rates. Keynes dubbed this the ‘unborrowed fringe’. Yet, shadow banks could not have originated the credit boom that preceded the 2007/08 Crisis, since they themselves depend on bank credit. The fragility of this wholesale funding model based on short-term repos has heightened systemic risks, not least because it is market collateral-based and highly pro-cyclical, and it always threatens to feed-back negatively on to the funding, as well as the lending books of traditional banks. Traditional economics misses the importance of this gross funding dimension, because it takes every credit as a debt (debit), every debt as a credit: so assets and liabilities must match, and the system always balances to zero. Thus, it never acknowledges just how big these numbers are: regardless of how much credit or debt there is in the system, the net figure is always the same. But knowing this fact is akin to scaling the World’s longest ladder and promising never to fall off!

The vital role that Central Banks play in this funding mechanism is also not well understood, even by the policy-makers themselves. For example, some experts have even claimed that collateral, such as Treasury notes that were purchased by policy-makers as part of QE operations, when released back into the market from the asset side of the Fed balance sheet:

“is a far better lubricant for the financial system than the reduction in reserves balances on the liability side of the Fed balance sheet. ... Thus, a leaner central bank balance sheet... could justify a much higher policy rate in this cycle than currently being anticipated.” Singh, FT April 2017

This is dangerous talk, particularly if it has recently played a role in persuading policy-makers to become more cavalier in their tightening actions. We maintain that the size of the Central Bank balance sheet serves as an unambiguous guide to the availability rather than simply the cost of primary funding. Thus, quantitative tightening is likely to have an out-sized effect in the modern financial system. This can be seen in Figure 3 which highlights the close relationship between movements in the size of the US money markets and changes in the size of the Federal Reserve balance sheet. The latest drop in the balance sheet spells out an ominous warning for US money market conditions.

This Is A Different Crisis To 2007/08

Therefore, we suggest that, unlike the 2007/08 Crisis which was more about a broken banking system involving the sudden collapse of leverage among over-extended banks and shadow banks, the current credit squeeze looks more like the 1997/98 Asian Crisis when Central Banks, led by the US Fed, tightened the supply of primary liquidity and cross-border flows rapidly retreated. This time around financial markets are probably even more interconnected and more global. Consequently, this could be an Asian Crisis-like sell-off, but one not only confined to Asia. This is shown in Figure 4, which depicts the two moving-parts that explain fluctuations in total credit – changes in the credit multiplier (black line) and growth in the monetary base (orange line).

Although the supply of primary liquidity dipped, the 2007/08 Crisis was dominated by a forced de-leveraging as shown by the skidding credit multiplier– the ratio between total credit and the official monetary base. In fact, pace its absolute decline in 2006, the US Federal Reserve’s balance sheet subsequently expanded rapidly as the crisis unfolded. This is shown by the orange line in Figure 4. The explanation for this collapse is that in the run-up to 2007/08 shadow banks had been borrowing against new collateral, such as US dollar deposits, and re-hypothecating existing collateral (i.e. the so-called collateral multiplier) to create what might be dubbed a ‘shadow monetary base’. We can crudely estimate the size this notional shadow base by keeping the credit multiplier fixed at its previous average value and calculating the funding ‘gap’ required to justify rising total credit. This is shown in Figure 5. On the same chart we have added the cumulative flows of cross-border capital to Emerging Markets because these flows were likely dominated by dollar loans that were probably being sourced from the same off-shore wholesale markets. Not surprisingly, the two series co-move closely.

The Collapse of World Central Bank Money

In contrast, today’s monetary problem is more about the other component, namely tight primary liquidity. This has four dimensions:

  • US Federal Reserve tightening

  • Tightening by other major Central Bank (e.g. ECB and BoJ)

  • USD Area tightening (e.g. Emerging Market Central Banks)

  • Legislative onslaught against the Eurodollar/ off-shore wholesale markets

Figure 6 examines the growth in Central Bank money, broken-down into three parts: the US Federal Reserve, Central Banks in the non-US Developed markets and Emerging Market Central Banks. The scale of the current liquidity squeeze goes beyond the US Fed raising the bar on its ‘reverse QE’ to US$50 billion per month and the ECB halting its QE from year-end. The chart shows how the US Fed has been tightening QE policy since 2015. The major non-US Central Banks started easing later and only began tightening earlier this year. Similarly, with Emerging Market Central Banks and as Figure 7 highlights, the EM cycle has been (as usual) largely dictated by underlying foreign exchange reserve movements. This, in turn, likely reflects an additional negative spill-over from US Fed tightening. Summarising the aggregate story, the chart shows that all three groups are now contributing to the sharpness of the overall liquidity slowdown.

The fourth component of tightening is harder to pin-down because data is scarce. However, we suggest that the offshore wholesale markets are under fire from the US Federal Authorities, who seem keen to regain control of US dollar liquidity.

The Eurodollar markets, which lie outside of US Fed or Treasury control, were a major factor behind the wayward shadow banking boom ahead of the 2007/08 Crisis. There have been three moves made to regain control: (1) the planned replacement of (uncollateralised) LIBOR with the new secured SOFR on-shore money market interest rate; (2) the 2018 tax amnesty that facilitated the repatriation of off-shore US corporate deposits, and (3) the recent removal of the tax allowance for interest payments on off-shore inter-bank loans. These official directives should substantially reduce the future attractions of using the Eurodollar markets. One way to show their impact is in Figure 8, which plots the amount of net funding that US-based banks receive from international banks. Since this represents dollar funding, the likely foreign sources are the Eurodollar markets. Figure 8 highlights the sizeable decline from the US$750 billion peak in 2015.

Other Evidence of Tightness

The scale of this tightness can be seen in two other statistics: (1) the ‘real’ term premia on US 10-year Treasuries, and (2) the flat slope of the G4 yield curve. The 10-year Treasury is the canonical ‘safe’ asset for World investors and a low term premia suggests a high demand for ‘safe’ assets. To remove the distorting effects of inflation expectations on term premia, we calculate an inflation-adjusted series or ‘real’ term premia. When the net demand for safe assets is ‘normal’, the real term premia should be around zero: greater demand for safety pushes it lower, and greater risk appetite among investors should push it higher. Consequently, these real term premia movements provide another way of judging whether monetary conditions are too loose or too tight.

Figure 9 plots the ‘real’ term premia for 10-year Treasuries against Fed Funds. It shows that because of the effect of reverse QE, the ‘true’ Fed Funds rate is nearer to 5% than the prevailing 2.5% target: in other words, tight liquidity conditions are equivalent to the Fed undertaking around 20 rate hikes rather than the nine it has so far implemented this cycle.

In Figure 10, we show the relationship between Global Liquidity and the term structure of World interest rates as depicted by the slope of the G4 government yield curve. Term premia again play a role here because tight liquidity conditions, by forcing investors into demanding more ‘safe’ assets, push up bond prices and simultaneously pull down their yields and term premia. Thus, the general ‘flatness’ of yield curves across the major economies again testifies to generally weak Global Liquidity conditions. It is simply not the case, as many suggest, that Central Bank QE lowers bond yields. Rather, because government bonds are ‘safe’ assets, ‘reverse QE’, in fact, causes lower yields, and QE raises bond yields. This follows because term premia widen as the extra liquidity persuades investors to take more risks, so shifting asset allocation from ‘safe’ bonds to risky equities.

Conclusion

We expect a major policy easing in 2019. However, only China’s PBoC (People’s Bank) among the majors is so far easing monetary policy. We anyway see China as leading this cycle. The US Fed is likely to follow given the scale of tightness in domestic and Global Liquidity and this must involve greater liquidity injections, rather than simply interest rate cuts. We have no view whether this takes the formal shape of an explicit ‘QE4’ policy or if it involves an unannounced increase in the size of the Fed’s balance sheet.

Whichever, the immediate implications will be a yield curve steepening and ultimately a weaker US dollar. Financial shares and Emerging Markets may prove the main beneficiaries.

Published:1/2/2019 8:18:42 PM
[Markets] Oil Inexplicably Soars Over $2 In Minutes Amid Chinese Fears Over Rout Contagion

Starting just before 10am ET, oil staged a remarkable surge, rising from sessions lows of $44.50 to $46.50 in the matter of minute, a remarkable levitation which helped trim the overall market's losses by more than half which pushing Treasury yields modestly higher.

While there was no immediate catalyst for this stunning price spike, overnight news which flew under the radar may have something to do with the surge in oil.

Readers will recall that last week, the shares of Asia's largest petroleum refiner Sinopec plunged following reports that two senior officials at Unipec, the trading subsidiary of Sinopec, had been dismissed by their Communist Party overseers following major losses on soured bets related to oil prices.  While Sinopec confirmed the suspensions saying only they were related to work matters, it only said that Unipec had "made some losses" from crude trading because of a drop in prices, but didn’t link the two.

And yet, overnight Bloomberg reported that in a confirmation that this particular story may have a lot of room to run, China’s state assets regulator was checking on the financial status of derivative trading accounts at some major state companies following the Unipex losses, citing people with knowledge of the situation.

Specifically, as the Bloomberg source revealed, confirming that quietly Beijing is increasingly concerned afraid potential oil price contagion, the State-Owned Assets Supervision and Administration Commission would inspect accounts of companies with derivative trading operations following the Unipec loss, with said inspections said to focus on the profit/loss status of commodity hedging positions.

In other words, Beijing is worried that the Unipec losses may lead to some form of contagion, however good luck to anyone finding out just what has China's top power echolon freaked out.

However, since Bloomberg adds that some meetings with state-owned oil companies to collect data on trading books have already been held, it is only a mater of time before someone leaks just why China is suddenly worried about oil prices. In the meantime, the best remedy to avoid risk is to simply ramp oil higher, and that's precisely what we see going on right now.

Published:1/2/2019 9:49:24 AM
[Markets] Repo Rate Soars Most On Record As Yield Curve Goes Nuts In Year-End Liquidity Chaos

While markets were in a festive mood on New Year's Eve, with the S&P enjoying a last second 15-point spike even as 10Y yields tumbled to the lowest level since January...

... something strange took place in both overnight funding markets and the Treasury market.

While it is well-known that dealers tend to "window dress" their books on the last day of the year by curtailing activity in financing markets to shore up balance sheets, what happened on Monday left quite a few mouths wide open: with the General Collateral rate trading around 2.50% on Friday, Monday saw a historic surge in overnight GC repo, that sent the rate surging by the most ever, spiking sharply to 6.125% on Monday morning, with the bid/ask trading 6.50%/5.75% just after 10am after opening Monday at 3.75%/4.00%, which was already nearly 1.50% higher than the Friday close (incidentally, the Broad General Collateral Rate (BGCR) was set at 2.45%, the same as the Tri-party General Collateral Rate).

In fact, the closing print of 6.125% was the highest GC repo rate observed since January 2001, and just under 400 bps higher than the Fed funds rate.

"The cash never came in," said Scott Skyrm, EVP at Curvature Securities, noting that "funding pressure should be about 50 basis points. This was 350 basis points."

Indeed, confirming the need for cash, on the last day of 2018, 17 counterparties took only $41.8BN at the Fed’s overnight reverse repo operation on Monday, up from $3.21b on Friday, which was the second-smallest quarter-end usage since the RRP was created in 2013, and suggesting that instead of padding books with cash-equivalent securities to satisfy regulatory requirements, banks were suddenly strapped for cold, hard cash.

Clearly there was something amiss with year end liquidity: while there have been year end spikes in the repo rate all prior years, not once in the past decade was the surge as high as it was this time, prompting questions if there were broader year-end liquidity plumbing issues in the market than just traditional window dressing.

Meanwhile, in yet another bizarre manifestation of year-end liquidity events, on Monday shortly after a 52-week Bill auction priced amid unremarkable results, the short-end of the curve inverted dramatically, with the yield on the 1Y finding itself more than 10bps higher than the 2Y.

In fact, the yield on the 52-week Bill closed Friday at 2.5986%, higher than the yield on the 7Y TSY which was at 2.5869%, meaning the 1s7s was inverted.

The last time the 1s7s curve inverted? You guessed it - the same time the overnight repo rate surged as much as it did on Monday - back in early 2001.

One reason cited for the bizarre shape of the yield curve was the bond market's confusion about what the Fed will do, with the short-end still anticipating perhaps one or more rate hikes, while the longer-end increasingly pricing in deflation, rate cuts and, eventually, QE, although since both of those expectations are what makes up the shape of the yield curve by definition, that explanation was left wanting.

As for the record spike in repo, rates traders were left scratching heads, with Curvature's Skyrm warning that market participants may have to start pricing in the fact that if repo rates "spike up a bit, they could go much higher."

Published:1/1/2019 5:42:00 PM
[World] [Jonathan H. Adler] Robert H. Nelson, R.I.P.

On the loss of a prolific scholar and independent thinker.

In the closing weeks of 2018, we lost one of the nation's most important and independent scholars of natural resource management, land-use, and environmental policy. On December 15, Professor Robert H. "Bob" Nelson of the University of Maryland School of Public Affairs died of natural causes while attending a conference in Finland. His voice and insight will be missed.

I first met Bob while he was an analyst at the Department of the Interior's Office of Policy Analysis, where he served for nearly two decades. Once he left Interior to join the University of Maryland, I had the honor to work with him when he became a Senior Fellow at the Competitive Enterprise Institute, where I ran the environmental studies program. I did not always agree with Bob's analysis or his conclusions, but I always learned from his work and our lengthy conversations on a wide range of subjects.

A Princeton-trained economist, Bob had a unique ability to combine economic analysis with cultural and institutional insight. His work spanned federal land management and land-use policy to the influence of religious thought and values on environmental and economic policy. He wrote important works on zoning and private land-use controls, public land management and fire control in national forests. (Spoiler alert: He was no fan of the Forest Service.) For the Property and Environment Research Center (PERC) in Bozeman, Montana (where I am a senior fellow), he also wrote recent studies on the idea of "charter forests" and lessons federal land managers could learn from the states.

Not all of Bob's work was immediately practical and policy focused. A recurring theme in his work was the extent to which America's religious heritage influenced political ideology and policy agendas. He argued that much of contemporary environmental thought is effectively Calvinist (and creationist) in its worldview, as in this cover story for The Weekly Standard. It began:

For ten points, identify the secretary of the interior who once said that his political enemies were out to destroy him because they were "so deeply disturbed by the prospect of religious values entering the national debate" and that they should follow his policies because said policies are commanded in the Bible and reflect a "plan of God." The choices are (a) Cecil Andrus of the Carter administration; (b) James Watt of the Reagan administration; and (c) Bruce Babbitt of the Clinton administration. Most people would assume James Watt is the answer. Wrong. The correct answer is Bruce Babbitt.

It concluded:

For most of its history, environmentalism has been more a substitute for, than a complement to, religious institutions. Environmentalism appropriated a Judeo-Christian message, already deeply ingrained in the national psyche, to a new and largely secular vocabulary. This combination proved immensely attractive to large numbers of people hungry for spiritual values but seemingly unable to find them from more traditional outlets.

One can sympathize with the need to search for new religious answers at a time when the forces of modernity often seem to have undercut the moral foundations of American society. Yet, when government can barely get the potholes filled in the streets, it is still startling to think that the secretary of the interior regards his position as a suitable pulpit for spreading the word of God.

I suspect it was some of this work -- and his criticism of federal land management agencies -- that led the Unabomber to add Bob to his list of potential targets (a threat that thankfully never materialized).

Environmentalism was not a particular target, for he showed how much contemporary economic thinking suffers from the same failing in a series of books, including Reaching for Heaven on Earth: The Theological Meaning of Economics and Economics as Religion: From Samuelson to Chicago and Beyond. He combined these subjects in The New Holy Wars: Economic Religion vs Environmental Religion in Contemporary America.

Among his last works was the book God? Very Probably: Five Rational Ways to Think about the Question of a God. I have not read this book, but I suspect I would learn much from it. Whether or not I agreed with Bob's conclusions or his analysis, I always found his work to be engaging, wide-ranging and provocative in the best way. He enjoyed ideas and considering new perspectives on old questions, turning over long-dormant rocks to see what might lie beneath. He was the best sort of public intellectual -- precisely the sort we have too little of today.

Published:12/31/2018 6:07:16 PM
[Markets] Antifa Exposed: "Angry White People With Money" 

The National Review sent journalist Kevin D. Williamson deep into Portland for an on-the-ground report on the local Antifa scene, several months after the black-clad social justice warriors squared off with conservatives from the Proud Boys and Patriot Prayer groups after Antifa crashed several permitted rallies. 

And while Williamson's original story is a fascinating read, perhaps even more interesting is the post-article interview with the National Review's Madeline Kearns. 

Via the National Review

Madeleine Kearns: Other than some local yahoos, what did you see in Portland that’s worthy of national news coverage?

Kevin D. Williamson: Portland is always Portland. I didn’t want to do the Thomas Friedman interview-with-the-taxi-driver thing, but the Uber driver who took me down to where the protest was happening was a Portland caricature, boasting about having been in SDS and talking about the revolution that he was sure was just around the corner. On the more normal political front, I spoke with a local union leader who gave me some pretty good insight on how the Trump phenomenon had radicalized her membership. The thing about places like Portland and San Francisco is that they aren’t nice. They have a reputation for being wooly and hippieish and silly, but they are in fact very angry places, full of very angry people. They are also highly segregated places in ways that the South and Southwest really aren’t. Angry white people with money make the world go ’round, apparently.

Madeleine Kearns: Do you think this behavior is a microcosm of polarized America? Or is it peculiar to certain environments, like what we see on college campuses?

Kevin D. Williamson: I think you get bad behavior where bad behavior is tolerated. In Portland, the blackshirts aren’t a tiny schismatic fashion. There were Democratic-campaign staffers standing out in front of Democratic-campaign events on Election Night chanting along with them.

Madeleine Kearns: You describe the police officers present as being “neutered.” How so?

Kevin D. Williamson: They watched crimes being committed and did nothing.

Madeleine Kearns: How do the police balance peacekeeping with First Amendment rights?

Kevin D. Williamson: There isn’t anything unpeaceable about the exercise of First Amendment rights. I don’t care for mass protests myself — a large crowd of people all facing one direction and chanting seems to me more properly part of a religious exercise than a political one. But if that’s your thing, then by all means go and bark at the moon. But when people start blocking traffic, pounding on the hoods of cars, damaging property, committing assaults, that’s a different thing. And I don’t think there’s really much of a First Amendment issue presented by policing ordinary crime when that crime happens in the course of a political action.

Madeleine Kearns: You’ve written that Portland’s mayor is partly responsible. In terms of policy — what do you think could be done?

Kevin D. Williamson: He might consider asking the police officers who work for him to enforce the law.

Madeleine Kearns: In what way were the anti-fascist protesters you saw fascists?

Kevin D. Williamson: They are the American Left’s answer to the Milizia Volontaria per la Sicurezza Nazionale, down to the penchant for black shirts. They perform the same function: using violence and intimidation to silence political opposition and to terrorize the political opposition. “Fascist” is a notoriously difficult word to define, but they are as close to a textbook case as you are going to find.

Madeleine Kearns: You write that their “idol is the proletariat rather than the nation.” Could you please unpack that?

Kevin D. Williamson: Utopian political movements — and all totalitarian movements are basically utopian — love the world, except for all the people in it. They all are antiliberal and they all seek to degrade the individual and individualism. Their liturgy requires an object of adoration, and it’s usually the same object: the People, or, as American populists like to put it, We the People. For traditional nationalists, it’s the Nation in abstract and idealized form; for socialists, it’s always been the proletariat, who apparently are the only people included in the People. If you’re acting in the name of the People, you can brutalize persons. The interests of the People require a gulag, the interests of the People require a death camp, and if the people have to suffer for the People, then so be it.

Madeleine Kearns: You’ve noted that these “hooligans” do not always call themselves “Antifa.” How can we identify them if not by name? What are their defining characteristics?

Kevin D. Williamson: Their defining characteristic is a behavior, not an ideology or factional plumage. Violence is violence.

Madeleine Kearns: You quoted the Freudian-Marxist social critic Erich Fromm, who wrote in 1941: “Freedom is not less endangered if attacked in the name of anti-Fascism or in that of outright Fascism.” I wonder if you could say more on that, perhaps by responding to Herbert Marcuse’s idea in his essay “Repressive Tolerance” (1965) that “liberating tolerance . . . would mean intolerance against movements from the Right, and toleration of movements from the Left.”

Kevin D. Williamson: Marcuse is sometimes oversimplified. I’ve been spending a lot of time with “repressive tolerance” for The Smallest Minority, a book I’ve been writing on the subject. Like a lot of political thinkers, he is least understood by his admirers. What Antifa thinks, and what I suppose they think Marcuse thought, if they bother to think about that sort of thing at all, is that tolerating wicked political ideas is in and of itself repressive, and, of course, they believe that the Right is the home of wicked political ideas. Hence the slogans such as “No free speech for Nazis.” But I don’t think that they are really very much informed by Marcuse. I think that they have stumbled onto the Catholic conception of “scandal” and believe that allowing a bad example to stand in public will lead more people into sin.

Madeleine Kearns: For the purposes of your reporting, you were in and amongst the Portland mob. Did you get any sense of what might attract someone to join them?

Kevin D. Williamson: Loneliness. Almost none of this is really about politics at heart. Younger people have lives disproportionately involved with sterile social-media relationships, and relationships in the real world are increasingly informed by the social-media sensibility, which is one of mutual instrumentation. We could choose any metric of success and happiness we want, and we’ve settled on the crude quantification of love and human connection. The people suffering under that particular boot-heel don’t realize that they are wearing the boot, and that they have the power to take it off of their own necks at any time they want, that they can take a little freedom out for a spin and see if they like it. They don’t need a revolution. They need Jesus.

Madeleine Kearns: Is Donald Trump — in rhetoric or in deed — partly to blame?

Kevin D. Williamson: The Israelites had their golden calf. We have our golden toilet. Donald Trump is to blame for Donald Trump. That’s enough for any one man to bear.

Madeleine Kearns: You wrote, “Once political violence is out of the box, it is hard to put it back in.” Can we expect more of this?

Kevin D. Williamson: I don’t know. Technology and political liberalism (and, since this is for National Review, I think we can use “liberalism” in its traditional sense, not in the sense of “Durka durka liberals hate Christmas!”) both have the potential to amplify the individual. The same system that brings you Steve Jobs brings you Timothy McVeigh. Liberalism creates political conditions — tolerance, openness, freedom of speech — that can be exploited by illiberal forces. That’s the basic insight of Karl Loewenstein’s “militant democracy,” which also figures prominently in The Smallest Minority. Loewenstein and other advocates of what the Germans call streitbare Demokratie argue that the defenders of the liberal-democratic order must sometimes use illiberal and undemocratic means to defend that order from existential threats. This is the constitutional principle under which the Germans and Austrians do things that we do not generally do in the United States, such as ban certain political books or prohibit certain political parties. If the blackshirts understood their own political priors — and they do not; they simply are overwhelmed by hatred and revulsion, for themselves above all — then they would understand themselves as acting in theory under the principle of militant democracy. And that, of course, is why it is rhetorically necessary for everybody you disagree with to be a Nazi: Practically anything is defensible in a fight against Nazis. And that’s how we get to the kind of political rhetoric that insists that people who don’t want to use racial criteria in public life are Nazis, people who don’t think that abortion should be used as an instrument of eugenics are Nazis, people who want the top marginal tax rate set 3 percent lower are Nazis, etc. These are stupid times.

Madeleine Kearns: What’s the cultural antidote to Antifa?

Kevin D. Williamson: One of the lessons of Animal Farm is: You can’t reason a pig out of its pigness. T. S. Eliot once described the folly of “dreaming of systems so perfect that no one will need to be good.” And then he adds: “But the man that is will shadow the man that pretends to be.” Citizenship is hard work. Being a subject is a lot easier. That’s part of the allure of being a subject of a totalitarian state. Under totalitarianism, the state does all of the political work, and people are just livestock to be milked, shorn, and, occasionally, slaughtered. Some people are very comfortable being livestock and really embrace that bovine-ovine role with all they’ve got. People have the power to start being human whenever they want. But work, including the work of citizenship, is a means, and people have to decide for themselves that the end is worth the work. Right now, these blackshirts and their admirers and imitators are comfortable in their intellectual sties.

Published:12/31/2018 5:05:36 PM
[Society] 13 Books to Add to Your 2019 Reading List

The new year is here, so why not start it off right with a new book? Here are 13 books that our friends at The... Read More

The post 13 Books to Add to Your 2019 Reading List appeared first on The Daily Signal.

Published:12/30/2018 9:57:24 AM
[Entertainment] 5 new books not to miss this week, including the latest Preston & Child "Verses for the Dead" is the latest Agent Pendergast thriller from Preston & Child. Plus more new books on sale Dec. 31.
     
 
 
Published:12/30/2018 5:30:53 AM
[Markets] Retailers Rejecting Customers' Cash As More Ban Paper Money

"Your cash is not wanted here", a growing number of retailers and restaurants throughout the US and UK are telling customers. But are reasons being given by companies for the new "cashless" approach — speed, efficiency, and the safety of store employees — valid enough to require something as utterly and downright unAmerican as rejecting cash? 

We think not, and unfortunately the trend of "cash not welcome here" establishments is growing, to the point that lawmakers are beginning to take note and could introduce legislation barring the practice, as Massachusetts has done already, and as the New Jersey State House could be set to do next. According to a Federal Reserve survey conducted in 2017 cited in The Wall Street Journal, cash represented 30% of all transactions in America, with 55% of those being under $10.

via the NY Times

Regardless of Americans' longtime preference for plastic in most transactions, many of which take place online, research by the Federal Reserve found that cash is still king in terms of Americans' daily lives and usage, and as the study concluded further, this remains true across all income levels:

Not only is cash used frequently for small value and in-person purchases, it is also used by a wide array of consumers. The data on cash use by household income provides two main insights. First, consumers make—on average—14 cash transactions per month, regardless of household income. It is also noteworthy that cash was the most, or second most, used payment instrument regardless of household income, indicating that its value to consumers as a payment instrument was not limited to lower income households that may be less likely to have access to an account at a financial institution.

But this reality is now pushing up against the new trend of the cashless restaurant, bar and retailer, and creating awkward and frustrating situations for consumers, as a new Wall Street Journal piece chronicles. In one scenario, a customer had to intervene on another's behalf and play personal bank for a "card only" salon, even though there was plenty of cash on hand offered by the woman who couldn't pay. Ironically, as the WSJ story notes, this created an "emergency":

Sam Schreiber was mid-shampoo at a Drybar blow-dry salon in Los Angeles when someone from the front desk approached her stylist with an emergency: a woman was trying to pay for her blow-out with cash.

“There was this beat of silence,” says Ms. Schreiber, 33 years old. “She literally brought $40.”

More and more businesses like Drybar don’t want your money—the paper kind at least. It’s making things awkward for those who come ill prepared. After all, you can’t give back a hairdo, an already dressed salad or the two beers you already drank.

And in another situation where someone simply wanted to order a salad, but was refused upon presenting $20 cash, the rejected customer slammed the policy that created the whole awkward situation as elitist. The customer recounted for the WSJ:

Jaclyn Benton, 30, visited a Sweetgreen near her office in Reston, Va., last summer with $20 cash, but no credit or debit card because she had forgotten her wallet at home. When her order was ready and she went to pay, the cashier explained that the restaurant doesn’t take bills.

“It’s almost like when your credit card gets declined for silly reasons,” says Ms. Benton, who works as an event planner. “It makes you feel like you can’t afford it even though I had the money right there.”

Ms. Benton has no plans to go back: “It feels very elitist,” she says.

A Sweetgreen spokeswoman said its decision makes its team members safer amid the risk of robbery and improves the cleanliness and efficiency of the restaurants.

Another anecdote involved a 51-year old women left feeling humiliated at a Manhattan restaurant. Though the eatery proudly advertises that its food comes from "from farmers and partners as close to home as possible," it apparently rejects your local cash.

Again, another customer had to intervene as essentially an impromptu bank after a deeply "awkward" situation, per the WSJ:

“We went into one of those stores where they sell Lotto tickets and I got change and I gave her the money,” says Ms. Linbourne, who lives in Hasbrouck Heights, N.J., and works for a construction-management company. “I was so embarrassed."

A Dig Inn spokeswoman responded by saying the credit/debit card only policy "makes for a faster experience for customers and for employees, who don’t have to count cash or make runs to the bank." Though we should note this only puts the burden on the customers themselves, as their "options" are then extremely limited. 

And as the WSJ report points out, consider that on every US bill the following words appear: “This note is legal tender for all debts, public and private.” However, currently there's no federal law stipulating that business have to accept cash when offered, though likely no body of lawmakers prior to the modern advent of payment by plastic could have ever envisioned such a dilemma as cash being banned by stores. 

But this is getting noticed by local and state governments: "New York City Councilman Ritchie Torres of the Bronx recently proposed legislation that would prohibit retailers and restaurants from refusing cash, and city council members in Washington, D.C., and Philadelphia have proposed similar legislation," according to the WSJ. Councilman Torres said “I refuse to patronize businesses that reject cash payments, even though I primarily use debit or credit.” He explained the practice is "discriminatory against the undocumented, people without bank accounts and credit cards, and those who wish to have their transactions be more private" all of which can create an unnecessary and "humiliating situation."

Increasingly, it creates situations where a patron simply can't complete the transaction or make a purchase. This could most impact the young and lower income homes which are limited in terms of local bank and checking/debit card account access:

Another demographic that often only has cash? Minors. Connie Young, who lives in Walnut Creek, Calif., says that in February, her 17-year-old son got excited when he learned a book he wanted was in stock at the local Amazon Books.

But her son returned home empty handed. When he told her the store didn’t take cash, she assumed there must have been a power outage and that the register was down, before he explained it was the policy. “I laughed. I was, like, you’re kidding,” says Ms. Young, 57. “I was just stunned.”

Though we are unlikely to ever reach a totally cashless society, the disturbing trend does bring up interesting questions of privacy and transacting "off the grid"... likely those advocating for a "no cash" future will be the same ones pushing for greater surveillance power of the state, as is quickly happening right now in places like China, where its Orwellian 'Social Credit System' seeks to abolish any and all private transactions altogether. 

Published:12/29/2018 9:54:53 PM
[Markets] The Mattis Dilemma

Authored by Philip Giraldi via The Strategic Culture Foundation,

The resignation letter of Secretary of Defense James Mattis that was published last Thursday revealed much of the Deep State mindset that has produced the foreign policy catastrophes of the past seventeen years. Mattis, an active duty general in the Marine Corps who reportedly occasionally reads books, received a lot of good press during his time at Defense, sometimes being referred to as “the only adult in the room” when President Donald Trump’s national security and foreign policy team was meeting. Conveniently forgotten are Mattis comments relating to how to “Be polite, be professional, but have a plan to kill everybody you meet.” His sobriquet in the Corps was “Mad Dog.”

In the media firestorm that has followed upon General Mattis’s resignation, he has been generally lauded as a highly experienced and respected leader who has numerous friends on both sides of the aisle in Congress. Of course, the press coverage should be taken with a grain of salt as it is designed less to praise Mattis and more to get at Trump over the decision to leave Syria, which is being assailed by both neoliberals and neoconservatives who believe that war is the health of the state.

The arguments against the Trump decisions to depart from Syria and downsize in Afghanistan are contrived for the most part and based on the premise that American intervention in places that Washington deems not to be sufficiently promoting democracy, rule of law and free trade is a good thing. Peter Ford, former British Ambassador to Syria, put it nicely when discussing the reaction in the media:

“Trump's critics…will have the vapors about 'losing ground to Russia', 'making Iran's day', and 'abdicating influence,' but their criticism is ill-founded. Contrary to their apparent belief, the US does not have a God-given right to send its forces anywhere on the planet it deems fit. Withdrawal will see the US in one respect at least follow the international rules-based system we are so fond of enjoining on others, and will therefore be a victory of sorts for upholders of international law.”

The central argument of the Mattis resignation letter that is being cited by critics relates to Washington’s relationship with the rest of the world and is framed as a failure by President Trump to understand who are friends and who are enemies. Mattis wrote

“One core belief I have always held is that our strength as a nation is inextricably linked to the strength of our unique and comprehensive system of alliances and partnerships. While the US remains the indispensable nation in the free world, we cannot protect our interests or serve that role effectively without maintaining strong alliances and showing respect to those allies.

“Similarly, I believe we must be resolute and unambiguous in our approach to those countries whose strategic interests are increasingly in tension with ours. It is clear that China and Russia, for example, want to shape a world consistent with their authoritarian model – gaining veto authority over other nations' economic, diplomatic, and security decisions – to promote their own interests at the expense of their neighbors, America and our allies. That is why we must use all the tools of American power to provide for the common defense.

“My views on treating allies with respect and also being clear-eyed about both malign actors and strategic competitors are strongly held and informed by over four decades of immersion in these issues. We must do everything possible to advance an international order that is most conducive to our security, prosperity and values, and we are strengthened in this effort by the solidarity of our alliances.”

General Mattis does indeed hold views that were shaped by four decades of experience, but most of it was bad and produced wrong conclusions about America’s place in the world. The Cold War was essentially a bi-polar conflict pitting two adversaries that had the ability to destroy all life on the planet. It generated a Manichean viewpoint on good vs. evil that did not reflect reality which was succeeded by a global war on terror declared by Washington that also exploited the good and evil paradigm. Mattis was a product of that kind of thinking, which was also fueled by the concept of American exceptionalism, which saw the United States as the proper promoter and enforcer of universal values.

There is, of course, another viewpoint, which is that American blundering and use of force as a first option has, in fact, created the current dystopia. The United States is not currently venerated as a force for good, quite the opposite. Opinion polls suggest that Washington is overwhelmingly viewed negatively worldwide and it is perceived as being the nation most likely to start wars. That is not exactly what the nation’s Founders envisioned back in 1783.

Trump is right about leaving Syria where nothing beyond prolonging the bloody conflict is being accomplished. Mattis is wrong about supporting “friends.” For an educated man, he misreads history. The First World War and Second World War developed as they did because of alliances. Countries that appear friendly can exploit relationships with other more powerful nations that will have devastating results.

Alliances should be temporary, coming and going based on the interests of the nations involved. In the Middle East, Israel and Saudi Arabia are not actually friends of the United States, and are engaged instead in manipulating Washington to suit their own purposes. Mattis does not understand that and sees a permanent state of war requiring the continued existence of NATO, for example, as a vehicle for deterrence and peace. It is neither. Its very existence depends on a perception of being threatened even where no threat exists, which has poisoned the relationship with Russia since the fall of communism. Worse still, that false perception of threat can lead to war and a global nuclear holocaust.

Published:12/29/2018 2:53:14 PM
[Markets] NewsWatch: Here’s just how crazy this week was for the stock market, in one big chart This Christmas really was one for the history books. Whiplash, anyone?
Published:12/28/2018 4:17:51 PM
[Markets] Apple Lost $11 Billion Buying Back Its Own Stock In 2018

There's a funny thing about buybacks: when stocks are rising (and are therefore more expensive), companies have zero doubts  about repurchasing their own stock, especially if said purchase is funded with cheap debt. Of course, by repurchasing their stock, the price goes even higher making management's equity-linked comp more valuable, which explains why management teams usually have no misgivings about allocating capital to this most simplistic of corporate uses of funds. However, when stocks fall, companies tend to clam down on buybacks due to fears that the drop may continue, forcing the CFO or Treasurer to explain his actions to the CEO or the board, and why they risked losses on capital (as well as getting a pink slip) instead of investing in "safer" corporate strategies like M&A, R&D or capex.

The irony, of course, is that companies should not be buying back stocks when the stock is rising (as that's when it is more expensive), and accelerate repurchases when it is dumping. And yet, that virtually never happens in reality as management teams, like most investors and algos, tend to chase momentum and direction. Meanwhile, confused by underlying pricing mechanics, management - which is singlehandedly responsible for the levitation in the stock price with its buybacks - then watches its stock price tumble even more one stock repurchases are halted.

But the "funniest" moments are reserved for when companies spent tens of billions on stock repurchases then had the rug pulled under from under the market - and their stocks - resulting in billions in unbooked losses on invested capital.

And in 2018, there has been no company that has had a greater share of "funny" buyback moments than Apple, which as we reported recently, accounted for 24% of all buyback growth in the first half of 2018, a year that will go down in history books for a record $1+ trillion in stock repurchase announcements and over $700 billion in executed buybacks.

The reason is that having spent tens of billions on buying back its own stock, Apple - the year's most aggressive stock repurchaser - has lost more than $9 billion this year on an underperforming investment: its own stock.

Like many large companies, Apple has used much of its windfall from 2017 tax reform to buyback shares. But, as so often happens, the recent plunge in stock prices has made that look like a bad idea. Apple and companies including Wells Fargo, Citigroup and Applied Materials repurchased their own shares at near record prices, only to see their value decline sharply.

In effect, the WSJ notes, "the market has told them they overpaid by billions of dollars." And nobody has been hit more by the plunge in overvalued Apple stock than Apple itself (and perhaps Warren Buffett).

While buyback advocates and companies contend that buybacks are a good way to return excess capital to shareholders and that the paper losses can reverse themselves if their stocks rebound, those advocates are clearly unfamiliar with the rise and fall - literally - of IBM stock in the period when the company would buy back its stock, and then after it no longer could as it had accumulated too much debt; additionally the sharp stock declines call into question their decision to devote so much of their tax savings to buybacks, rather than using it to invest in their businesses, raise employee pay or pay higher dividends.

"If they made an acquisition that decreased in value this much, people would be up in arms," Nell Minow, vice chairwoman of ValueEdge Advisors, told the WSJ. "They have one job, and that is to make good use of capital."

And, with a handful of exceptions, few companies have made worse use of capital than those who spent billions and billions on repurchasing their own stock this year: indeed, when the market was riding high, companies bought back shares at a furious pace, juiced by the tax savings they reaped from the December 2017 passage of the Tax Cuts and Jobs Act. The law enriched companies by slashing the corporate tax rate to 21% from 35% and making it easier for firms such as Apple to shift foreign earnings to the U.S.

S&P 500 companies bought back $583.4 billion worth of their own shares in the first nine months of 2018, according to S&P Dow Jones Indices, up 52.6% from the same period in 2017. As a result, nearly 18% of S&P 500 companies reduced their share counts by at least 4% year-over-year, according to S&P Dow Jones Indices.

Apple, having lost its vision to create "must have" gizmos and picking financial engineering instead, spent $62.9 billion on buybacks in the first nine months of 2018, according to securities filings.

But the subsequent selloff has pummeled its shares, and as a result the company’s repurchased shares were worth about $51.8 billion as of Thursday's trading, some $11 billion less than it paid for them as Apple repurchased shares at monthly average prices as high as $222.07, according to securities filings. The stock was trading at $151.27 on Thursday.

Apple advocates were quick to defend the company:

Apple makes iPhones. Timing the market is not what they do,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Companies that try to time the market in buying back shares “are going to be in the red at times.”

Still, with Apple promising to invest $30 billion in the US and create 20,000 US jobs over the next five years, that's $10 billion the company could have used toward said noble goal instead of providing a one-time transitory boost for its shareholders.

To be fair, it's not just Apple as some big banks have encountered the same issue. Wells Fargo spent about $13.3 billion on buybacks from January through September for shares now worth $10.6 billion, about $2.7 billion less than they paid. Citigroup spent $9.9 billion on buybacks in the nine-month period for shares now worth about $7.1 billion, about $2.8 billion less.

As the WSJ notes, both banks bought back some shares at monthly average prices that weren’t far below their 52-week highs, and both companies’ share prices have fallen well below those levels. Wells and Citigroup declined to comment, although it would be interesting to hear their thoughts on why they were buying back stock at multi-year highs instead of saving the dry powder for when the stocks dropped... Unless, of course, the stocks would never have been near 52 week highs if it weren't for the buybacks (spoiler alert: that's exactly the case).

Other tech companies were also sucked in by the siren song of rapid stock price appreciation and Applied Materials spent $4.5 billion for shares now worth $2.7 billion—about $1.8 billion less. The stock has declined 40% this year. Applied Materials bought back many of its shares for prices above $50; the stock closed Wednesday at $30.64.

And as noted above, now that the market is sliding and many of these stocks are tumbling, management teams have suddenly stopped repurchasing shares. Furthermore, while it is possible some companies may take advantage of the currently beaten-down prices to buy back more shares, many companies are heading into their pre-earnings blackout period, when they can’t buy back stock because they know what their forthcoming quarterly earnings will look like.

And companies remain nervous about the volatility in stock prices, Mr. Silverblatt said. “It’s hard to fight the market."

In other words, the math is simple: corporate buybacks are no better timers than the average retail investor who buys near the all time high, and then sit quietly when the stock is tumbling and they should be buying.

But the bigger question is whether Apple has been shamed enough into halting buybacks for good. If so, watch out for the news that Warren Buffett has sold his entire investment, which he only made expecting to frontrun AAPL management... exactly the same reason why he bought IBM when he did, and why he dumped it at a major loss a few years later when IBM management made it clear it was done spending billions on stock repurchases.

Published:12/27/2018 1:11:07 PM
[Books] William Shawcross: Let Kissinger speak (Scott Johnson) William Shawcross is the distinguished journalist and author of many interesting books. His father, Sir Hartley Shawcross, served as Great Britain’s Chief Prosecutor at the Nuremberg War Crimes Trial. When Winston Churchill himself needed a lawyer after the war, he turned to Sir Hartley. Those of us of a certain age are probably most familiar with William Shawcross from his book Sideshow: Kissinger, Nixon, and the Destruction of Cambodia. Originally Published:12/27/2018 7:41:49 AM
[Markets] The 7 Space Predictions From Arthur C Clarke That Came True!

Authored by Riz Virk via Hackernoon.com,

About a year ago, I was visiting Sri Lanka and had the pleasure of visiting Arthur C Clarke’s well-preserved office (you can read about my visit here if you like). Anyone who’s read that piece knows that I grew up as a big fan of Clarke’s science fiction, so it was a thrill to be there and see his books and office. He lived in Sri Lanka for 30 years before his passing in 2008.

This year, I’m unable to travel so far, but visiting my parents’ house in the midwest got me thinking about the times that I used to read Clarke’s science fiction books while growing up?—?imagining I was off with some crew on a “romp through the solar system”.

While there were some elements of Clarke’s books that are way out of our league even today (think star child or childhood’s end), there were always others that seemed like they weren’t too far away. So, this Christmas holiday, I wanted to write about a few things that Arthur C Clarke predicted in his science fiction and science-related works that have (mostly) come true (or will very soon!).

Science Fiction Turns Into Science

Of course, science fiction has always had a way of predicting the future, going all the way back to Jules Verne’s 1865 novel, From the Earth to the Moon. While he didn’t have it exactly right, Verne’s prediction that it would be the Americans who first got to the moon, firing off a giant gun (rockets didn’t exist) from somewhere in Florida, were pretty spot on. And who doesn’t know about the flip phone being a descendent of Star Trek, and today’s facetime and iWatch look a lot like Dick Tracy’s watch-phone, don’t they?

The difference between Clarke’s science fiction and much of these others was that he often put more thought into how these things could work and why they were the way they were?—?relying on them not just for convenience, but drawing on both scientific literature and scientific necessity. Unlike the Transporter in Star Trek, for example, which was created just for convenience (so that the producers wouldn’t have to pay for special effects of shuttles going to planets and back, which were costly), Clarke usually had some well thought out reason for the science fiction elements in his novels.

From ACC himself

Clarke himself once said that “trying to predict the future is a discouraging, hazardous occupation”, and some credit ACC (as he’s know in the science fiction world) with having predicted everything from the internet to email to google!

In this article, I’m going to stick to what ACC did best, write about outer space and aliens!

Now I’m not claiming that Clarke was necessarioly the first to think of all of these things?—?in fact, sometimes he was just the first to put them into popular science fiction even when a paper or a concept existed before.

So, without further ado, here are some predictions that have already (to different degrees, of course) come true:

1. The Gravity Assist Maneuver

In the novelization of 2001: A Space Odyssey, which was written concurrently with the movie (released in 1968), ACC had the Discovery go to one of Saturn’s moon’s (Iapetus) and not to Jupiter. In the movie, Stanley Kubrick (who was collaborating with ACC and wanted to use the latest images from NASA) decided to go with Jupiter as the destination because they had pictures from NASA about what Jupiter looked like. Kubrick was worried that since they didn’t have as many images of Saturn, the film might look dated once NASA got more accurate images.

Just like in the novel 2001, the Voyager probes used Jupiter’s gravity to get to Saturn (src: the Planetary Society)

This is all a bit of history, but I recall reading the novelized version and it was the first time I had heard of the “gravity assist” maneuver. In the novel, the Discovery spaceship uses Jupiter’s gravity to speed itself up on the way to Saturn. While Jupiter is “only” 500 million kilometers away, Saturn can be almost a billion kilometers further away (depending on the position), even though we are used to them being close together . On average, the ringed planet is almost twice as far. This means that the ship didn’t have to carry as much fuel to get all the way to Saturn.

This idea of using planets to “assist” in slinging a spacecraft was actually used by NASA in many probes including the Mariner 10 and Voyager probes. In some cases the probes went inwards towards the sun and used Venus for gravity assist to slow down, while the Voyagers used Jupiter to speed up on their way to Saturn, just like in ACCs novel!

In another of his novels, Rendezvous with Rama (which we’ll talk more about in a minute), an alien spaceship built in an asteroid is using the Sun for a gravity assist on its interstellar mission! ACC wasn’t the first to think about this?—?the Soviets actually used the gravity of the moon for a flyby of a probe in 1959, but his use of it around a planet was the first time many science fiction readers like myself heard about it!

2. The Communication Satellite.

ACC proposed using a satellite in geosynchronour orbit for boucning off radio signals (src: Wikipedia)

Arthur C Clarke, in an article for Wireless World in 1945, proposed the idea of a geostationary communications satellite, which was a satellite that stayed in the same position relative to the earth. Such a satellite, ACC proposed could be used to bounce radio signals off of and send radio signals all over the Earth. The editor of Wireless World changed his paper title to Extraterrestrial Relays.

According to many sources, the idea wasn’t taken seriously at the time as no one knew how to get a satellite into what became know as the “Clarke orbit”. 20 years later, in 1965, the first communications satellite was launched into the Clarke orbit, and today there are over 300 satellites on this orbit!

3. The asteroid from outside the solar system.

In 2017, a controversial object appeared in the night sky and was observed for a matter of weeks. It was determined to be the first known object that came from outside of our solar system. Its strange maneuvers and properties made scientists think it was an elongated (cigar-shaped) type of asteroid or comet or alien space probe?—?we couldn’t be sure which.

Conception of our first interstellar visitor , ‘Oumuamua (src: CNN)

The scenario that astronomers found themselves in seemed eerily similar to ACC’s 1973 novel, Rendezvous with Rama. In the novel, an elongated asteroid was adapted into a space probe by an alien civilization, and wanders through our solar system, planning to use the sun as a gravity-assist maneuver to get where-ever it was going. The probe was abandoned in the book and its sequels by the alien civilization. Astronomers first proposed calling the asteroid discovered last year, which sure looked like it could be an asteroid steered by an alien civilization, Rama. In the end, the name ‘’Oumuamua was chosen (a good name which means “heavenly messenger” or “messenger from the past”), and of course scientists went ahead and stated confidently that there was nothing alien about the object.

It’s a year later and what do we know? The object did in fact swing around the sun, and its velocity increased in a way that wasn’t consistent with the asteroid or the comet hypothesis, leading some including Harvard astronomer Abraham Loeb, professor and chair of astronomy, and Shmuel Bialy, a postdoctoral scholar, at the Harvard Smithsonian Center for Astrophysics to speculate that it was an alien probe after all. It’s acceleration properties were more consistent with the properties of a light sail then either an asteroid or a comet!

So, while we don’t know what it was exactly, the best hypothesis we have that fits the data at present is that it was an alien probe going through our solar system swinging around the sun? Sounds familiar? Maybe it should be called Rama after all!

4. Building Ships in Orbit.

The Discovery from the movie 2001: A Space Odyssey (src: syfy wire)

ACC predicted that it would be much easier to build large space-faring ships in orbit and to use shuttles to get astronauts up to the ships. This is how the Discovery was built in 2001: A Space Odyssey and its successors in the sequels as well. This wasn’t an ACC invention?—?many science fiction writers predicted this. Are we doing this today? Not exactly, but it’s within reach. There are companies who have sent up 3d printers to assemble large structures in space (Made in Space is the company that has printed the largest 3d printed object ever in preparation for printing large structures in space) , and there are near-term plans for inflatable modules which get assembled into large structures in space (think Bigelow Aerospace). Thus far, the ISS is the only such structure that is fully deployed, but this prediction is not very far off.

5. Hal and Conversational Artificial Intelligence.

Who can forget the classic line from 2001, which came from HAL 9000, the on-board artificially intelligent computer: “I’m sorry, Dave, I can’t do that?”

I’m sorry Dave, I can’t Do that?—?the HAL 9000 computer from 2001 (src: wikipedia)

There has been an artificial intelligence explosion in the last 10 years, as machine algorithms are now being used to learn to do everything from drive cars to play video games. ACC wasn’t the first to predict machine intelligence;

MIT Professor and Bell Labs fellow Claude Shannon was one of many who said that someday machines would be able to beat a human grand master at chess and write poetry. The chess thing has happened already, not so sure about the poetry. In the age of Sofia and so many different kinds of AI and virtual influencers and personalities, it seems like an intelligent computer like HAL from 2001, that can converse with us, is not that far off?—?give it 10 to 20 years say some experts.

6. Europa, liquid water, and life.

In the sequel to 2001, called 2010: Odyssey Two and its follow up 2061: Odyssey Three, Clarke scrapped Saturn’s moon Iapetus and made the books sequels to the movie, rather than to his novel. In this sequel, a crew of soviet and American astronauts went to Jupiter to find the Discovery and find out what happened to Dave Bowman and his crew, who had disappeared.

When they got there, one of the moons of Jupiter that is most interesting to them (and to the alien StarChild that Dave Bowman has now become) is Europa, which is found to be covered with ice with oceans underneath. The second book ends wiht a whopper: Jupiter is transformed into a small star and Europa is the reason why, because there is life that can develop here! In a now famous line from the end of 2010: All These Worlds Are Yours Except Europa. Attempt No Landings There.

In 2061, a crew actually goes to Europa, which has developed into a habitable planet thanks to Jupiter’s transformation at the end of 2010 into a small sun, called Lucifer from Earth. Leaving aside the super-intelligent aliens who were responsible for this, Clarke’s predictions about Europa being the most likely place for life in the solar system because of the presence of liquid water under the ice covering the planet has turned out to fairly accurate.

Plumes of water have been seen on Europa (src: Space.com)

Probes to the Jovian moons have shown that Europa has plumes of water that shoot up from the surface, and it’s estimated that it has a covering of water 100 km thick. Some estimates say that Europa may have more water than the Earth!

Now, what might lie in wait in all that water under the ice? To quote the History Channel’s hit series, could it be … Aliens??

7. Landing on a Comet.

At the beginning of the novel 2061:Odyssey Three, published in 1987, in what I thought was a cool sequence, the spaceship Galaxy is landing on the surface of Halley’s comet which has returned to Earth in (do the Math and you’ll see why the novel was set in 2061!).

Of course, there’s a lot more going on in this novel than the comet, but at the time, this part, along with the rest of the novel was thought of as science fiction. Today, we know that it’s not so far fetched. In 2004, the European Space Agency launched Rosetta, a space probe that was meant to study a comet. Twelve years later, in 2016, the probe not only surveyed a comet, 7P/Churyumov–Gerasimenko, but it managed to hard land on the comet!

I wonder what we’ll be doing in 2061??

OK so there you have 7 predictions that have either already come true, or are very likely to in a decade or two. Not a bad track record. But, of course, science fiction being science fiction, there are still lots of things in ACC’s novels and papers for us to aspire to.

And those are just the ones that have or are likely to come true pretty soon! Wait until we talk about he Space Elevator (Fountains of Paradise), Diamonds in the heart of Gas Giants (2061: Odyssey Three), and interstellar colonization (Songs of Distant Earth), not to mention the tantalizing idea of artifacts hiding on the moon (if you were an ancient Alien visitor to the Earth, where would you put a communications device??).

Published:12/26/2018 9:37:18 PM
[Markets] Bipartisan Support Is Growing For Gun Confiscation In 2019

Authored by José Niño via The Mises Institute,

The 2018 midterm elections produced a split Congress with Democrats gaining control of the House and Republicans gaining seats in the Senate.

 The Guardian detailed House Democrats’ desire to pass gun control legislation in the upcoming Congress:

“Ted Deutch, a Democratic congressman from Florida who represents Parkland, where a February school shooting left 17 dead, said this week that he expected House Democrats to focus on bills with more bipartisan support. Those measures included bump stock bans and “extreme risk protection orders”, also known as red flag laws, which give law enforcement and family members a way to petition a court to temporarily bar an unstable person from buying or owning guns.”

What Are Red Flag Laws?

Red flag laws or Extreme Risk Protection Orders (ERPOs) are the euphemistic label for a variety of new proposed gun-control laws. Under red flag laws, law enforcement has the ability to confiscate an individual’s firearms who is deemed a threat to themselves or others. A simple accusation from a family member, friend, or associate will suffice to seize someone’s firearms.  

These laws, mind you, operate in the absence of normal due process.  The accused in these cases could have their weapons confiscated without even so much as a hearing a before a judge. It could take months before a gun owner could appear in court to win back his gun rights.

Thirteen states currently have red flag laws on the books. What started out as a state-level movement may have some legs at the federal level. Although it’s true that Congressional Democrats are making gun control a major theme of their legislative agenda, it’s naïve to think red flag laws are only relevant because of “gun-grabbing” Democrats have taken power.

As we’ll see below, red flag laws have a history of bipartisan support. And when any piece of legislation has Democrats and Republicans locking arms in agreement, you know trouble lies ahead.

The Gun Control Bipartisan Status Quo

Despite the passionate campaign rhetoric, a significant portion of Republican politicians will change colors on gun rights once in DC. Several GOP members in the upcoming Congress stick out like a sore thumb when it comes to their gun control advocacy:

Brian Mast:  A Congressman from Florida’s 18th district, Brian Mast penned an op-ed for the New York Times a few months ago calling for the ban of so-called “assault weapons” and a number of firearms accessories. However, actions, not words, are what matter most in politics. Mast went on to co-sponsor H.R. 2598, a bill which authorizes the Department of Justice’s Community Oriented Policing Services to provide grants to states with red flag laws on the book.

Marco Rubio: Following the Parkland shootings, Rubio joined the gun control chorus by sponsoring a red flagbill along with Democrat Senators Joe Manchin, Bill Nelson, & Jack Reed. Rubio has even flirted with the idea of regulations on magazine clips, raising the minimum age to buy certain firearms like AR-15s, and tweaking the current background check system.

Rick Scott: Former Governor of Florida and now a US Senator from Florida, Rick Scott poses an interesting threat to gun rights. Despite his ostensible anti-gun-control rhetoric, Scott signed SB 7026 Florida’s most expansive gun control measure in recent history. Scott’s SB 7026 contains red flag provisions, raises the age to buy a firearm to 21, and imposes a three-day waiting period for all firearms purchases.

Larry Hogan: On April 24, 2018, Maryland Governor Hogan signed a series of gun bills, one which included a red flag law. In October, the first month Maryland’s red flag law went into effect, there were 114 requests to confiscate individuals’ firearms.

Maryland’s red flag law has not been without its fair share of controversy.

At 5 a.m on Monday, November 5, two police officers came knocking on 61-year-old Gary Willis’ door to serve him a court order mandating that he turn over his guns. What seemed like a typical court order, quickly turned deadly as one of the cops shot and killed Willis in a struggle that ensued. Quick to defend one of his own, Anne Arundel County Police Chief Timothy Altomare defended the cops’ action by callously claiming that they “did the best they could with the situation they had.”

The tragic incident in Maryland is an ominous sign of what is to come should red flag laws gain more traction.

Whether or not Republicans will support new Red Flag laws is anyone’s guess. The bigger problem at hand is an ideological one, and opponents of gun control would do well to stop putting their faith in the winner-take-all electoral slugfest we see at the federal level every 4 years, and to embrace decentralization instead.

Published:12/26/2018 7:36:57 PM
[Markets] Fairytales And Snowflakes

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

There are not many things that I’m allergic to. But there are some. Here’s a good example: bigotry.

Behold, in the article quoted below, the danger of political correctness in all its glory. A 30-year old Christmas song, Fairytale of New York, it is claimed, must be censored or banned. For a reason I’ll explain, such things always make me think of Rembrandt’s painting “Bathsheba at her Bath” (the painting below), which hangs in the Louvre.

No doubt there are those who are offended by her nakedness. But as John Berger put it in the video below, the master painted it with the utmost love and devotion. I first saw the video many years ago in art school, and it’s always stayed with me. Berger was a British art critic (he died last year) who wrote many books and made lots of TV shows on his view of what makes art – and its viewers- tick, together. Berger loved Rembrandt as much as Rembrandt loved Bathsheba. And so do I.

Back to the song, Fairytale of New York: There are people who think/feel/proclaim that the perhaps most popular Christmas song of the modern age contains one word they do not like, and must therefore be changed. It hurts their safe space, or something. It’s not politically correct. You can’t say ‘faggot’, even after it’s thoroughly explained to you that it means something else entirely in older Irish vocabulary. This is a very dark road towards a very dark future; don’t go there.

We can censor and ban a large part of art -and rock- history if we go by 2018 PC standards, but we should never give in to the vapid illusion that we know better now than the artists in the days and places when and where they produced the paintings, the sculptures or the songs. That is profoundly stupid, arrogant and conceited. None of us are any better than the Greek and Roman sculptors who carved their genius marbles of naked splendor. None of us are better people than Rembrandt or Michelangelo or the ancient Greek sculptors just because we live later in time then them. So we have no right to correct them.

And none of us have the right to demand a correction of a 30-year old song. Don’t even try to take our art away from us. It’s the best thing handed to us through the ages. Art is where man excels, much more than technology or anything like that. Art. And Fairytale of New York is Art. So don’t you dare touch it.

Calls To Censor ‘Fairytale Of New York’ Lyrics

A student newspaper editor has called for the word “faggot” to be censored from The Pogues’ popular song “Fairytale of New York” over claims it is offensive. Tom Haynes, the assistant editor of The Tab, shared his opinion about the classic Christmas song in an article titled: “Dear straight people, stop singing the word ‘faggot’ in ‘Fairytale of New York’” – which has since divided people on social media.

According to Haynes, the line in question, sung by Kirsty MacColl, “you scumbag, you maggot, you cheap lousy faggot,” is homophobic – but despite being censored on some stations, including the BBC and MTV channels, continues to be sung by “straight people” when it comes on. “Only when you take a step back does something seem off with that picture in 2018,” Haynes wrote.

He also points out that, despite being repurposed by the gay community, the slur can “evoke very specific memories of being bullied either online or in real life” and is comparable to the n-word. Haynes concludes by suggesting that people simply skip the word when singing the 1987 song – which has faced lyrical controversy numerous times in the years since it was released. “That’s all – one word, two syllables. Not too much of a stretch, right?” he wrote. The response to Haynes critique of the beloved Christmas song has been varied – with some disagreeing and labelling the editor a “snowflake” millennial, and others recognising that he has a point.

According to some people on social media, who have defended the use of the word in the song, faggot has a different meaning in old Irish slang. “I won’t be refraining from singing the lyric ‘cheap, lousy faggot’ in ‘Fairytale of New York’ because it’s not in reference to any homophobic intent – in old Irish faggot simply means a lazy person,” one person wrote. Another said: “Snowflakes left right and centre saying ‘Fairytale of New York’ is homophobic when in reality the cheap lousy faggot line is in reference to laziness.”

Update: as I was writing this, and looking for info, I stumbled upon singer Shane McGowan of the Pogues actually defending the lyrics . Sort of. And saying the band are not going to change a thing. But really, he should tell ’em all to stick it to the dark side of the moon.

“The word was used by the character because it fitted with the way she would speak and with her character. She is not supposed to be a nice person, or even a wholesome person. She is a woman of a certain generation at a certain time in history and she is down on her luck and desperate.

“Her dialogue is as accurate as I could make it but she is not intended to offend. She is just supposed to be an authentic character and not all characters in songs and stories are angels or even decent and respectable, sometimes characters in songs and stories have to be evil or nasty in order to tell the story effectively.

That’s enough of that safe space blubber. It’s endless. One person wants just two syllables changed, the next one another two, and before you know it Bathsheba is fully clothed and Rembrandt lost his interest, and so therefore have we all. It’s not up to us to decide what an artist paints or sings or writes. Period.

Let’s move on to how and why this is relevant to anyone who’s not a snowflake.

John Berger years ago described with how much love Rembrandt painted Bathsheba’s belly:

..”there isn’t another belly in European art painted with a fraction of this devotion..”

Start at 6.30 min into the video for that. The whole video is very much worth watching, it’s brilliant even. Rembrandt discovered light itself in painting, and how to get from two dimensions to three. He saw that what the human eye sees from up close is very different from what she sees at 2 meters, or 4, or 10. His was an unmitigated genius.

However, yes, Bathsheba is naked. And plenty people today will find that offensive. What about the kids!? (gee, I don’t know, where they born fully dressed?) But Rembrandt painted Bathsheba in 1654. And nobody has any business today being offended by what people did or said 350 years ago.

Or, better yet, if you want to be insulted about something from that era, why not protest any and all signs of slavery and warfare, rape and pillage, of Europeans massacring Africans and Native Americans, and leave art alone once and for all, stay away from a genius painter putting what love he can muster into the depiction of a biblical character.

I post a lot of art works at the Automatic Earth, a new glorious picture every day, and only once have I had a complaint about it. That was for a photograph whose artist the thought police apparently wasn’t familiar with. Not even full frontal nudity, but people seen from behind diving into the water. But there was a complaint alright. The acne-ridden social media overlords deemed it inappropriate. They wouldn’t dare with Rembrandt, but that’s beside the point.

Also, as you may know, I’ve spent a lot of time in Athens lately. And if you walk through the Parthenon, or its museum, or any of the other archeological sites in the city, there’s no way you can bring enough stickers or fig leaves to hide what nudity offends you. Probably all the Americans who visit the city think it’s far enough removed from them in time that they can watch the naked men and women without being offended (aroused, I’m not so sure).

But even if they do, they are the same people who use terms like ‘the F word’ and ‘the N word’ on a daily basis. Something as bigoted as protesting a word such as ‘faggots’, or a sculpture or painting that’s 100s or 1000s years old. Maybe if you let everyone say ‘fuck’ to their heart’s desire, they’ll stop saying it. And even if they don’t, so what? Why ban words when everybody uses them, why ban nudity when everybody’s naked under their clothes, why ban or censor art when it’s the best thing our forefathers have ever left us?

Published:12/25/2018 8:27:32 AM
[Anti-Semitism] Understanding Alice Walker (& the Times) (Scott Johnson) I subscribe to the New York Times Books Briefing (an email newsletter). In today’s email from Times Book Review editor Pamela Paul there is this drily stated bullet point: • Alice Walker recommended an anti-Semitic book in the Book Review’s By the Book column. In the face of public outcry, she defended her choice. You may have read about Walker’s book recommendation last week. Turning to the article linked in Published:12/24/2018 5:23:56 PM
[Markets] OPEC+ Deal Not Enough To Save The Oil Market

Authored by Nick Cunningham via Oilprice.com,

If the goal of the OPEC+ cuts was to boost oil prices, then the deal is clearly failing.

OPEC+ is scrambling to figure out a way to rescue oil prices from another deep downturn. WTI is now down into the mid-$40s and Brent into the mid-$50s, both a 15-month low. U.S. shale continues to soar, even if shale producers themselves are now facing financial trouble with prices so low. Oil traders are clearly skeptical that OPEC+ is either willing or capable of balancing the oil market.

OPEC+ thought they secured a strong deal in Vienna in early December, but more needs to be done, it seems. OPEC’s Secretary-General Mohammad Barkindo wrote a letter to the cartel’s members, arguing that they need to increase the cuts. Initially, the OPEC+ coalition suggested that producers should lower output by 2.5 percent, but Barkindo said that the cuts need to be more like 3 percent in order to reach the overall 1.2 million-barrel-per-day reduction.

More importantly, the group needs to detail how much each country should be producing. “In the interests of openness and transparency, and to support market sentiment and confidence, it is vital to make these production adjustments publicly available,” Barkindo told members in the letter, according to Reuters. By specifying exactly how much each country will reduce, the thinking seems to be, it will go a long way to assuaging market anxiety about the group’s seriousness.

Still, the plunge in oil prices this month is evidence that traders are not convinced.

The view is “that the U.S. will continue to grow like gangbusters regardless of price and overwhelm any OPEC action,” Helima Croft, the chief commodities strategist at Canadian broker RBC, told the Wall Street Journal.

“Unless there is a real geopolitical blowup, it could take time for these cuts to really shift sentiment.”

While cuts from producers like Saudi Arabia will help take supply off of the market, OPEC might help erase the surplus in another unintended way. Bloomberg raises the possibility that low oil prices could increase turmoil in some OPEC member states. The price meltdown between 2014 and 2016 led to, or at least exacerbated, outages in Libya, Venezuela and Nigeria. The same could happen again.

Just about all OPEC members need much higher oil prices in order to balance their books. Saudi Arabia needs roughly $88 per barrel for its budget to breakeven. Libya needs $114. Nigeria needs $127. Venezuela needs a whopping $216. Only Kuwait – at $48 per barrel – can balance its books at prevailing prices. Brent is trading in the mid-$50s right now.

That raises the prospect of more unrest. Venezuela’s supply losses are assured – and largely already factored into market forecasts – although the rate of decline remains uncertain. But further unexpected outages are possible, and become more likely with lower prices. Libya and Nigeria are the most likely sources of instability. Unexpected disruptions in supply in 2019 could tighten up the market.

Still, while there are many problems facing OPEC+ as it seeks to balance the market, one important factor lies mostly out of the group’s control. Much of the OPEC+ discussion focuses on supply-side dynamics – how much the group should be producing in order to achieve some price target. But the problems sweeping over the oil market right now could be even larger.

Specifically, a global economic slowdown could translate into much slower demand, a problem that OPEC+ cannot fix. Sinking oil prices isn’t just a matter of market expectations of oversupply from U.S. shale.   

The financial turmoil and brewing economic slowdown is clearly overwhelming the OPEC+ cuts, as well as the jawboning that some OPEC officials have tried over the past week. Stock markets plunged in recent days after the Federal Reserve tightened interest rates yet again and signaled two more rate hikes in 2019.

There haven’t yet been any dramatic revisions to 2019 oil demand from leading energy forecasters, such as the EIA or IEA. But, then again, the financial instability and the souring oil market have only cropped up recently. The IEA has maintained a 1.4-mb/d growth rate for demand next year, but take that with a grain of salt. Demand revisions could be forthcoming. OPEC+ may have to keep its supply curbs in place for the full year in 2019, but it’s unclear if even that can push prices back up to where they were two months ago.

Published:12/24/2018 3:55:41 PM
[Entertainment] Must-Read Celeb Memoirs E-comm: Must-Read Celeb MemoirsYou've made it, the holidays are here. Whether long or short, hopefully you have at least a few days off to take a break and decompress from the year that was 2018. And what better...
Published:12/24/2018 5:21:37 AM
[Markets] If Truth Cannot Prevail Over Material Agendas We Are Doomed: PCR

Authored by Paul Craig Roberts,

Throughout the long Cold War Stephen Cohen, professor of Russian studies at Princeton University and New York University was a voice of reason. He refused to allow his patriotism to blind him to Washington’s contribution to the confict and to criticize only the Soviet contribution. Cohen’s interest was not to blame the enemy but to work toward a mutual understanding that would remove the threat of nuclear war. Although a Democrat and left-leaning, Cohen would have been at home in the Reagan administration, as Reagan’s first priority was to end the Cold War. I know this because I was part of the effort. Pat Buchanan will tell you the same thing.

In 1974 a notorious cold warrior, Albert Wohlstetter, absurdly accused the CIA of underestimating the Soviet threat. As the CIA had every incentive for reasons of budget and power to overestimate the Soviet threat, and today the “Russian threat,” Wohlstetter’s accusation made no sense on its face. However he succeeded in stirring up enough concern that CIA director George H.W. Bush, later Vice President and President, agreed to a Team B to investigate the CIA’s assessment, headed by the Russiaphobic Harvard professor Richard Pipes. Team B concluded that the Soviets thought they could win a nuclear war and were building the forces with which to attack the US.

The report was mainly nonsense, and it must have have troubled Stephen Cohen to experience the setback to negotiations that Team B caused.

Today Cohen is stressed that it is the United States that thinks it can win a nuclear war. Washington speaks openly of using “low yield” nuclear weapons, and intentionally forecloses any peace negotiations with Russia with a propaganda campaign against Russia of demonization, villification, and transparant lies, while installing missile bases on Russia’s borders and while talking of incorporating former parts of Russia into NATO. In his just published book, War With Russia?, which I highly recommend, Cohen makes a convincing case that Washington is asking for war.

I agree with Cohen that if Russia is a threat it is only because the US is threatening Russia. The stupidity of the policy toward Russia is creating a Russian threat. Putin keeps emphasizing this. To paraphrase Putin: “You are making Russia a threat by declaring us to be one, by discarding facts and substituting orchestrated opinions that your propagandistic media establish as fact via endless repetition.”

Cohen is correct that during the Cold War every US president worked to defuse tensions, especially Republican ones. Since the Clinton regime every US president has worked to create tensions. What explains this dangerous change in approach?

The end of the Cold War was disadvantageous to the military/security complex whose budget and power had waxed from decades of cold war. Suddenly the enemy that had bestowed such wealth and prestige on the military/security complex disappeared.

The New Cold War is the result of the military/security complex’s resurrection of the enemy. In a democracy with independent media and scholars, this would not have been possible. But the Clinton regime permitted in violation of anti-trust laws 90% of the US media to be concentrated in the hands of six mega-corporations, thus destroying an independence already undermined by the CIA’s successful use of the CIA’s media assets to control explanations. Many books have been written about the CIA’s use of the media, including Udo Ulfkotte’s “Bought Journalism,” the English edition of which was quickly withdrawn and burned.

The demonization of Russia is also aided and abeted by the Democrats’ hatred of Trump and anger from Hillary’s loss of the presidential election to the “Trump deplorables.” The Democrats purport to believe that Trump was installed by Putin’s interference in the presidentail election. This false belief is emotionally important to Democrats, and they can’t let go of it.

Although Cohen as a professor at Princeton and NYU never lacked research opportunities, in the US Russian studies, strategic studies, and the like are funded by the military/security complex whose agenda Cohen’s scholarship does not serve. At the Center for Strategic and International Studies, where I held an independently financed chair for a dozen years, most of my colleagues were dependent on grants from the military/security complex. At the Hoover Institution, Stanford University, where I was a Senior Fellow for three decades, the anti-Soviet stance of the Institution reflected the agenda of those who funded the institution.

I am not saying that my colleagues were whores on a payroll. I am saying that the people who got the appointments were people who were inclined to see the Soviet Union the way the military/security complex thought it should be seen.

As Stephen Cohen is aware, in the original Cold War there was some balance as all explanations were not controlled. There were independent scholars who could point out that the Soviets, decimated by World War 2, had an interest in peace, and that accommodation could be achieved, thus avoiding the possibility of nuclear war.

Stephen Cohen must have been in the younger ranks of those sensible people, as he and President Reagan’s ambassador to the Soviet Union, Jack Matloff, seem to be the remaining voices of expert reason on the American scene.

If you care to understand the dire threat under which you live, a threat that only a few people, such as Stephen Cohen, are trying to lift, read his book.

If you want to understand the dire threat that a bought-and-paid-for American media poses to your existence, read Cohen’s accounts of their despicable lies. America has a media that is synonymous with lies.

If you want to understand how corrupt American universities are as organizations on the take for money, organizations to whom truth is inconsequential, read Cohen’s book.

If you want to understand why you could be dead before Global Warming can get you, read Cohen’s book.

Enough said.

Published:12/22/2018 9:46:16 PM
[Markets] On Gun Confiscation: "Here's How It Might Actually Go Down"

Authored by Selco via Daisy Luther's Organic prepper blog,

After reading a couple of articles about magazines/weapon news from New Jersey – actually, after reading a lot of comments from people on that news-  I have the urge to write this article. It is written from the survivalist point of view. There is, of course, the possible danger to get comments like “What the hell do you know Selco? You are not American, shut up!” Because I am going to be “poking” a few sacred cows here.

So…

Right now, this is not the rise of communism.

“Stalin is coming.”

I do not think this all news is about “rise of communism” in the US, and also I do think that you still live in a land with a lot of great rights and liberties, which is very cool.

What is not cool is the fact that you are moving in the direction of slowly “shrinking” of those rights. But it is still very far away from a “communistic evil empire”, so I do not see sense in having big headlines about Nazis and such other than scaring people for whatever reason.

Weapon rights and the government

I see here something which is much more dangerous than the fear of communism.

It is how people react to news or new laws about any weapon limitation. It’s how they talk about what the majority of them are planning to do.

Government at its core has the urge to control people in whatever way they can.  If you are more armed that means you are less controllable.

But if you are acting in a way that you are screaming from the rooftops how you “will defend your right to have (whatever) weapon (contrary) to the newest law” and how you’ll “be proud to own i, and to show it”  you eventually are not doing yourself any favors.

Do you really think that when the time comes that the government will send two pale clerks to search your home looking for whatever weapon?

Nope.

Here’s how confiscation might actually go down.

Here is how it might actually go down. This is one possible scenario:

First, you’ll be labeled as a terrorist, some weird guy who wants to overthrow the government. Maybe your photo will be posted somewhere stating that you are very sick, and that you pose a danger to society.

If you are a member of some group, let’s say a prepper group, you all will be labeled as terrorists first, and through the media, you can be portrayed as a domestic terror cell, to the point that your next door neighbor will help police to get you.

Do not underestimate the power of the government machine. You may truly be a fighter for constitutional rights and a real patriot, but in 3 days you can become a crazy terrorist that citizens will actually hunt down and shoot like a mad dog.

The point here is there is no point of publicly “yelling” about what you own and what are your rights to own.

Of course, you need to own weapons that you think it makes sense to own.

But why does everybody else need to know that, including government and government services?

The 2nd Amendment

The 2nd Amendment is very cool, and I like it very much, but here is the ugly truth:

It works only if the government wants it to work.

One day, when the government does not want it to work anymore it will be out of order, illegal, or even terrorist to practice it.

Sorry, it is not your inalienable right. The government lets you THINK  it is your inalienable right.

Actually, you do need to protect that right. You need to defend it.

But again not in a way that you gonna portray yourself as a terrorist. I mean, I will own what I want to own, and only I am gonna know that untill the day when I need it very badly.

Owning weapons

There used to be a law about weapons here, where I live, before the war. And yes, you could own a weapon but it was such a hard law that actually not too many people owned legal weapons.

And right when the SHTthe F, first thing that happened was the confiscation of legal weapons, based on lists of who own legal weapons.

Now what people could do then was to say, “This is my legal weapon. I have a right to own it, by the law.” And those who did that usually got shot.

There were 20 heavily armed guys at your door asking nicely for your weapon, to be turned over to them in the name of “law” as an effort of a government that wanted to calm down a chaotic situation.

Sometimes if you said no, those guys would simply destroy the whole house with RPGs and bombs.

And guess what that meant?

Folks who owned legal weapon lost them even before the big SHTF. And a lot of guys who owned them in an illegal way hidden somewhere still own them when SHTF.

Illegal and legal have different meanings in different times and based who says those words, so think about it.

I am not saying that it will go like that there where you are. What I do say is you that you need to think a bit outside the box when it comes to owning things.

My thoughts on this

For many years I found it ridiculous not to have an illegal (not traceable) weapon stored somewhere safe for the bad times.

When SHTF and when (if) guys show up on my doorstep to confiscate my weapon what will I do?

I will give them the weapon that they know about. What else I should do?

Practice my rights?

Nope.

I have more of that stuff. It’s not worth it to fight over the one they know about.

What could be coming for the future?

Again I do not really see the government taking away all rights of owning a weapon as a possibility there. The tradition of firearms is simply way too big, and also the number of weapons is too big, too.

But what is possible is the rapid shrinking of that right through some big event, in an effort of getting things back to normal.

When something big happens and there is big fear and terror, people are ready to “give away” a lot of rights and liberties in exchange for the feeling of safety and security. This is wrong of course but it is how things work.

So actually you never know, anything is possible.

One bad side of having rights and freedoms for a long time (in owning weapon) is thinking it is always gonna be like that.

Or thinking it must be like that.

The “good side” of not having good gun rights is having a tradition of having ALWAYS hidden somewhere an illegal weapon. Always.

And only you know about it and maybe your family.

There is no need to brag about that anywhere else.

*  *  *

About Selco:

Selco survived the Balkan war of the 90s in a city under siege, without electricity, running water, or food distribution.

In his online works, he gives an inside view of the reality of survival under the harshest conditions. He reviews what works and what doesn’t, tells you the hard lessons he learned, and shares how he prepares today.

He never stopped learning about survival and preparedness since the war. Regardless what happens, chances are you will never experience extreme situations as Selco did. But you have the chance to learn from him and how he faced death for months.

Read more of Selco’s articles here.

Buy his PDF books here

Published:12/22/2018 7:42:52 PM
[Markets] "Endless War Has Been Normalized And Everyone Is Crazy..."

Authored by Caitlin Johnstone,

Since I last wrote about the bipartisan shrieking, hysterical reaction to Trump’s planned military withdrawal from Syria the other day, it hasn’t gotten better, it’s gotten worse. I’m having a hard time even picking out individual bits of the collective freakout from the political/media class to point at, because doing so would diminish the frenetic white noise of the paranoid, conspiratorial, fearmongering establishment reaction to the possibility of a few thousands troops being pulled back from a territory they were illegally occupying.

Endless war and military expansionism has become so normalized in establishment thought that even a slight scale-down is treated as something abnormal and shocking. The talking heads of the corporate state media had been almost entirely ignoring the buildup of US troops in Syria and the operations they’ve been carrying out there, but as soon as the possibility of those troops leaving emerged, all the alarm bells started ringing. Endless war was considered so normal that nobody ever talked about it, then Trump tweeted he’s bringing the troops home, and now every armchair liberal in America who had no idea what a Kurd was until five minutes ago is suddenly an expert on Erdogan and the YPG. Lindsey Graham, who has never met an unaccountable US military occupation he didn’t like, is now suddenly cheerleading for congressional oversight: not for sending troops into wars, but for pulling them out.

“I would urge my colleagues in the Senate and the House, call people from the administration and explain this policy,” Graham recently told reporters on Capitol Hill. “This is the role of the Congress, to make administrations explain their policy, not in a tweet, but before Congress answering questions.”

“It is imperative Congress hold hearings on withdrawal decision in Syria?—?and potentially Afghanistan?—?to understand implications to our national security,” Graham tweeted today.

In an even marginally sane world, the fact that a nation’s armed forces are engaged in daily military violence would be cause for shock and alarm, and pulling those forces out of that situation would be viewed as a return to normalcy. Instead we are seeing the exact opposite. In an even marginally sane world, congressional oversight would be required to send the US military to invade countries and commit acts of war, because that act, not withdrawing them, is what’s abnormal. Instead we are seeing the exact opposite.

A hypothetical space alien observing our civilization for the first time would conclude that we are insane, and that hypothetical space alien would be absolutely correct. Have some Reese’s Pieces, hypothetical space alien.

It is absolutely bat shit crazy that we feel normal about the most powerful military force in the history of civilization running around the world invading and occupying and bombing and killing, yet are made to feel weird about the possibility of any part of that ending. It is absolutely bat shit crazy that endless war is normalized while the possibility of peace and respecting national sovereignty to any extent is aggressively abnormalized. In a sane world the exact opposite would be true, but in our world this self-evident fact has been obscured. In a sane world anyone who tried to convince you that war is normal would be rejected and shunned, but in our world those people make six million dollars a year reading from a teleprompter on MSNBC.

How did this happen to us? How did we get so crazy and confused?

I sometimes hear the analogy of sleepwalking used; people are sleepwalking through life, so they believe the things the TV tells them to believe, and this turns them into a bunch of mindless zombies marching to the beat of CIA/CNN narratives and consenting to unlimited military bloodbaths around the world. I don’t think this is necessarily a useful way of thinking about our situation and our fellow citizens. I think a much more useful way of looking at our plight is to retrace our steps and think about how everyone got to where they’re at as individuals.

We come into this world screaming and clueless, and it doesn’t generally get much better from there. We look around and we see a bunch of grownups moving confidently around us, and they sure look like they know what’s going on. So we listen real attentively to what they’re telling us about our world and how it works, not realizing that they’re just repeating the same things grownups told them when they were little, and not realizing that if any of those grownups were really honest with themselves they’re just moving learned concepts around inside a headspace that’s just as clueless about life’s big questions as the day it was born.

And that’s just early childhood. Once you move out of that and start learning about politics, philosophy, religion etc as you get bigger, you run into a whole bunch of clever faces who’ve figured out how to use your cluelessness about life to their advantage. You stumble toward adulthood without knowing what’s going on, and then confident-sounding people show up and say “Oh hey I know what’s going on. Follow me.” And before you know it you’re donating ten percent of your income to some church, addicted to drugs, in an abusive relationship, building your life around ideas from old books which were promoted by dead kings to the advantage of the powerful, or getting your information about the world from Fox News.

For most people life is like stumbling around in a dark room you have no idea how you got into, without even knowing what you’re looking for. Then as you’re reaching around in the darkness your hand is grasped by someone else’s hand, and it says in a confident-sounding voice, “I know where to go. Come with me.” The owner of the other hand doesn’t know any more about the room than you do really, they just know how to feign confidence. And it just so happens that most of those hands in the darkness are actually leading you in the service of the powerful.

That’s all mainstream narratives are: hands reaching out in the darkness of a confusing world, speaking in confident-sounding voices and guiding you in a direction which benefits the powerful. The largest voices belong to the rich and the powerful, which means those are the hands you’re most likely to encounter when stumbling around in the darkness. You go to school which is designed to indoctrinate you into mainstream narratives, you consume media which is designed to do the same, and most people find themselves led from hand to hand in this way all the way to the grave.

That’s really all everyone’s doing here, reaching out in the darkness of a confusing world and trying to find our way to the truth. It’s messy as hell and there are so many confident-sounding voices calling out to us giving us false directions about where to go, and lots of people get lost to the grabbing hands of power-serving narratives. But the more of us who learn to see through the dominant narratives and discover the underlying truths, the more hands there are to guide others away from the interests of the powerful and toward a sane society. A society in which people abhor war and embrace peace, in which people collaborate with each other and their environment, in which people overcome the challenges facing our species and create a beautiful world together.

People aren’t sleepwalking, they are being duped. Duped into insanity in a confusing, abrasive world where it’s hard enough just to get your legs underneath you and figure out which way’s up, let alone come to a conscious truth-based understanding of what’s really going on in the world. But the people doing the duping are having a hard time holding onto everyone’s hand, and their grip is slipping. We’ll find our way out of this dark room yet.

*  *  *

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Published:12/22/2018 5:41:21 PM
[Markets] Is This 'Tinder For Corporate Credit' The Latest Harbinger Of A Debt Implosion?

As recently as October, desperate yield-chasers seemingly couldn't get enough of leveraged-loan paper, until a dramatic and sudden collapse in demand left Wells Fargo and JPM stuck with more than $400 million in loans that they will need to keep on their books until they can find a buyer, a phenomenon that prompted one credit strategist to muse about "end-of-credit-cycle" behavior. As we've been warning for a while now, the massive agglomeration of debt that has occurred in various sectors of the US economy since the financial crisis has remained safely out of sight for years as low interest rates ensured that any struggling borrowers could easily roll their debt at rock-bottom costs. But as interest rates rise and the global economy falters, concerns about 'fallen angels', leveraged loans, consumer credit, subprime auto loans, student debt and myriad other facets of the US's exaggerated pile of consumer and corporate debt have come rushing back.

Corporate

In a profile that shows just how desperate - and therefore, reckless - investors became as yields dropped during the post-crisis period,  Bloomberg this week published a stunning profile chronicling the rise of the direct-lending industry. Featured in the profile was a company called DebtMaven, which is trying to create what its founder, Jordan Selleck, described as a "Tinder for corporate credit." His service connects lightly vetted borrowers with similarly lightly vetted lenders so that they can make deal magic with minimal fuss (and maximal risk).

In barely two years, more than 470 different potential lenders have signed up to his match-making web site, DebtMaven. For a small fee, he connects them with smaller companies looking for money.

"They’re hooked on deal flow and willing to pay," Selleck says of his lenders. "It’s grown at a crazy pace."

That pace is now raising red flags among regulators and central bankers, who fret that the direct-lending industry is helping to fuel a global credit bubble that’s leaving the economy increasingly vulnerable. Reaching for anything that pays decent returns, investors have been pouring money into all sorts of risky assets. Not since the heady days of 2007, when private credit was a relative backwater, have the rewards for holding riskier debt like junk bonds seemed so meager.

During the QE era, investors struggled to find even speculative-grade debt yielding more than 5%.

Five

This shortage of debt offering a decent yield provided the spark for the private-credit industry to grow from a niche market...

So why is private credit so beguiling? One word: yield. A decade of central bank stimulus caused it to evaporate in the usual places, such as the debt of blue-chip corporations. If everything goes according to plan, loans from private lenders are usually more lucrative than those to bigger companies. They hold out all-in yields of 7 percent to 9 percent, sometimes much more. That compares to an average 4.3 percent for the typical investment-grade corporate bond.

...to one that's rapidly approaching $1 trillion in assets, bearing yields between 7% and 9% (analysts expect the market to hit the $1 trillion mark by 2020).

Debt

And unsurprisingly, as this segment of the US shadow-banking market expands, banks are finding a way to get in on the action, using - what else? - the same types of collateralized loans that became "weapons of financial mass destruction" during the crisis.

Even the financial engineers are getting to work. So far this year, Wall Street has churned out almost $20 billion of collateralized loan obligations that transform those often risky loans into securities rated as high as triple-A.

Meanwhile, the surging demand for private credit has transformed startups like DebtMaven into titans overnight.

The frenzy has turned lending startups into heavyweights almost overnight. Owl Rock Capital Partners—a New York firm founded by Blackstone, KKR and Goldman Sachs veterans—has amassed $9.5 billion of assets since it started in 2016.

Money raised by Owl Rock found its way to the outskirts of Charlotte, North Carolina, where it helped fund the buyout of Carolina Beverage Group by Cold Spring Brewing Co., a craft-beer producer owned by private equity firm Brynwood Partners. Owl Rock’s financing amounted to almost $45 million.

TransPerfect Global Inc., a New York-based language-service company, borrowed about $262 million from Owl Rock to help one of its founders buy out the shares of the other after they had a falling out. That debt pays more than 9.5 percent. They’re among loans Owl Rock has arranged for companies with typical earnings before interest, taxes, depreciation and amortization of $10 million to $250 million annually.

So it's hardly surprising that the industry is raising red flags, and regulators are beginning to take an interest.

That pace is now raising red flags among regulators and central bankers, who fret that the direct-lending industry is helping to fuel a global credit bubble that’s leaving the economy increasingly vulnerable. Reaching for anything that pays decent returns, investors have been pouring money into all sorts of risky assets. Not since the heady days of 2007, when private credit was a relative backwater, have the rewards for holding riskier debt like junk bonds seemed so meager.

But it might already be too late. Because with the Fed expected to raise interest rates for the fourth time this year on Wednesday, the pressure on small and medium-sized companies, which represent the bulk of borrowers, is intensifying. And because these loans don't trade publicly and aren't priced to market, it's difficult for lenders and investors to tell where the pressure points lie.

The risks—for investors and companies alike—will likely grow as interest rates keep climbing. And they’ll be more acute for small and midsize businesses that borrowed heavily in good times.

"It has the seduction of offering the appearance of both higher returns and stability, because it doesn’t have to mark-to-market, and it doesn’t trade," Steve Vaccaro, chief executive officer of CIFC Asset Management, says of private credit. "But some companies are over-banked and over-levered and prices are likely to move substantially if there is a problem."

Others have been more blunt with their warnings. Dan Zwirn, chief executive officer at Arena Investors, a New York firm that lends to firms less able to access conventional sources, says the boom will probably end like the others: with finger-pointing and litigation.

"There will be recrimination and litigation, and cries of 'I was fooled'. 'I didn’t have the information' and 'You took advantage of me," Zwirn says. "When, in fact, the data, as with the mortgage crisis, was right in front of our faces."

If nothing else, the rise in private-lending echoes fears of the shadow-banking industry in China, which critics say has helped mask the true quantity of leverage rattling around the system.

Shadow

And while investors and shadow lenders are piling in to these risky loans, traditional banks are raising their credit standards as fears that a recession might be looming in 2020 continue to percolate, according to Reuters. 

This suggests that lenders will soon feel the sting of recession, even if losses haven't started cropping up yet and the economic fundamentals appear (relatively) strong. 

Bank executives acknowledge that the U.S. economy is probably in the final stages of a long recovery from the 2007-09 global financial crisis. But they say that until credit metrics start to deteriorate meaningfully, there is no reason to boost reserves or slash customer financing.

"There is a big disconnect at this point in time between the market technicals and what we’re really seeing on the ground," Citigroup Inc (C.N) Chief Financial Officer John Gerspach said at an industry event last week. "The fundamentals still look very good."

The notion that fundamentals look "good" isn't entirely true. But regardless, consumers and lenders will soon need to figure out whom they trust more: the economy, which appears to be in good shape (at least on the surface), or the market?

We know where Stanley Druckenmiller stands. And if more consumers and lenders follow his lead, that could create serious complications for opaque private credit markets which, thanks to an unintended side-effect of QE, is now large enough to pose a systemic risk.

Published:12/22/2018 5:11:16 PM
[Markets] David Collum's 2018 Year In Review: "The Year Everything Changed"

Authored by David B. Collum, Betty R. Miller Professor of Chemistry and Chemical Biology - Cornell University (Email: dbc6@cornell.edu, Twitter: @DavidBCollum),

“Dave: You are roundly tolerated.”

~Danielle Dimartino Booth, former Fed advisor and founder of Quill Intelligence

2018 Year In Review: "The Year Everything Changed"

The whole beast can be downloaded as a single PDF Here...

Contents

  • Introduction
  • Background: The Author
  • Sources
  • My Personal Year
  • Investing
  • The Economy
  • Valuations
  • Broken Markets
  • The FAANGs
  • Gold
  • Bitcoin: Tales from the Crypt
  • Real Estate
  • Pensions
  • Debt
  • Corporate Debt
  • Personal Debt
  • Sovereign Debt
  • Inflation versus Deflation
  • Banks
  • The Fed
  • Human Achievement
  • Nature
  • Middle East
  • Syria
  • Nerve Gas Poisoning
  • Kavanaugh versus Blasey Ford
  • Political Correctness–Adult Division
  • Political Correctness–Collegiate Division
  • Political Correctness–Youth Division
  • Conclusion
  • Acknowledgments
  • Books

Introduction

Every December, I write a Year in Review that’s first posted on Chris Martenson & Adam Taggart’s website Peak Prosperity and later at ZeroHedge. This is my tenth, although informal versions go back further. It always presents a host of challenging questions like, “Why the hell do I do this?” Is it because I am deeply conflicted for being a misogynist with sexual contempt—both products of the systemic normalization of toxic masculinity perpetuated by an oppressively patriarchal societal structure? No. That’s just crazy talk. More likely, narcissism and need for e-permanence deeply buried in my lizard brain demands surges of dopamine, the neurotransmitter that drives kings to conquer new lands, Jeff Bezos to make even more money, and Harvey Weinstein to do whatever that perv does. The readership has held up so far. Larry Summers said he “finished the first half.” Even as a fib that’s a dopamine cha-ching.

"If you think you are too small to make an impact, try spending the night in a room with a mosquito."

~African proverb

A non-pejorative justification for writing this beast is that life, with the aid of the digital world, hurls information at us so fast we cannot process it. Who could forget when Knight Capital Group launched an algorithm that sent them into bankruptcy within 45 minutes? What ever came of the Vegas shootings? Will David Hogg's 10 minutes of fame as a world-class douche be forgotten? (If not, please euthanize me.) It seems a shame to simply let these fragments of life drift into the void without trying to find an underlying meaning to the human folly. I mostly ponder broken markets and the antics of bankers looking for signs of unintelligent life. The markets have been well over the historical fair value marks for 15 years. I have been a bear long enough to earn my permabear merit badge. The always-chipper Mark Dow called me a “bunker monkey.” John Hussman referred to some of my ideas as “bloodthirsty,” although I prefer the term “ghoulish.” The odds that I understand what has already happened are vanishingly small. I don't know if markets are going up or down, only that they will move from left to right. None of what I say should be taken as investment advice; channel George Costanza and do the opposite.

“I would have written a shorter letter, but I did not have the time.”

~Blaise Pascal, French mathematician, 1656

What’s with the trite “matrix” metaphor? (I swear I will not refer to naked swimmers, rhyming history, or kicking cans.) I'm not even sure the puzzle pieces are real, fake, or as Ben Hunt calls them, “counterfeit.” It is deeper than that. I have like-minded friends sharing seemingly common interests who look at events—think Brett Kavanaugh, for example—and extract from them unrecognizably different messages because our perspectives are not similar; they are profoundly different. If you shuffle a deck of cards, the odds that the resulting order has ever before been created is zero (52! = 8 × 1067). What are the odds all of us share common websites, read the same articles or blogs, or have the same Twitter feed? Zero. It is preposterous to think that we are looking at the same world through similar lenses. The viral audio in which some hear “Yanny” and others hear “Laurel” is metaphorical.ref 4 This document is what I saw and heard described as fact-based hyperbole. It is the Year According to Dave.

“I want to thank everybody who made this day necessary.”

~Yogi Berra

Background: The Author

When reading Dave's Year In Review
You'll note one conclusion rings true
His odd observations
And strange contemplations
Have proven he's missing a screw

@TheLimerickKing

By way of introduction—despite a knowledge and understanding of economics, finance, and politics that one would expect from a lifetime of studying organic chemistry—I am 1/1,024th economist. There is absolutely no substitute for a genuine lack of preparation. I’ve managed to get cameos in the most improbable of venues including the Wall Street Journal, Russia Today (RT), the Guardian, and even Rolling Stone (but not “on the cover”). With some regularity and little forethought, I routinely manage to risk career and what's left of my tattered reputation by getting embroiled in international incidents, which included brawling publicly with the American Federation of Teachers in 2017ref 5 and locking arms with Nassim Taleb in defense of Nobel Prize winner Tim Hunt in 2015.ref 6 This year was no exception. I risked an international incident by being the only chemist in the world calling bullshit on the Sergei and Yulia Skripal Novichok poisoning story. That gets its own section.

Aristotle noted that an educated man can entertain an idea without endorsing it. I also have a penchant for entertaining any idea until it dies of SIDS or gets legs, and I have to chase it down. I am, in short, a conspiracy theorist. We all should be conspiracy theorists because men and women of wealth and power conspire. If some ideas make you uneasy, just shut up. Pejoratively denouncing the rest of us as “conspiracy theorists” is intentionally shutting down uncomfortable discussions. If you do this in the current political climate, I get to smack you to get you to agree with me. If you wish to discuss dicey topics, quit apologizing by saying, “I am not a conspiracy theorist but . . .” because you are one.

Figure 1. Jeff Macke (@JeffMacke) original. CNBC's Fast Money and chartist-artist extraordinaire.

I can't control what topics go on and off my radar; they just do it. Hardly a shot was fired this year in the War on Cash. Some issues are huge but change on geologic timescales. We're all doomed to burn in eternal hell, but I can only say that so many years in a row before it starts getting old. I got the most email complaints for not discussing the opioid crisis. I still haven't gone there, but I’m about to read Beth Macy’s Dopesick. Energy has been a hot topic and had moments of hilarity this year, but my bandwidth limitations and lack of investment exposure left me bored.

There is a tractor beam that pulls economic blogs into the political realm. I have saved more notes and links and destroyed more gray matter than I thought possible trying to understand Russian collusion, the politics of Trump and Trump haters, and criminal behavior inside the FBI and CIA. I could write a book, but I just can’t do these topics justice in this forum. I'm letting them go for now, concluding that we desperately need a wall . . . around the Beltway.

If I have offended you already—I guarantee that at least a few readers are—it’s time to stop reading. Although no puppies were killed writing this blog, trust me: I am just warming up.

Sources

I sit in front of a computer 16 hours a day gerrymandering my brain, at least three of which are dedicated to non-chemistry pursuits. I’m a huge fan of Adam Taggart and Chris Martenson (Peak Prosperity), Tony Greer (TG Macro), Doug Noland (Credit Bubble Bulletin), The Automatic Earth, Grant Williams (Real Vision and Things That Make You Go Hmmm), Raoul Pal (Real Vision), Bill Fleckenstein (Fleckenstein Capital), Mike Krieger (Liberty Blitzkrieg), Demetri Kofinas (Hidden Forces), James Grant (Grant’s Interest Rate Observer), Campus Reform, and any nonsense spewed by Twitter legend @RudyHavenstein. There are so many others, many of whom I consider friends that I am simply waiting to meet. ZeroHedge is by far my preferred consolidator of news; it’s an acquired taste and requires a filter, but I think those rogues are great. Twitter is a window to the world if managed correctly—especially for a chemist attempting to connect with the finance world. Warning: the Holy Grail of maximizing follower counts is an illusion; it produces a counterproductive hyperconnectivity that makes extracting signal from noise difficult. So much flow, so little time.

My Personal Year

My emergent role as a Roosky apologist (pronounced “Roo-ski”) brought in a wave of interviews including two each with British provocateur George Galloway, RT,ref 7,8,9 Lee Stranahan and Garland Nixon on Fault Lines,ref 10 and Scott Horton.ref 12 Other interviews focusing on economics, markets, and the absurdity we call “college” included Crush the Street,ref 11 Jason Burack (Wall St. for Main Street),ref 13 Chris Martenson (Peak Prosperity),ref 14 several with Lance Roberts,ref 15,16 and several on local radio.ref 17 Last year’s write-up on pensions was reproduced verbatim in the Solari Report on pensions.ref 18

A three-hour dinner with Jonah Goldberg. I'll remember vividly. I also played a role in coaxing one of my favorite economists, Stephen Roach, and one of my readers and friend, Tony Deden, to do RealVision interviews purely out of self-interest: I wanted to hear what they had to say. This much heralded two-part Deden interview was his first interview ever.ref 19 In return, I got to spend 10 hours sitting on my deck chatting with Tony about the meaning of everything. Y’all are now free to eat your hearts out.

On the chemistry front. Somebody recorded a chemistry lecture I gave in Portugal in which you can hear my Yankee-dog jokes bomb.ref 20 Halfway through dinner that night, I remembered that one of my three compatriots had won the Nobel Prize in chemistry six months earlier. Another was six months shy of winning this year’s prize. (Congrats, Frances) In 2017 I had two NIH grants hit the same study section. Any academic will tell you that was guaranteed to be a “Sophie’s choice” moment at best. I only needed a few stitches—I got one of them funded—and it looks like the other is coming back in the spring. (Phew!)

Investing

My investing acumen has been pretty lucky, with one notable bad streak. From 1980 to 1987, I was all long-dated bonds. Those suffering acute equityphilia may not realize that bonds were great. The ’87 dip prompted me to switch to equities, which I held until mid-1999. Here's a dark secret that I’ve never told anybody: I had tech stocks on leverage. Ding! Ding! Ding! They ring bells at the top! I woke up in time, sold everything, and held only cash, gold, and a token short position from late 1999 forward, dumping the short position during the ’02–’03 recession. From around 2003 through 2010 it was gold, cash, and energy-based equities with a pinch of tobacco. That was my best decade, relatively speaking, cranking out >10% annually compounded returns like a boss in an otherwise brutal environment. Yahtzee! Then we get to 2010 through the present, and Mr. Smarty Pants got a ’tude adjustment. Energy, gold, and cash hoisted me by my own petard and put me headfirst through a wood chipper. As explained last year, my employer booted me out of my entire (15%) energy position after the beatings. Thanks. I've been sitting on gold and cash witnessing an epic equity ’roid rage accumulating skid marks in my boxers.

Precious metals, etc.: 28%
Energy: 0%
Cash equivalent (short term): 63%
Standard equities: 9%

For me, however, investing is all about valuations. The section on “Valuations” will explain why I didn’t buy equities when they were dirt cheap—hint: they were never dirt cheap—and where I think it all goes from here. I have one overarching goal: don’t fuck up. If I hit this goal, I will retire in comfort. The one variable I have no control over, however, is time, and that is why the chronostrictesis of sitting on the sidelines for nearly a decade caused me to start cutting myself again. Let me show you a foreshadowing chart that should give you pause (Figure 2):

Figure 2. Peak-to-peak or trough-to-trough (full cycle) inflation-adjusted capital gains of 1.8–2.2% per annum since 1870.

If you negate timing—if you measure peak-to-peak or trough-to-trough—your inflation-adjusted capital gains will average about 2%. If you get caught holding your life savings in equities at the wrong time, you will not recover in your lifetime. Hold that thought until “Valuations.”

"But there is one course of action – one classic mistake – that I most strongly feel is wrong: reaching for return."

- Howard Marks, founder of Oaktree Capital

How’d I do in 2018? Large physical gold and much smaller silver investments went moderately down (–5% and –15%, respectively). Fixed income finally offered returns without a zero preceding the decimal point, but they’re still pyrrhic gains at best. My TIAA retirement account returns 3.6% per year guaranteed (unless the zombie apocalypse arrives). I am also laddering 2-year treasuries and CDs; reaching any further for yield makes sense only if you’re a diehard deflationist because the yield curve is dangerously flat. To my joy, my former energy position would have cost me another –10% loss had it not been liquidated by my employer. I will get it back when I’m ready—when the next recession is making headlines. All this compares with a –10% return on an S&P index fund.

Here is my maxim: Save to retire, and invest to combat inflation. I have prided myself on saving 20–30% of my gross salary per year, but for the first time ever (including the college tuition years!), my spending exceeded earnings. Adult children are expensive as hell, especially when the youngest spawn is trying to be a non-starving musician and starting a new venture—buying and selling violins.ref 21 (You wanna buy a violin?) You could call the money loans, but that means you’ve never loaned money to your children. Also, being married to a grandmother of three who is armed to the teeth with credit cards and digitally linked to point-and-click purchases of toys and kid’s clothing (Amazon) is quite the experience. I bought her a Jacuzzi for our deck overlooking Cayuga Lake (Figure 3) knowing that she can't order toys and clothes while while in the tub. I plunged into the antique furniture bear market after a multi-decade hiatus by buying some nice pieces at seriously low prices; those in Figure 4 are emblematic. They will be in my estate, but I’m still hoping they don’t get seriously cheaper. Did I mention the dental implant, which seems almost metaphorical? To top it all off, I got an altogether unexpected 30% hit on annual gross income, which appears to be a one-off event. I see a return to profitability in Q1 2019—the ol’ first-half recovery story.

Figure 3. Hot tub city, and I am the mayor.

Figure 4. (a) Mid-19th century tiger maple drop-leaf dining room table; (b) Circa 1770 century Boston highboy.

The Economy

"In our current framework the economy is singularly brittle."

~Larry Summers (@LHSummers), former secretary of the Treasury

“Absolute blowout number for ISM Manufacturing Index in August. 61.3 is a 14-year high. While many keep pointing to threats, this economy is Kevlar.”

~Brian Wesbury (@wesbury), chief economist, First Trust Portfolios

“I am not playing this down at all. I think we have a very serious global synchronized downturn.”

~Lakshman Achuthan (@businesscycle), Economic Cycle Research Institute (ECRI)

It is instructive to ponder the meaning of wealth creation. It’s about making our collective lives better. The U.S. built an empire founded on strong property rights, a growing populace with a gritty work ethic, a resource-rich continent with seemingly limitless room for expansion, and global European competitors hobbled by relentless tribal fighting. How many of these factors are still intact? The first industrial revolution was about converting enthalpy (heat) obtained from fossil fuels into negative entropy (order we call civilization). I keep wondering what will drive the gains over the next 100 years. We are told FAANGs are replacing the smokestack industrial juggernauts. We'll see.

Heady questions aside, how about this year? This time last year I was writing about downturns in housing and autos, and now I’m hearing about downturns in housing,ref 22 autos,ref 23 lumber,ref 24 retail,ref 25 trucking,ref 26energy,ref 27 and semiconductors (chips ’n’ dips).ref 28 Did we have a boom I missed? Yes and no. Assuming inflation corrections using “substitution” and “hedonic improvements” are accurate—I don’t—and assuming GDP corrections using these inflation numbers are accurate—I don’t—then the GDP grew a paltry 2% off the ’09 bottom, quite literally tracking the Great Depression from 1931 to 1939.ref 29 BLS employment numbers are generated by a trend-cycle statistical modelref 30 (read: making shit up). Nonetheless, even Helen Keller could’ve seen the help wanted signs on the lowest economic rung (retail). Personal consumption expenditures (PCEs) are said to be soaring relative to GDP despite stagnant wages and no personal savings.ref 31

“It doesn't take even 10 minutes’ worth of investigation to show that the BLS tightness gauge—the U-3 unemployment rate—is not worth the paper it's printed on.”

~David Stockman (@DA_Stockman), former Reagan economic advisor and former Blackstone group partner

In 2018 we somehow witnessed a couple quarters of 3–4% GDP growth. I am so dark that I wonder whether the numbers have been jiggered explicitly to provide cover for the Fed to raise rates. Even so, more balanced individuals than I wonder whether we are creating real wealth or witnessing economic activity stimulated by yet another credit bubble. Luke Gromen (FFTT, LLC) notes that the 4% GDP print was suspicious in light of a 6.5% year-over-year drop in tax receipts and a 1.8% drop in gasoline demand.ref 32 (Fuel consumption and economic activity go together like Starsky and Hutch.) Something is amiss. David Stockman says that “these goal-seeked numbers are notoriously unreliable at cyclical turning points like late 2007 and early 2018.” He also notes that S&P profits haven’t grown for over three years.ref 33 In a really engaging interview,ref 34 economist Mariana Mazzucato seems to contradict Stockman, noting that “this is the sharpest post-recession rise in reported EPS in history.” She goes on to say that the “sharp increase in earnings did not come from revenue.” Stephen Roach, former executive director at Morgan Stanley asks, "Are the fundamentals really that sound? For a U.S. economy that has a razor-thin cushion of saving, nothing could be further from the truth."ref 35 He notes the anemic personal savings rate of 2.4%—the lowest in a dozen years and one-fourth of the historical norm—cannot support a strong economy. The scholarly market historian and market maven Lacy Hunt calls the economy “very weak.” Let us not forget the obvious: The views are always the best from the summit.

Today’s economic boom is driven not by any great burst of innovation or growth in productivity. . . . The global economy is now awash in debt.”

~Steven Pearlstein, Washington Post

“If it’s debt financed, you cannot increase GDP. You can only increase components of GDP.”

~Lacy Hunt, economist

The main problem is that growth, whether tepid or strong, was driven largely by a doubling of global debt over the decade,ref 36 which I am tempted to call 7% annualized inflation. The debt-to-GDP ratio in the third world—called “emerging markets” on Wall Street and “shitholes” inside the Oval Office—created a mania of mergers and share buybacks while the real economy sputtered. Debt is consumption pulled forward. The bill for that hamburger you eat today is coming due on Tuesday, Wimpy.

Pre-pubescent Paul Volcker: "Why can't we have a boat like those people?"

Momma Volcker: "They have mortgages; we don't."

Figure 5. Popular plot asserting that federal debt is losing its stimulatory effect.

The real story of the 2018 economy appears to be that it was juiced by several large, one-time stimuli. Hurricane repairs holding over from the 2017 carnage lifted GDP while creating no additional net wealth.ref 37 (One could argue trashing the old and replacing with new brings minor benefits.) The 14% Trump tax cuts and massive one-time tax repatriation of overseas earnings—one time since the last one in 2004ref 38—is said to have contributed significantly to the economy. The bulk was preordained to go to share buybacks despite blathering by corporate chieftains. Even so, that is said to represent a new slug of coin pulsing through the economy somewhere—but maybe not. That money wasn’t just parked in a vault in Zurich; it was in the multinational banking system already juicing economies worldwide.

“For now, we estimate that the U.S. economy has peaked—the powerful expansionary cocktail of unfinanced tax cuts, repatriation of capital, and fiscal spending ramped up growth in the U.S., but these one-off effects will peter out as the year ends.”

~Steen Jakobsen (@Steen_Jacobsen), chief economist and CIO at Saxo Bank

Meanwhile, corporate debt grew way faster than GDP.ref 39 Of course, some debt for pump ’n’ dump schemes (share buybacks) was offset by cash waiting for repatriation, but debt is the lifeblood of a leveraged system (Ponzi finance), and it grew. The IMF suggests that the benefits of the one-time boluses should wear off soon, leaving a 2.5% growth rate by 2019.ref 40 (I'm looking for contraction, but that's just me.) Before moving to the last one-off stimulus, let me add that these routine overseas tax repatriations rot the system by giving advantage to slow-growing multinationals while providing no benefit to rapidly growing smaller companies. Look at it this way: If you can make money overseas and then get a tax jubilee every decade or so to “make America great,” where will you build your plants? Where will wily corporate bean counters declare all their earnings? Of course, the share buybacks don’t stimulate the economy at all because these monetary ’roids never left the system, so they can’t return to it. Shares and money just change hands. The real point is that since taxpayers will have to fill the void left by the tax jubilee, then what we just witnessed were taxpayer-funded corporate share buybacks.

The third one-time bolus for the economy this year was the looming trade war with China. Scrrrrratch! Come again? Are you nuts? Stay with me here as I digressively peel back a few layers of this onion. First, some claim that there has been a trade war on slow burn for decades and that the U.S. is finally starting to fight back. Obama fired the first shot with a tariff on rolled steel in 2014ref 41 to garner union support while, according to Roach (personal communication), it merely shifted business to higher cost producers. Trump then took the tariff debate to 11 on the dial. (He had been talking about doing this years before the election.)ref 42 One can squeal that this is a tariffying repeat of the Smoot–Hawley tariffs. The Smoot–Hawley Tariff Act was a political football for Roosevelt during the 1928 election, causing the putative damage from the bugger-thy-neighbor tariffs to be overplayed in the history books. The tariffs also conveniently take the blame off central bankers for creating a ginormous credit bubble in the '20s as promulgated by the 500+ economists on the Fed’s payroll. Hoover’s failure to get authority to change the tariffs without Congressional approval may have left a destructive rigidity—an unresponsiveness—in the Smoot–Hawley Act (see "Books"). Through the auspices of the “United States Fair and Reciprocal Tariff Act"—yes, the U.S. FART Act—Trump requested the same authority.ref 43 Somehow giving the Donald discretionary power to do anything important makes people nervous. He is rumored to be a little volatile.

Do you have a point here, Onion Boy? Sure, but drop the ’tude, ya punk. Tariffs were GDP positive in 2018 as industry scrambled to make hay while the pre-tariff sun was still shining. The Atlanta Fed claimed that up to 60% of U.S. economic growth stemmed directly or indirectly from industry front-running the tariffs by stockpiling and accelerating exports.ref 44 Of course, billions of dollars of subsidies are already budgeted to offset the negative effects on farmers with presumably more to come.ref 45 The savvy reader will notice that the consumer will pay more for imported goods and higher taxes for the subsidies—a one-two punch to the groin. In the short run, the tariffs generated a little wiggle in the economy this year and may even be a powerful bargaining chip to get concessions during a period of Chinese vulnerability, but they will be a problem if they linger.

“What does it say about productivity when the retail sector reportedly hires 50k in the same month when sales dip 0.1%. Or maybe the payroll number was completely bogus.”

~David “Rosie” Rosenberg (@EconguyRosie), chief economist and strategist at Gluskin Sheff

We hear how employment is tightref 46—said by Alan Greenspan to be the tightest labor market ever—while 100 million working-age Americans are not working and while inflation-adjusted wages have been stagnant since the 1980s. The law of supply and demand says there’s something wrong with this picture. Indeed, we have a system in which 100 million are incented not to work even if jobs are aplenty. The other problem is that rising wages (oh thank the Lord. Finally!) will create what economists call “negative externalities” or, as the rest of us say, “shit happens.” What comes next is predictable. First, the wage pressures will cut into corporate profits—real wage growth conflicts with bubble-level corporate profit margins—driving equity valuations skyward or equity prices earthward. Second, the rising wages will be labeled “inflation,” which will cause the bean counters to correct for it declaring, “inflation-adjusted wages are stagnant.” Third, the Fed will get their thongs in knots and slay the inflation dragon by stepping on the economy. Just as consumers are trying to pull themselves up from the precipice, our Fed overlords will be stepping on their fingers.

“We have abolished the idea of failure—nature’s cleansing mechanism. As a consequence, we’ve lost real economic vitality. We’ve substituted finance for industry as the locomotive of economic growth. In GDP terms, it looks terrific. But it is neither enduring nor real.”

~Tony Deden, founder of Edelweiss Holdings

That’s a great segue into a chat about wealth inequality, a topic that is causing even the gazillionaires living in modern-era Versailles palaces to get nervous. I submit that a healthy economy naturally distributes wealth with a Machiavellian fairness. As you grow an economy that is firmly founded on wealth creation—making and moving goods and services—it is not a zero-sum game; all boats rise, albeit to different levels. (It will never be fair; get over it.) The natural tension between the cost of labor and the cost of labor-saving technology is dealt with by the supply–demand curve. When you have to redistribute wealth at a wholesale level to keep the mobs from charging the Bastille, however, something got out of whack. As you financialize the economy—as the GDP becomes a measure of how much money is being moved around or what economists call “rent seeking”—it is a reverse Robin Hood wealth distribution. The rich accumulate wealth at the expense of the poor because nobody is actually creating wealth. It becomes a zero-sum game with winners and losers. Rockefeller, Carnegie, and Vanderbilt got fabulously wealthy building an empire. I remain unconvinced that Zuckerberg, Bezos, and What’s His Name at Apple will be able to make such claims. David Tepper, Ray Dalio, Stevie Cohen, and Warren Buffett create none of the Wealth of Nations. They are wealth aggregators, much to the joy of their adherents.

“The greatest economic recovery the top 0.1% has ever seen.”

~@RudyHavenstein, legend

One more point. Economic models assume dislocated workers will just move, but they don’t. The impacts of “rolling industry recessions” is to leave workers behind and instill social instability owing to epidemic levels of cognitive dysphoria slathered with some serious hysteresis (lingering negative externalities!). The gutting of the middle class is setting up to be emblematic of the gutting of the American empire. What role did the Fed play? Their fake-it-till-you-make-it monetary policies financialized the economy. What do you think?

Valuations

“We’re probably only 10 years into another 50-year bull-market cycle.”

~Andy Sieg, head of Merrill Lynch Wealth Management

Jeepers. How long was Andy floating in the harbor when they found him? I recall sitting in a room with friends when the Nasdaq had just crept over 5,000 for the first time and proclaiming it would be back to triple digits. They laughed. I missed by <200 points. Benjamin Graham, the most legendary investor of the twentieth century and mentor of Warren Buffett, lost 70% in the ’29–’33 bear market. Failing to exit the highway before hitting the traffic jam taught him about risk. Every year I talk about valuations, but I will lay it out in detail so that, in the end, I can sleep knowing that you’ve been warned.

Let’s first illustrate the consequences of buying at secular highs. Many analyses show how long it has taken those fully invested at tops to break even. Of course, you must inflation-adjust to even approximate capital gains and losses. I have taken a slightly different tack by asking how long it takes to go from a secular high to that same value for the last time (Figure 6).

Figure 6: Inflation-adjusted S&P capital gains. Blue arrows show time required to return to the peak valuation for the last time (hopefully).

“So imagine valuations never see their norms, or 2009 levels again, and this cycle completes at 2002 levels—the highest level of valuations ever seen at a cycle low. That would still be more than enough to wipe out every bit of S&P 500 total return above T-bills since 2000.”

~John Hussman (@hussmanjp), Hussman Funds

The blue arrows illustrate four instances in which investors caught holding equities at the peaks paid profoundly. In each case, the big dip is followed by a recovery—the break-even point—followed by an extension of the rally that eventually fails. As though pulled by a tractor beam, the price revisits the original peak for the third and final time. Those arrows representing zero capital gains—treading water during the biblical flooding before finding terra firma from which to launch new gains—are 40–75 years! Let me repeat: on four separate occasions over the last 140 years, investors obtained zero inflation-adjusted capital gains for periods spanning half to three quarters of a century. The entire gains during those periods came from dividends eroded by a host of taxes and fees (see below). You will, however, get participation trophies too.

Don’t be deceived by analyses in which you start investing at the peak and invest throughout the ebbs and flows. These are calming words valid for millennials and Gen Zers. If you are a boomer with >80% of your lifetime savings already banked, however, there is little cost averaging in your future. Full return analyses in which dividends are included are less scary (Figure 7) but almost never account for the massive erosional costs discussed below.

Figure 7. Inflation-adjusted total return with dividend reinvestment by Mike Lebowitz uncorrected for fees and taxes.

“First law of finance: In the long run, returns must revert to the average.”

~Jason Zweig (@jasonzweigwsj), columnist at the Wall Street Journal, in 1997

You can keep your support lines and technical indicators. You can keep your crash fears too; they are rare technical events. All I care about are valuations. It has been said that "record-high equity valuations don't mean poor returns are imminent, only inevitable." The big risk is buying poor assets during good times. Although 2007–09 was painful, the 2007 market wasn’t even an equity bubble but rather a real estate and credit bubble caused by the Fed keeping rates too low for too long. The Mullahs of Macro's response to the collapse was to keep rates way lower for way longer. Paradoxically, it seems both moronic and, for now, effective, but is it? Or are we in another bubble? Before answering these questions, let’s take a quick peek at what one can expect out of equities ignoring valuations.

“Anyone who says stocks are guaranteed to outperform bonds or cash is an ignoramus.”

~Benjamin Graham, mentor of Warren Buffett and author of The Intelligent Investor

Last year, I obsessed over why stocks persistently return several percent more than U.S. treasuries and concluded it must be the awesome power of the State—rules forcing government debt into portfolios of compliant victims. My back-of-the-envelope calculations suggested that equities would sustainably provide 4–5% inflation-adjusted returns—not 7–8%—over many cycles spanning many decades. Headline-grabbing nominal returns must be corrected for fees, taxes on real and inflated gains, disasters (full-cycle, not partial-cycle, analysis), survivorship bias within indices, and demographics (1.4% growth in pie sharers). With that bug still buzzing, the Baader–Meinhof phenomenonref 47—the tendency to notice things only after the initial awakening—ushered in some new confirmation bias.

A stupendous paper by retired economist Edward McQuarrie shows how claims of 6.6% inflation-adjusted returns over the long term—100–200 years—are profoundly deceptive because they hide nasty periods of many decades in which returns are disastrous.ref 48 McQuarrie does not account for taxes, fees, and demographics, all of which will conspire to bring that 6.6% much lower; others have attempted such corrections.ref 49 Mark Spitznagle takes 2% more off reported headline indices because of highly “non-ergodic” compounding.ref 50 In an article from 1999, Marty Zweig noted that “funds charge annual expenses of 1 percent or so; then it costs them another 1.5 percent to 2 percent to buy and sell their stocks each year.”ref 51 I assumed 1% total. He also said the oft-stated 9–11% compounded returns is “guano” and that small caps sustainably beating large caps is “a crock.” Rob Arnott, eight-time Graham and Dodd Award winner managing over $200 billion and said by Howard Marks to be “one of the real thinkers in our field,” calculates a sustainable 3.1% annual inflation-, tax-, and fee-adjusted return.ref 52 Graham-Buffett-Zweig, in the latest Intelligent Investor (see “Books”), put the long-term gains at 4% before taxes and fees. It would appear, therefore, that folks claiming much higher returns have carried out incomplete analyses or are serving up the surf ’n’ turf combo platter (fishy analysis slathered with bullshit).

“I love equities, I'm not a weirdo, and I don’t live in a bomb shelter. But in a very real sense, the compounding of stock returns over long periods is a fraud. It really is. No one has ever gotten those returns.”

~Ted Aronson, January 1999, Aronson and Partners

You may have noticed that none of these analyses assume corrections for valuations. Changes in valuations can offer up an additional +4% compounded gains above the norm, providing a tailwind pushing investors up the Wall of Worry to the valuation summit during a secular bull market. Shrinking valuations can hit investors with  gale-force –4% compounded losses, representing a headwind as investors take the express elevator to the gates of hell pistol whipping themselves the whole way during the secular bear market. Thus, valuations matter a lot. According to Buffett's iconic 1999 must-read article,ref 53 multi-decade periods of collapsing valuations correlate with secular rises in interest rates, whereas the coveted valuation expansions are fueled by secular drops in interest rates. Thus, interest rates matter a lot too. Once rates have plumbed the lows or highs, you are at a turning point. Market extremes occur when it becomes “too expensive in the short-term to play the long-term.” Cliff Asness seems to contest this model by noting that falling rates do not justify high valuations,ref 54 but he notes that “to pay higher prices as a result of lower interest rates to avoid a very painful outcome requires that interest rates remain low indefinitely.” I infer that Asness and Buffett agree.

“Exponentially rapidly rising or falling markets usually go farther than you think, but they do not correct by going sideways.”

~Bob Farrell, former Merrill Lynch legend

Let's ponder what some of the contenders for the Wall Street Fat Bear Championship have to say. Many focus on the awkward evidence suggesting the ’roid rage of ’09–present was largely a growth in valuations and profit margins. The market über-bears all use essentially the same assumptions: (1) normal growth in GDP and no catastrophic events (no world wars), (2) regression to the mean, a force of nature, will do its thing while largely ignoring the inevitable regression of valuations through the mean, and (3) investors will hold for 7 or 10 years. They include corrections for inflation, but none include corrections for taxes and fees. Note that using longer durations (up to 20 years) allows assumed 3% GDP growth to cosmetically mask the bad optics of negative compounding while investors consume 50% of the approximately 40-year investing life expectancy.

  • Rob Arnott's estimated +3.1% return does not include valuation changes. Regression from current valuation to historic norms predicts –3% compounded losses over a decade.ref 55

  • Jeremy Grantham sees a precipitous drop of –48% or, if spread over 7 years with standard GDP growth, a drop of –5% compounded losses over the next 7 years (a 30% correction with positive GDP growth overlaid).ref 56 His most sanitized version points to small positive annualized returns over the next 20 years.

  • John Hussman sees a –57% loss in the Nasdaq, which is somewhat less than his expected losses in the S&P 500 (–64%), Russell 2000 (-68%), and Dow (–69%) over this cycle.ref 57 He also sees dead people.

  • Robert Shiller cautions that he is not predicting major calamity for the market but rather a much lower level of returns, in the 2.6% annual range over the next 10 years.ref 58 But this estimate appears uncorrected for anything except mean-regressing valuations. Any correction would be “probably not as bad as 1929, but it could be disruptive."

  • Goldman’s “bear market indicator” suggests –3% per annum prospective total returns for 5 years, placing it in the optimistic camp.ref 59

  • Mike Lebowitz of 720Global projects a drag of –7% per annum on capital gains over the next 10 years, leaving GDP growth and dividends to mitigate the damage.ref 60

“According to the Buffett yardstick, stocks are currently priced to deliver an annualized return of –3% over the next decade including dividends. Compare this to the 3% yield on the 10-year Treasury note and you’re looking at a –6% differential.”

~Jesse Felder (@jessefelder), former hedge fund manager and author of The Felder Report

“I expect the S&P 500 to lose approximately two-thirds of its value over the completion of this market cycle.”

~John Hussman

There are a gazillion valuation metrics. On the optimistic end you have peak idiocy and fibbing when price-to-earnings (P/E) ratios are quoted using non-GAAP forward earnings. Since markets are forward looking, why not five-year forward earnings? Why not ten? These are just Wall Streeters and corporate chieftains looking for bonuses. Let’s look at the ones that make the bears so fearful. What you’ll notice is that all metrics are normalized by dividing something (usually price) by something else (a metric of value) to give you a number that, unless you have good reason to think otherwise, should flop around some historic mean without trending up or down. Many will show that the last time we touched the historic mean was in ’09, and it stayed marginally below it for about 15 minutes. The last time we emerged from a protracted stay below the historic mean—we should reside below the mean half the time if my sixth grade math hasn’t failed me—was many years earlier (the early 90s). Bear in mind the latest edition of The Intelligent Investor confirmed that stocks were still overvalued after the 2000–2003 bear market, suggesting they had more correcting to do. As we shall see, the 2009 low was, by historical standards, near the historical mean, and the run from ’09 to ’18 was largely about elevating valuations. Regression through the means will take you into the dark mind of John Hussman. As I bang through some graphical measures of valuation, don’t lose sight of the fact that a 2× overvaluation requires a 50% correction to the mean and a 100% gain to recover. A 75% correction requires a 300% rally to recover. If you keep this arithmetic straight, it starts to get a bit ugly.

“The price of the market is 'highly dubious' right now . . . the next recession will be frightening.”

~Paul Tudor Jones, former hedge fund legend

The most deceptive and quite viral plot of the year (below) makes it look like you should never sell. Stocks almost always go up and a lot more than down. This little artifact derives from the non-linearity of the downside—100% down means you’re broke and need infinite returns to get even. The more conventional subsequent plot shows problems, but the normalization to the mean is obscured just like McQuarrie discusses (see above).

“We are at the top of the valuation range by any measure except for interest rates.”

~Stan Druckenmiller, former chairman and president of Duquesne Capital, compounding 30% returns over 34 years

The Shiller P/E with 10-year smoothing of earnings and analogous Crestmont P/E show >2× overvaluation relative to historic norms. Some say these will get tame looking as ’08–’09 earnings roll off the back end. Others did the mathref 61 and say the effect will be marginal because 10 years is a decent sample size. . . .

“If the Fed keeps on tightening, or if inflation breaks out and bondholders take fright, this latest and perhaps greatest of bubbles will also come to burst.”

~Edward Chancellor, author of Devil Take the Hindmostref 62

Doug Short’s composite valuation metric is parked at >100% overvaluation...

“It is a source of some concern that asset valuations are so high.”

~Janet Yellen, former chair of the FOMC, as the door is hitting her in the ass

Tobin’s Q, essentially a measure of price-to-book value, is approximately 2× the mean, sitting at a level commensurate with only the highest peaks and exceeded only by the 2000 bubble. The market cap-to-GDP (Buffett) indicator for the Wilshire 5000 is in the 99th percentile and sets a new world record. . . .

“Equities are currently more overpriced on dependable valuation measures, such as total market value to GDP and on a replacement cost basis (Tobin’s Q), than at any time save for the 2000 dot-com bubble. American corporations have also been borrowing like there is no tomorrow.”

~Edward Chancellor

Price-to-revenues and price-to-sales reached all-time highs. . . .

“A 40% crash looks justifiable . . . effectively a retracement to prior technical support levels, the S&P 500 highs of 2007 and 2000."

~Scott Minerd (@ScottMinerd), CIO at Guggenheim Partners

Price-to-PEG and price-to-EBITDA (earnings with all bad stuff excluded) have exceeded the 2000 high-water marks. . . .

“Equity exposure today on U.S. personal balance sheets has only been exceeded once before and that was in the late-1990s tech craze. I just don’t get it. But if you’re still long U.S. equities, please have a different reason than this drivel about this being a hated and under-owned asset class.”

~David “Rosie” Rosenberg

Corporate profit margins are soaring and said to be notoriously mean regressing. Hussman’s valuation model is a profit-margin-adjusted CAPE. Crudely speaking, if mean reversion occurs for both the profit margins and the CAPE, we are looking at a >60% correction. . . .

“Every market cycle in history has taken the most reliable valuation measures we identify (those best correlated with actual subsequent S&P 500 market returns) to less than half of current levels.”

~John Hussman

The number of stocks trading above 10× revenues for both the S&P and the Russell 2000 are at extremes. These are the same levels that Sun Microsystem CEO, Scott McNealy, was prompted to say about his investors, "What were they thinking?”

“The biggest market disasters happen when both leverage and securitization get mixed up with the same clever scheme.”

~Ben Hunt (@EpsilonTheory), former hedge fund manager and founder of Epsilon Theory

Price-to-corporate profits-GDP ratio (analogous to Hussman) suggests that Hussman is an optimist. The ratio of financial assets to real assets indicates a pronounced financialization of the indices. . . .

“The S&P 500 is trading at about a 93% premium to the long-run median. Falling to median therefore involves a 48% fall.”

~Jeremy Grantham, founder of Grantham, Mayo, van Otterloo & Co. (GMO) asset managers

Household equity ownership versus disposable personal income seems like good news until it mean reverts. Hours of work needed to purchase the S&P is also extreme. . . .

“Assuming you have the requisite capital and nerve, the big and relatively easy money in investing is made when prices are low, pessimism is widespread, and investors are fleeing from risk . . . this is not such a time.”

~Howard Marks, Oaktree Capital Management

Financial sector assets as a percent of GDP and margin debt versus GDP illustrate the financialization of the economy and the role of margin debt to achieve it. . . .

“There are two bubbles. We have a stock market bubble and a bond market bubble. At the end of the day, the bond bubble will be the big issue.”

~Alan Greenspan, former chair of the FOMC, January 2018

Some of these graphics come from the Big Brokerages who make tons of money marketing stocks and pension accounts. Figure 8 shows a table that nicely summarizes valuation metrics. They look awfully tame—so much so that you should just keep buying the dips.

Figure 8. Sanford Bernstein’s valuation models.

“And although I read recently that bull markets don’t die of old age or collapse of their own weight, I think sometimes they do.”

~Howard Marks

David Rosenberg estimates that >13 million worker bees have entered the finance industry since the ’09 bottom.ref 63 They have never actually been through a “bear market cycle. The boomers have; the next will be their third. They could get pretty skittish. For now, they are all-in for the ride.

Bloomberg’s Alix Steel: “Is there a magic-hedge that would help you if you owned the S&P 500?”

Mark Spitznagel: “Own less of it.”

On the off chance there are young ’uns reading this, I have altogether different advice. Save your asses off. Pick an asset allocation that smells right: I would think 60:40 or even 70:30 equities-to-fixed income sounds good. Allocate at that level. At the end of each year, don’t try to rebalance your portfolio immediately: Selling winners and buying losers is psychologically too hard. Simply change your allocation to bring it back to your set proportion. If bonds outperform, allocate to stocks. Make allocation changes once a year. The boomers’ risks are not your risks.

“The lapse of time during which a given event has not happened is . . . alleged as a reason why the event should never happen, even when the lapse of time is precisely the added condition which makes the event imminent.”

~George Eliot in Silas Marner

Broken Markets

JP Morgan’s top quant warns next crisis to have flash crashes and social unrest not seen in 50 years

~Headline, CNBC

“Stocks could surge 19% this year because investors are the right kind of cautious.”

~Bank of America Merrill Lynch

“When reward is at its pinnacle, risk is near at hand.”

~John Bogle, Vanguard and creator of index funds

“We are in the throes of a burgeoning financial bubble. If I had a choice between holding a U.S. Treasury bond or a hot burning coal in my hand, I would choose the coal.”

~Paul Tudor Jones, founder of Tudor Investment Management

Central banks dumped $20 trillion of backstop into the markets over the last decade; what do you expect to happen? I honestly can’t say because nothing like this has ever happened before. Unlike the mortgage crisis, which many of us saw coming from years back, I don't know anybody who knows anybody who saw this level of central bank intervention—the Bernanke Put—adopted by every central bank. It is instructive to simply look at what did happen.

“The recent divergence in the performance of U.S. equities versus the rest of the world is unprecedented in history. . . . This has never happened before . . . this is a market condition that will not persist.”

~Marko Kolanovic, JPM

Not even King Canute will be able to hold back the next bear when it’s time. Somebody calls in a bomb scare, panic starts, cashless (cushionless) exchange-traded funds (ETFs) sell immediately, and leveraged speculators are right behind. The markets are narrowing, with many domestic equities and most global markets considerably off their highs. As I am typing, tremors are undeniable. When they start shooting the generals—selling the increasingly rare market leaders—which they did in the early spring and again starting in September, it’s time to get nervous. We are also in a rate-hiking cycle, and history shows that the Fed will continue pulling on that trigger until they blow somebody’s head off.

@StockCats: How do they get these trendlines so perfect?
@RampCapitalLLC: Because we all draw the same ones.

Frothy Markets. The markets have been riding bareback—condom-free—for a decade now, and bull markets do die of old age—platitudes and an interesting and oddly Bayesian analysis by Larry Summers aside.ref 64 We went a decade off the ’09 lows without a single 20% correction. How could investors not buy into the euphoria? The fact that this run has been supported by an annualized 2% GDP growth doesn’t matter when shares are rising. Hedge funds shorting and snorting trying to time the top—good luck with that one—keep getting squeezed (like in May). When legends like David Einhorn lose for several years in a row and massively this year (–28% year to date), what is the message? Are these former geniuses now garden-variety idiots for doubting one of the greatest runs in history? They should have watched this hilarious and must-see commercial for “Hindsight Capital.”ref 65

“The market is cyclical, and given the extreme anomaly, reversion to the mean should happen sooner rather than later; we just can’t say when.”

~David Einhorn, founder of Greenlight Capital

“It has been one giant short-squeeze market.”

~Jim Chanos (@WallStCynic), Kynikos Associates (short seller)

The euphoria creates the fear of missing out (FOMO), causing a wave of articles explaining what a dumbass you are for not jumping on board. History shows the big gamblers during the bull—the twenty-somethings—get hurt the most at the inevitable conclusion, but these guys have never read the dusty archives so cannot fathom the chapter about to be written about them. Some random top-calling headlines:

"Stock Market Bears Are the Dumbest Thing on Wall Street"

~TheStreet.com

"Value’s for chumps as market puts momentum ETFs into overdrive"

~Bloomberg

"Are you missing out on the great market melt-up?"

~Bloomberg

"The stock market never goes down anymore"

~Bloomberg

"Market trends: bull run could last 20 years, optimists say"

~USA Today

"Stop freaking out about the Dow"

~@CNBC

What about all those corporate profits? Only the old guys remember the 1960s when 71% of IPOs paid a dividend. (Those senile old coots probably don’t either.) Some profits reported this year may be legit, albeit floated on huge mean-regressing profit margins and from tech companies that tend to have higher profit margins (for now, at least.) Margins are also riding the wave of cheap capital and stagnant wages. Regression of margins to historic means could stem from rising rates (check) and wage inflation (check). The huge profit repatriations from offshore are also blurring our beer goggles.

“We have intentionally constructed Berkshire in a manner that will allow it to comfortably withstand economic discontinuities, including such extremes as extended market closures.”

~Warren Buffett, 2017 annual report

What is stalling this day of reckoning besides recency bias observed at all market tops? Passive investing keeps a wall of money bidding up—not flowing into—markets. (Money doesn't “flow,” contrary to what 99% of pundits say.) The Swiss National Bank keeps putting bids under shares with freshly printed Swiss francs, which is insanely anathema to the concept of free markets.ref 66 The numbers don’t seem that large, but share prices are determined at the margins and every little bid helps. The storyline behind this particular bull run—central banks and their gargantuan interventions have our backs covered in perpetuity—is the most pathetic and insane bubble narrative in history, but it is now deeply ingrained in the market’s psyche. The late-cycle tax cuts and repatriations from abroad have probably stalled Armageddon (although to argue this money was sitting dormant, not influencing asset prices, is putty-headed). At the end of November, Jerome Powell blinked. The Powell Put was born when our new Fed chair kowtowed to nervous markets (or Trump).

“Interest rates are already doing damage; people just haven’t noticed. Leverage in the U.S. is grotesque for this stage of the cycle. At the moment, you’ve got peak leverage at peak prices. It’s not like you have to dig deep to find a problem.”

~Andrew Lapthorne, head quant at Société Générale (SocGen)

Buybacks. Share buybacks are hailed as a tax-friendly way to return profits to investors. They broke records this year and were often used to goose share prices the way announced stock splits did in the late 90s. Some say that the share buybacks are hoarding capital from the economy.ref 67 In defense of buybacks, Cliff Asness cogently notes that this argument is nuts.ref 68 It’s not like the money was sitting dormant. However, the claims that repatriation of overseas profits this year would boost the economy by facilitating construction of factories and jobs in the US are equally nuts. They already had access to capital and weren’t doing that. Some would like to get those repatriated profits as worker compensation. Indeed, that, too, was already possible and not happening. You won’t be getting ponies for Christmas either.

“Market sell-off is about 80 percent over and will be reversed by share buybacks.”

~JPM analyst, October 17, 2018

Buybacks are like stock splits: What they giveth in share reduction, they taketh back in shrunken balance sheets. Efficient markets would recognize the trade-off. The companies are merely pair-trading their diversified investment portfolio for their own shares. This is not irrational, but it certainly depends on which is a better value. They may be making the mistake that employees make by keeping their 401Ks bloated with shares of their employers. Robert Shiller recently called share buybacks “smoke and mirrors.” There is even a legislative push to ban them again. (They were legalized in 1982.)ref 69

Here are my gripes about the buybacks.

  • The huge tax breaks that facilitated buybacks mean that taxpayers—whether present or future—funded the share buybacks.

  • The notion that buybacks “return profits to investors” is a ruse. It’s not like you can reinvest them in better opportunities like beer, hookers, and shares of Netflix.

  • The executives are conflicted; they win if share buybacks support option prices and lose if money escapes their containment field as dividends.

  • Comparing share counts before and after the buybacks often show a shocking lack of share count reductions because they are being used to offset options issuance to executives. That’s not exactly returning capital to investors.ref 70

  • Share buybacks maximize at market tops (Figure 9), suggesting that the conflict is causing the buybacks to be dumb money (buying high). Oracle, for example, spent $15 billion buying back shares at $18 per share that they had allocated as options at $3 per share. Steve Eisman says Oracle will be issuing equity in 2019 (sell low).ref 71 In 2017, Deutsch Bank authorized buybacks and is now insolvent.

“Do these idiots ever do buybacks during the panic bottoms, when it actually makes more sense? Of course not.”

~Mr. Skin, anonymous market kingpin posting at Fleckenstein Capital

Figure 9. Share buybacks.

And here is the Big Unknown. Even if all share buybacks used only real cash flow and actually reduced share counts, the gains in price owing to share count reduction should be predictable with recourse to 5th-grade math: they should be zero. Yeah. That's right: zero. It is impossible, however, to know what effects a perpetual bid under corporate shares will have on price, particularly given non-linear amplifications in market-cap-weighted ETFs. When a truck driver in Peoria pays one cent more for a share of Apple than the previous bid, the market cap just rose $50 million. Price is determined at the margins. Years ago, Kodak jumped $2 on a 200-share trade—the last trade of the day—prompting the SEC to pretend to care. What is Apple’s buyback program doing? You cannot say, but it is surely price positive and could be massively so.

“Whenever we have forced selling to take place, the buyers disappear and the sellers have to sell no matter what. And corporate buybacks are not going to be enough.”

~Matt Maley, Miller Tabak & Co.

How about that wave of debt-based buybacks—not the debt that was incurred waiting for the Great Repatriation, but real debt (leverage)? Analysts at SocGen showed that all net debt issuance in the twenty-first century has been used to pay for stock buybacks.ref 72 That’s just fraud—a covert leveraged buyout by the creditor. But, as Jesse Felder notes, “When you have captive buyers [passive investors] who are entirely price insensitive, there is really nothing to stop you from leveraging your balance sheet.” How do I wrestle with the fact that Warren Buffett says he might buy back shares? As I’ve said on many occasions, watch what he does; The Orifice of Omaha is a hoser of a higher order.

“The fact that something is able to be sold legally, or the fact that there’s a market for it, can be very different from the fact that it can always be sold at a price that’s intrinsically fair or close to the last price at which it sold.”

~Howard Marks

“The S&P 500 is the only major market to have defied gravity, lifted by the financialization of America’s economy, whereby artificially cheap interest rates fueled stock buybacks, and desperate pensions turbocharged a leveraged private equity boom. With the Fed now reversing course, will we not have a chance to buy stocks materially cheaper?"

~Kevin PetersCIO of One River Asset Management

Let’s look at some of the silly, idiosyncratic events that happen when investors lose their minds:

  • As noted below (see “Bitcoin”), companies doubled their market caps by adding blockchain to their name or issuing a cryptocurrency.ref 73

  • An 18-year-old launched a hedge fund from his bedroom in suburban New Jersey.ref 74

  • Equities ran 300+% off the lows while the GDP tracked the Great Depression, compounding at 2% per year.

  • Value investing strategies have performed in the bottom 1 percentile since 1990.ref 75

  • The S&P ran 14 months in a row without a monthly loss.ref 76

  • Boeing rose 250% in two years.

  • Blue Apron IPOed at $10 a little over a year ago; it’s now at $1.23 and nobody has been indicted.

  • Tilray, a cannabis company reporting $28 million in sales, doubled in value in three trading days and rose tenfold in 2 months to a market cap of $20 billion before cutting in half.ref 77 As Scott McNealy would say, “What were they smoking?”

  • Solid Biosciences has no revenues and disclosed that one of its clinical trials was put on hold before its IPO in January.ref 78 The company sported a $1 billion market cap.

  • Domino’s Pizza added 35% to a 20-fold, 10-year run aided by a debt-funded buyback program.ref 79

  • Yulong Eco-Materials, a tiny Chinese manufacturer of eco-friendly building products, rallied 950% in one day after the company acquired a gemstone for $50 million.ref 80 The company claims the 17.9 kilogram Millennium Sapphire is worth up to $500 million, although the price suggests it’s worth . . . $50 million.

  • World Wrestling Entertainment (WWE) tripled in the first 9 months of 2018, sporting a trailing P/E of >100.ref 81

  • 60% of corporate debt issued by companies in the Russell 2000 is rated as “junk.”ref 82

  • GM pays its investors a dividend yield of 4.1% with a negative cash flow.ref 83

  • Uber has never turned a profit, but it’s about to go public at $120 billion.ref 84

Nike. Let’s take a peek at Nike. What’s not to like? It’s chart is totally parabolic, rising 20-fold in as many years. It got there, in part, aided by massive share buybacks. It’s sitting at a lofty trailing P/E of 100 on increased competition and faltering sales; regress that to 20 and you get an 80% loss. That would sting. Its edgy ads—Colin Kaepernick in particular—got elevated to meme status and prompted one sheriff to make all perps where Nike shirts for their mug shots.ref 85 Most disturbing, Nike is part of the “footwear index”—yes, there is a footwear index —which has risen >1300% in <20 years (Figure 10). Did we just discover the merits of shoes in the third millennium? Of course, after the company pioneered the Air Mercury line (Figure 11), the share price never looked back.

Figure 10. Shoe index.

Figure 11. A 2000-year-old Nike Air Mercury dug out of a Roman excavation.

“The market value of Elon Musk’s firm overtook BMW’s even though the profitable Bavarian luxury carmaker produced 30 times as many cars last year as the loss-making Tesla. . . . With so much dumb money about, one of Silicon Valley’s new mantras is ‘spray and pray’.”

~Edward Chancellor

Tesla. The newest entry to the automotive industry has a market cap larger than Honda’s and is headed by Elon Musk, the modern era’s Leonardo da Vinci or Thomas Edison. Why not jump on this can’t-fail opportunity? Again, there are niggling little details. Tesla’s shares took off in 2013 when the company announced the Model S. Musk is burning cash in the billions, except for the most recent and highly suspect quarter when earnings appeared just as new funding was needed (Figure 12).ref 86 Tesla began hemorrhaging senior executives right before the suspect earnings report.ref 87 The cash burn prompted Tesla to ask suppliers to give back some of their money,ref 88 rendering customer security deposits a little less secure. Tesla is supposedly making state-of-the-art cars in the desert in what are tents,ref 89 affording them an analyst-pleasing high sales-to-tent ratio. (I hasten to add that P. T. Barnum made some serious coin in tents.) Tesla had a fire at one of its factories.ref 90 What? No flame retardant on the tents? The Tesla Model 3 had a first-pass yield—the percent of cars requiring no additional work—of 14% during the last week of June compared with an industry norm of 80%. The tent-constructed cars, after making it through a rigorous inspection, began to spontaneously lose bumpers,ref 91 lock owners out of their cars,ref 92 and, on bad days, blow up.ref 93 Tesla owners are rumored to be fabricating unavailable parts to fix their own cars.ref 94 Note to Elon: hire those guys. Musk seems to have cut a few corners, like terminating “brake tests.”ref 95 The company also forgot to tell investors that the DEA (not the SEC) was investigating alleged meth and cocaine sales running through its Nevada Gigafactory.ref 96

“Tesla is the perfect metaphor for where the U.S. economy is at: a company stuffed with debt plus government subsidies, unable to deliver the wished-for miracle product—affordable electric cars—whirling around the drain into bankruptcy."

~James Kunstler, Kunstlercast

Figure 12. Cash burn.

Musk showed evidence of brain cell burn along the way, causing some to suspect that he was popping too much Ambien, downing too many mushroom pizzas, or going heavy on the poppy seed bagels at the Nevada Gigafactory. Before-and-after videosref 97 make the new-era Musk look more like Dave Chappelle's homeless character with the white stash. He started harassing analysts on conference calls for their “boring, boneheaded questions” about, oh, useless crap like “inventories.”ref 98 Harassment of the shorts included forcing an insider posting as “Montana Skeptic” (Lawrence Fosse) to shut down his Twitter feed by complaining to Fosse’s bosses.ref 99 Elon sent one of his detractors, David Einhorn, a pair of “shorts” to mock him. Late night (early morning) Tweets include gems like jokes about being bankrupt and insolvent,ref 100 which prompted fast response from the SEC (just kidding). He routinely taunted the SEC’s inability to reign him in.ref 101

“Musk is at it again. He’s doubling down on his pedophile comment.”

~James Chanos, Kynikos Associates

“You don't think it’s strange he hasn’t sued me?"

~Elon Musk tweet, prompting a lawsuit for the “pedophile” comment

“Despite intense efforts to raise money, including a last-ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt. So bankrupt, you can't believe it.”

~Elon Musk tweet

“When you’re massive negative free cash flow, your 7-year bonds are trading $86 bid, and you need debt capital markets financing . . . you don’t joke about bankruptcy.”

~David Tamberrino, Goldman Sachs, on his “sell” recommendation

The fateful moment came when Musk announced that he was considering taking Tesla private at $420 per share, well above the asking price, causing a gargantuan wad of money to change hands in the short squeeze:

“I think the Thomas Edison of our age has come off the rails. ‘Funding secured’ means he has the money lined up, or he’s guilty of market manipulation.”

~Scott Galloway, author of The Four

“Funding secured” reached meme status, and the SEC did wake up this time. Elon and Tesla scrambled to find somebody to pretend like they were the ones tendering the offer (to no avail), eventually settling with the SEC for a $20 million fine and the requisite temporary demotion of Musk from CEO to CBW (Chief Bottle Washer).ref 102Of course, that triggered another massive short squeeze,ref 103 yet again hurting those betting against Musk. Charlie Gasparino says Tesla could be bracing for “billions of dollars in potential liability from private lawsuits," from both market longs, shorts, and, of course, cave-dwelling pedophiles. The street hasn’t yet figured out how to price Tesla’s shares (Figure 13). I think Tesla will eventually be auctioned off for parts on the courthouse steps. Of course, all this chaos has had a huge deleterious effect on its current share price (Figure 14).

“He claimed there is a specific source of funding, so that better be true. He also claimed that there is a specific amount available for funding, so that has to be true; otherwise even if it’s not manipulation it would be fraud.”

~Harvey Pitt, former SEC chairman

Figure 13. Chick fight over a few decimal points.

Figure 14. Tesla share price.

The VIX. I obsessed about the VIX—the so-called “volatility index”—last year.ref 104 It was important as both a reflection of and a cause of market frothiness. You could short the VIX at will—a one-decision trade—and make a lot of money, they said. Everybody extolled the virtues of shorting the VIX—“selling vol”—using vehicles like the XIV (clever anagram) or SVXY. There was historical precedence: Folks at LTCM loved shorting vol.ref 105

“References to exceptionally high ‘risk-adjusted returns’ leave me wondering: How do you adjust for risk on the vol trade?”

David Collum, YIR 2017

“Should I kill myself?”

~Online investor after losing $4 million on XIV

“People say congratulations, you called the short-vol trade. No, nothing has happened yet. This is just the appetizer for the unwind that is about to come. I think this is what people should be really afraid of . . . it will be quite disorderly and ugly.”

~Chris Cole, getting credit for calling the vol implosion

There were an estimated $2 trillion vol shorts last year. Seemed like that game had to end, but when? On February 5th, 45 minutes after the markets closed on a 15% one-day loss, the VIX short trade collapsed (Figure 15). We are not talking “crushed” or a “crash ’n’ burn.” It went to zero in fifteen minutes. Credit Suisse “terminated” the XIV trading vehicle.ref 106 TradeStation clients were sent an email terminating “futures trading” and told that margin accounts were “subject to immediate liquidation.”ref 107 Nomura shut its trading down.ref 108A number of funds blew up.ref 109 The speculation was that trading firms would collapse, but that did not materialize. Chris Cole had described in lurid detail how the VIX and $2 trillion of implicit and explicit vol bets could blow up about a week before it blew up.ref 110

Figure 15. Collapse of the XIV, a VIX short ETF.

Who lost? Various pensions proved to be the vol sellers, including University of Hawaii and the Illinois pension funds.ref 111 Harvard got out in time. Are they lucky, connected, or just “wicked smaht”? Who won? That’s harder to say because not all wish to take credit. A small hedge fund made 8,600% on a wildly improbable bet the XIV would go to zero.ref 112 Discussions of serious market manipulations surfaced,ref 113 suggesting that VIX shorts got spread over the five boroughs like Fredo. And when the dust settled, there was Goldman, sitting like the fat bastard at Donner Pass, chewing a toothpick with a $200 million profit.ref 114 Goldman had predicted the problem, almost like they knew something. Oddly enough, soon after vol shorters became full-time gene pool cleaners, the SVXY vol shorting vehicle was resurrected and is attracting a new batch of suckers who can't resist touching the stove too.

End of Cycle. The free market has caught up to a few hooligans. After 100 years, the iconic Sears is now a carcass being picked over by its creditors. Far more shocking, General Electric, the dominant industrial super power is –80% off its 2016 high and –88% off its 2000 all-time high (requiring an 700% gain to return), hitting levels not seen since 1994. It has been removed from the Dow and replaced with Walgreens,ref 115 which is sitting at its all-time high with the same market cap as GE. For those keeping score, GE bought back its own shares all the way down, which probably explains why its pension fund is the third largest holder of GE shares.ref 116 The $170 billion dollars of GE debt (depends on how you count) could be one of GE's toaster ovens being tossed into the pool and may be what spooked Powell into backing away from an overtly hawkish stance—"the birth of the Powell Putref 117" (which, as of December 19th, is said to have died).

“General Electric is the most admired company for the sixth time in the past decade.”

~Forbes, 2006

For the most part, the markets have made conservative investors—what we call Cassandras, Chicken Littles, Grumpy Old Men, and Nouveau impoverished—look like fools. Has the top reared its ugly head this year with the entertainment just beginning? If not, when?

JPM's Kolanovic says that the next meltdown in stock prices could cause the next financial crisis and has coined the name "Great Liquidity Crisis" to describe the phenomenon. Charles Hugh Smith suggests that 10 years of reckless behavior will “unleash a non-linear avalanche of reversions to the mean and rapid unwinding of extremes.” I think he's saying it will be fast. Rates are rising, the cycle that was never fundamentally impressive (or even sound) in the first place is getting very long in the tooth, markets seem awfully jumpy, and the algo bus fueled by unprecedentedly easy monetary policy that drove us to the summit may have no brakes for the trip down.

“The bulls don’t seem to acknowledge the artificial nature of this bull market in risk assets in general—no other cycle had such interference from central bank incursions and support by their balance sheet expansion. . . . The tax cuts have helped buy the bulls a little bit of time, but history shows that monetary policy is far more powerful and exerts its influence with lags that are typically long, variable, and insidious.”

~David “Rosie” Rosenberg

They say that nobody rings a bell at the top or bottom, but some would argue that is untrue. If you believe that valuations are ridiculous, the journey could be fast and hair-raising. Please do not blame hiking rates for a rout. The Fed laid the ground work over decades. And, by the way, if you think that you can hide from a washout by staying in the lower deciles of valuation, dream on. Hussman showed that the pain will be severe in all 10 valuation deciles.ref 118 When valuations plumb the lows, half the equities will be valued even lower. How about emerging markets? They seem cheap. Yes, but they will get cheaper. On the bright side, maybe I’m just wrong.

“The complex world financial system has so detached itself from underlying economic reality that it simply cannot continue without a catastrophic discontinuity.”

~Tony Deden

FAANGs

“When wireless is perfectly applied the whole earth will be a huge brain. We shall be able to communicate with one another instantly, irrespective of distance.”

~Nikola Tesla, 1926

One couldn't possibly miss the influence of the five FAANGs—Facebook, Apple, Amazon, Netflix, and Google—on collective global equity markets and, in turn, the perceived Wealth of Nations. The lowest interest rates since the Pharaohs walked the earth juiced world equity markets with hot money drawn to inflating assets. Non-linear gains owing to market-cap-dependent passive investing put the FAANGs on a tear (Figure 16). The euphoria has been palpable; the Bank of Montreal launched a triple-levered FANG ETF.ref 119 (Ding! Ding! Ding!) While the S&P rallied >200% off the 2009 lows, the FAANGs put up >600% gains, giving them a market cap greater than the UK’s FTSE index. At one point, Amazon alone accounted for >30% of the S&P 500’s gains for the year while putting 70% on its market cap in 165 trading days.ref 120 Market pundits breathlessly watched Apple and Amazon race to be the first company to reach a trillion-dollar market cap (willfully blind to PetroChina, which reached that high-water mark in ’07).ref 12 Somebody was bidding them up like they were signed copies of the Bible. A photo finish gave the win to Apple on September 2nd followed by Amazon two days later.ref 122 Am I the only one who finds this too coincidental? Does it seem odd that September 4th was also the high-water mark for Amazon?

Figure 16. FAANG index as of mid-2018.

Meanwhile, everything is not perfect in cyberspace. Insiders were locking in profits with record share sales.ref 123I also question whether these five companies are equipped to drive economies of the twenty-first century. Can the FAANGs create wealth like Standard Oil, General Motors, U.S. Steel, and General Electric did in the twentieth century? Will the FAANGs create wealth tangible enough to provide the needs of pensioners, feed millions, and sustain the American Empire? Most have valuation and balance sheet issues that certainly would leave value investors wondering if their IQ tests came back negative.

“If the DOJ had not moved in on Microsoft in the late 90s and warned them to stop killing small firms such as Netscape in the crib, we would not have Google, we would have Bing.”

~Scott Galloway

Meanwhile, all but Netflix are facing political and regulatory pressures that could prove catastrophic. The selective censoring of social media users based on political biases is now epidemic proportions and undeniable. Twitter's algorithms are so dumb that they censored their own CEO, Jack Dorsey (@jack) briefly.ref 124 I suspect that it won’t be long before First Amendment cases against Facebook, Google, or Twitter will be taken to the Supreme Court.ref 125

“I think that this certain situation is so dire and has become so large that probably some well-crafted regulation is necessary.”

~Tim Cook, Apple CEO, on the Facebook scandals

“God only knows what it’s doing to our children’s brains.”

~Sean Parker, former president of Facebook on the influence of Facebookref 126

Facebook. Here we have a trailing P/E in the 20s and no debt, making Facebook seem reasonable. My own concern is that it has a trendiness like a teenage clothing chain. Scandals with Cambridge Analytica have given it a serious black eye,ref 127–129 starting an anti-Facebook movement endorsed by Jan Koum, billionaire founder of WhatsApp, when he announced, “It is time to #deletefacebook.”ref 130 Half of millennials are said to have removed the Facebook app from their phones.ref 131 Whether Facebook dropped the millennials' phones from Facebook's apps is an altogether different question. Its usage has been cut in half from its peak owing to censoring, mounting evidence that it is Deep-State personified, and its triggering of dopamine responses like crack cocaine.

Mark Zuckerberg is being drawn and quartered by those who want to be protected from fake news—news that is not in somebody’s political interest—and those who abhor censorship as a crackdown on free speech. Zuckerberg himself—that True Blood “Suckerberg” look—and his antics creepier than a Boston Dynamics robot. Facebook is now positioning to manage data for the healthcareref 132 and banking industries.ref 133 If either is allowed, the term Orwellian will elevate to new levels. On the bright side, the Zuckerberg presidential run has returned to the netherworld from whence it came. Facebook looks like a long-term sell to me.

“Mark doesn’t care about publishers but is giving me a lot of leeway and concessions to make these changes. We will help you revitalize journalism . . . in a few years the reverse looks like I’ll be holding hands with your dying business like in a hospice.”

~Campbell Brown, head of news partnerships at Facebook

“They don't need to identify suckers anymore; Facebook does it for them.”

~Analyst on Facebook’s program to assist fake product ads

Amazon. Of the five FAANGs, this is the 500-pound gorilla. Amazon has essentially no earnings (P/E > 200) and operating margins below 2%, but its business model appears to be (a) pay no taxes, and (b) buy or destroy allcompetitors.ref 134 Once brick-and-mortar competitors have taken the caravan to the light, don’t be surprised if Amazon brings back brick-and-mortar under new management.

Figure 17. Amazon revenue versus profit.

“I can’t explain the valuation of big tech companies. . . . [T]o justify the multiple that Amazon trades at today, the company would have to be worth 25% of the US economy five years from now.”

~Sam Zell, commercial real estate god

Some would call Sam’s quote a prediction, not a valuation warning. Amazon’s risk is regulatory and antitrust also. It is priced as a monopoly. Should sovereign states (possibly in Europe) decide Amazon is too ruthless and try to break it up, the company will be hobbled for years.ref 135 Amazon would become profitless pieces (and some profitable pieces) that do not enjoy monopolistic power. Who decides it is a monopoly? Some politically motivated judge looking over his shoulder at an angry mob that’s given up fighting Walmart and Occupying Wall Street.

“There is nothing conservative about big corporations; they are the backbone of the left.”

~Tucker Carlson, journalist

Amazon’s image got bruised by its deal with the U.S. Postal Service for shipping rates that put the USPS in the red.ref 136 Arguments are being made that government subsidies such as food stamps to underpaid employees in general (and Amazon’s employees in particular) are really just government subsidies to defer Amazon’s salary costs.ref 137 In an effort to mitigate a backlash about poor treatment of employees, Amazon offered raises and then, rather inexplicably, announced they would be paid for by removing bonuses.ref 138 Amazon hastily reintroduced a new cash bonus of $1,500–$3,000 for employment milestones of 5, 10, 15, and 20 years. If all 500,000 employees hit all benchmarks, it will cost Amazon a couple billion dollars in total. If higher pay starts shrinking that 2% profit margin, Bezos will automate even more. Of course, an employee may be at risk of being laid off in years 4, 9, 14, and 19.

We went full oligopoly when a triumvirate of three profound monopolists—Berkshire Hathaway, Amazon, and JPMorgan Chase—proposed to partner up to convert the healthcare system into “an independent company that is free from profit-making incentives and constraints.”ref 139 No offense, but if you buy that “free” part you’re an imbecile. The Nation didn’t and took them to task.ref 140 The article also did a nice job of beating Buffett with the ugly stick, which I have tried to do a few times myself.ref 141 Amazon is also deeply embroiled in the privacy battles, as their hot new product, Alexa, records conversations within your home and sends the key data to advertisers.ref 142 A camera that follows you around the houseref 143 is being called “the Eye of Sauron.”

Amazon announced two new corporate headquarters, one in Long Island City.ref 144 Whether the deal cut by Cuomo sold NY state’s souls to the devil remains to be determined. The placement right next to Cornell’s new tech campus gets my selfish juices flowing.

Apple. I love Apple products but am getting closer to bailing on them. Scott Galloway, author of The Four, says Apple is successfully branding itself as an elite product line like Cartier. Maybe so but only those who bought Apple shares at the bottom can afford the 20–25% price hikes.ref 145 Paying $1,000 for a phone, $1,500 for a basic MacBook Air, and $2,000 for a MacBook Pro or iMac seems egregious. The $400 Apple watch—the Cartier of the digital world—is competing with the $25 watch that I get at Target. Apple’s revenue growth rate has slowed to an average of less than 4% annually over the past 3 years.ref 146 Jesse Felder notes that Apple’s stock trades at its highest ever price-to-free cash flow ratio while the company’s 5-year average revenue growth is the lowest in its history.ref

“So excited for the Apple Watch. For centuries, we’ve checked the time by looking at our phones. Having it on your wrist? Genius.”

~Ellen DeGeneres, talk show host

At least the company hasn’t saturated the marketplace with innovative new products. Bill Fleckenstein reminds us the iPhone 6, the latest product to dazzle the world, just had its sixth birthday! They grow up so fast. Tech analyst Fred Hickey calls Apple’s new iPhone rollout “disastrous”. Price cuts in Japan after only a month and collapsing sales in China are ominous. Buybacks are said to be keeping the shares afloat—or were until the swoon of >20% and moving faster than I can type. Apple is selling fewer phones than a few years back,ref 147which is reflected in inventory numbers. What is the company’s response to drooping iPhone sales numbers? Stop reporting sales numbers!ref 148 Seems like those 20–25% price hikes on all products are working their magic on demand. Maybe Apple’s cloud presence will save it, but the cloud also offers arbitrage opportunities (narrowing profit margins). Apple seems like a money-printing machine now, but the law of large sizes alone puts it at risk of, at best, going nowhere. In a wonderful video, Steve Jobs explains how once you have a monopoly, new products don’t help you, only better marketing. Soon, marketing people are running the company and what made it great is gone.ref 149 Indeed, what made it great is gone. They miss you, Steve.

Netflix. A trailing P/E of >200, a price-to-revenue ratio of 10, a high cash burn rate for its new content,ref 150 a commitment of another $18 billion for more new content (some parked off balance sheet) earning the moniker “Debtflix (Figure 18),”ref 151 and a share price that reached 70% above its 200-day moving average put Netflix at risk. Disney is pulling its content from Netflix in 2019.ref 152 A Netflix spokesperson noted, “we expect to be free-cash-flow negative for several more years (Figure 18)."ref 153 Fixed income investors had auto-callable debt with a huge 20% yield, but the notes were recalled, leaving investors with a net loss owing to 2.7% in fees.ref 154 Well, the bankers did OK. Future debt issuance could get dicey.

Figure 18. Netflix cash flow and debt.

“Google and others are suppressing voices of Conservatives and hiding information and news that is good. They are controlling what we can & cannot see. This is a very serious situation-will be addressed!”

~Donald J. Trump, President of the United States

Google. The share price of Google is up a tame 600% from the ’08 lows. With control of 90% of the search market, further penetration will have to come from other sources. Scott Galloway sees antitrust activity ramping up, although it seems to me like a weaker case than the one against Amazon.ref 155 Google is accused of biasing search results toward advertisers that pay more, which may pose an optics problem but is also how capitalism works. Leaked emails showed that Google helped Hillary with biased search results,ref 156 although not enough apparently. Its participation in deep-state filtering including ham-fisted if not downright abusive attacks on right-wing YouTube sites could lead to fines (a sarcastic BFD) or antitrust activity (a real BFD). Strong ties with the NSA are consistent with the widely held belief that all social media companies offer back doors to the Deep State.ref 157 (If you are confused as to why I keep referring to the Deep State pejoratively, you've got some catching up to do.)ref 158 To get dominance in China, Google appears to be signing off on a platform that allows totalitarian-state-level censorship (code-named Dragonfly).ref 159 Squeals from within the Google employee echo chamber urged Google to drop its military-funded drone program. As a compromise, it dropped its 17-year-old guiding catch phrase, “Don't Be Evil,”ref 160 replacing it with “Be Evil.” A $5 billion fine was a wrist slap.ref 161 Tangible constraints on them may be less benign.

Brand blemishing from firing James Damore last year got another smudge when a post-election video showed the high command at Google self-righteously spewing political views as truths and nothing but the truths.ref 162The former head of public relations says that Google suffers from serious truth issues.ref 163

“Give us a hundred years and us billionaires will show what wealth disparity looks like.”

~Sean Parker, former president of Facebook

As I type, the markets are having their way with the FAANGs—a “FAANG bang.” Maybe it’s just more jiggles en route to $2 trillion market caps for all...or maybe not.

Gold

“You very rarely, if ever, hear a serious discussion of the role of gold in the system going forward. I don’t see any appetite within that community to revisit that issue.”

~William White, formerly at the Bank for International Settlements

“The major gold-producing nations are tired of an international gold price that is determined in a synthetic trading environment having little to do with the physical gold market.”

~Sergey Shvetsov, deputy governor of the Bank of Russia

“If gold is a relic of history, why do central banks and the IMF still hold over $1T of gold? If it’s meaningless, why is everybody still holding it?”

~Alan Greenspan, May 2018

Gold has been boring for years, lurking in what a friend calls “the Collum range . . . oh, about $1,200." (Figure 19). It will be tested during the next downturn and consequent stimulus effort, but until then I’ve largely stopped reading articles about why gold will tank or soar. If it hedged against monetary idiocy, I would be living on my own Island in the Caribbean. Occasionally, however, I stumble across a nugget. Gold dropped linearly from April to August (Figure 20). Maybe that's normal or maybe Bernie Madoff whistleblower Harry Markopolos is right: Linearity in finance is fraud. (A 21-day linear drop in silver was even more awesome.) Hedge funds went net short,ref 164 suggesting correlation if not causation, possibly fueling the brief dip below $1,200. Evidence of horseplay appeared in the form of 260,000 futures contracts—$34 billion notional value—monkey-hammering gold in 4 hours in June.ref 165 Nobody even blinks at these anymore, especially not the regulators. Of course, a couple of gold-rigging charges were made—one guy even admitted that it had been happening at the industrial scale for years—but they were disposable traders and got acquitted anyway.ref 166 Canada’s Scotiabank will pay $800,000 to settle charges of “spoofing” (fake bidding).ref 167 Wow. $800,000. HSBC has been caught four times rigging the price of gold, promising four times to never do it again.ref 168 For those interested in buying allocated gold, the Texas Bullion Exchange has opened its vaults.ref 169 You get the convenience of a debit card while still enjoying the projectile-vomit-inducing price fluctuations of gold. There are others such as the Tocqueville Bullion Reserve.ref 170

Figure 18. Ten-year gold price.

Figure 19. Linear drops in gold.

“You can feel the dejection among hard core gold owners. They’re finally starting to ask themselves why there don't seem to be any kind of market conditions in which gold *works* as an investment or hedge.”

~Mark Dow (@mark_dow), hedge fund manager and gold bear

The debate about the future of gold in the global monetary system rages on among the 10 people who care. Craig Hemke (TF Metals Report) was early to notice an apparent pegging of the yuan to gold (Figure 20).ref 171Could be true or just goldbug pareidolia; regardless, it seemed to end this fall. Canada sold every last ounce of sovereign gold by 2016,ref 172 putting their holdings below those at the Bank of Dave. China, Russia, Poland, Hungary, Pakistan, Egypt, and Mongolia kept accruing the Bar-B-Qued relic.ref 173 Hungary cranked its inventories 10-fold with an affiliated repatriation from foreign vaults.ref 174 Turkey decided its gold was safer at the Istanbul Exchange than in JPM's vaults in New York.ref 175 Rumors that Russia and China have outlined plans to create a 100% gold-backed currency system to replace the U.S. dollar as the world’s dominant currency are wild speculation and provocative (Figure 21).ref 176 They certainly trust gold more than the dollar-denominated global banking cartel.

Figure 20. Yuan-gold peg and gold in U.S. dollars.

Figure 21. Russian and Chinese gold acquisition.

You really can’t put a value on gold (or eat it), but there are technical indicators suggestive of future price movements. The so-called speculators—the dumb money, whatever that means—went net short for the first time since the 2001 bottom, while the banks—the smart money (?)—went net long for the first time in history. We are parked at an all-time high of >500 claims against each ounce of gold at the COMEX vaults,ref 177 which could leave some wondering who Madoff with their gold.

“In recent years, bullion inventories have fallen materially, and last summer Charlie and I concluded that a higher price would be needed to establish equilibrium between supply and demand.”

~Warren Buffett, on silver, 1997

“We have a very similar situation in gold . . . it appears that a higher price is needed to establish equilibrium between supply and demand. . . . This won’t matter till it matters. Whenever it does, it will likely be too late to do anything about it.”

~Jesse Felder

For the gold-is-real-money crowd, the market value of all above-ground gold as a percentage of U.S. financial assets currently stands at 3.4%, which is well below the historic peaks of approximately 16% and not too far from the historic lows of approximately 2%.ref 178 In the spirit of bear markets die of boredom, Vanguard Gold Fund dropped “gold” from its name at the 2001 bottom and dropped the fund altogether this year.

In the world of human interest that even non-goldbugs can appreciate, the Rooskies dropped 3 tons of gold all over the runway when taking off at the Yakutsk Airport.ref 179 “Risk” players know that nothing good happens in Yakutsk. An amphora containing hundreds of fifth-century gold coins was found in excavations in Italy, while a Spanish galleon containing an estimated $17 billion in gold may have been located.ref 180

"Gold could be in a prolonged tailspin."

~Barron’s headline

Silver got pummeled a bit but, fortunately, nobody owns any (except me). The industrial demand keeps my relatively small position intact. Solar now consumes about 10% of annual silver production,ref 181 and silver is found in non-recoverable form in every electronic device. The gold–silver ratio has soared from 16:1 by weight in the ground to 80:1 by price in the market.ref 182 The notion that it should somehow price in proportion to supply is hotly debated, although the consumption of silver but not gold would logically give silver the relative boost in my opinion. JPM is said to control over 50% of the COMEX silver inventories—new-era Bunker Hunts or simply their clients’ silver.ref 183 For now, I watch with bemusement.

“The question as to whether the Fed can engineer yet another cycle (as it was able to in 2009) or whether the coming crash will be the end of the Supercycle will determine whether gold (and the miners) go up a lot or whether they rise to a terrifying degree.”

~Daniel Oliver, founder and managing director of Myrmikan Capital

Bitcoin: Tales from the Crypt

“Don’t put any money into bitcoin that you can’t afford to lose. But I don’t think we should ban it—the green bills in your pocket don’t have an intrinsic value, either.”

~Sheila Bair, former chair of the U.S. Federal Deposit Insurance Corporation

“Cryptocurrencies do not fulfill any of the three purposes of money. They are neither a good means of payment, nor a good unit of account, nor are they suitable as a store of value. They fail dramatically on each of these counts.”

~Agustín Carstens, general manager of the Bank for International Settlements

In the battle of gold versus cryptos—the Bugs versus the Crypts—I am in the bug camp, but I am sympathetic and respectful of the cryptophiles. Against the current monetary regime, the enemy of my enemy is my friend.

”Millennials are afraid stocks are too risky, so they’re investing in bitcoin.”

~MarketWatch

The strongest case I can make for cryptos is karmic: I don’t own any. It’s still the Wild West, but that’s not to say this sector can’t make doubters look like boobs going forward. Some speculate that the loss in volatility—the onset of boredom—will be their demise, but I completely disagree. If they are to become currencies, they mustcalm the hell down. That plateau in the $6K zone in Figure 22, therefore, seemed “highly constructive”—until the bottom fell out. Shaking youthful day traders from the “space” is also constructive. Start with George . . .

Figure 22. Bitcoin price.

From Figure 22 we see that the cryptocurrencies got pegged this year as investors spit the bit. The trip from sublime to supine did not take long. After bitcoin was driven above $20,000 in late December 2017 (on its trek to $1,000,000, of course) it has now pulled back to about $3,200, which I believe is below the estimated $8,000 to mining it.ref 184 (It is said that crypto mining uses more energy per year than Ireland does.ref 185) The founder of the cryptocurrency called Ripple became richer than Zuckerbergref 186 before a little market inefficiency got cleaned up by handing Ripple a 90% drop in two days.ref 187 (Now if only we could get some market efficiency on FAANGs.)

Dogecoin, invented as a spoof four years ago,ref 188 hit a market cap of $2 billion in January, eventually pulling back 90%.ref 189 It seems indisputable that the vast majority of cryptos will find strong technical support at zero. KuCoin, with a market cap of <$50,000, can’t be long for this world. Obviously the beatings took some of the piss and vinegar from Cryptomania, but The Big Three—Bitcoin (BTC), Ethereum (ETH), and XRP—retain a combined market cap of $80 billion at the time of this writing, and there are more than 2,000 cryptos listed at CoinMarketCap.com.ref 190 Since its inception, the crypto space has taken beatings that would make Whitey Bulger blush (or die), yet they have shown remarkable anti-fragility.

“If authorities do not act preemptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability. . . . Accordingly, authorities are edging closer and closer to clamping down to contain the risks related to cryptocurrencies. . . . Cryptocurrencies are, in a nutshell, a bubble, a Ponzi scheme, and an environmental disaster.”

~Agustín Carstens, BIS

There are, however, some serious problems that pose existential risks. The authorities—every developed sovereign state and central bank in the world—have oligopolies on creating money and taxing money flows. If they can’t assimilate the Crypto Collective into the Borg Collective, they will try to destroy it. Crypto "hodlers" (hang on for dear lifers) stand defiantly (Figure 23), but it would scare the bejesus out of me. My Texas Hold ’em all-in bet would be on the awesome power of the State.

Figure 23. Tommy Lee lowering his expectations, predicting a 250% rally in Bitcoin in the last two months of 2018.

The State will try to tame Bitcoin before just crushing the crypto bastards garishly. Given that ignoring the cryptos wasn’t working, we witnessed subtle efforts to mainstream them. First, the banks had to stop the use of credit card purchases of cryptos for obvious reasons: the crypto collapse would (and did) cause people to default on their credit cards.ref 191 Banks then began introducing new crypto products—crypto futures, brownies, and vapes. This set the stage for the Commodity Futures Trading Commission (CFTC) to ride into Dodge City to get control.ref 192 During the routs this year, there were some huge buyers stepping in to provide what appeared to be J.P. Morgan-esque support. We’re talking $500 million purchases.ref 193 However, a federal judge ruled that cryptocurrencies are "commodities”ref 194 and, unlike all other markets on the planet where manipulation runs unchecked, the authorities promised to mete out some jail sentences. The SEC is “probing investment advisers for potential misconduct involving cryptocurrencies, signaling a new direction in its oversight of this emerging market.”ref 195 Ominously, Google announced a ban on all crypto and initial coin offering (ICO) advertising. This is the power of the State using Google as a stalking horse. (I capitalize state to get you to say, "Oooooh" and shake with fear.)

The IRS declared the gazillions of crypto transactions are merely gazillions of taxable events creating gazillions of miles of red tape and gazillions of new criminals, tipping risk–reward calculations decidedly toward risk.ref 196Can you imagine if every time you bought a product with dollars it became a line item on your tax return? (Of course not: the dollar purchasing power monotonically drops.) How about all those cool toys, houses, and Lamborghinis bought with liquidated Bitcoins? They've got the goods and huge capital gains tax bills.ref 197Could be worse, as Saxo Bank has pointed out: Some particularly resilient consumers purchased the toys on credit, comforted by the cushion of Bitcoins priced at $2,000 apiece.ref 198 They’ve now got the toys, debts, and crypto cushions that are more like donuts.

Claims that hackers from Russia were interfering in the crypto markets means the crypto space is a national security concern.ref 199 The NSA is now tracking the cryptos—they always were, silly—which means the whole privacy thingie is hooey.ref 200 (Hooey is Russian slang for horseshit.) It is also the rallying cry for more State intervention.

What would a mania be without human folly, self-inflicted wounds, and some serious humor? North American Bitcoin Conference organizers in Miami stopped accepting bitcoin payments for conference tickets owing to network fees and congestion.ref 201 A long position in bitcoin futures in Hong Kong’s OKEx crypto exchange processed a $416 million trade.ref 202 The exchange was “unable to cover the trader’s shortfall as Bitcoin’s price slumped.” Rob Arnott says bitcoin futures are 10–20× leveraged,ref 203 which accounts for the big moves both ways. CNBC had a guest whose firm offered a 100× leveraged bitcoin product.ref 204 I’m guessing they are now untraceable in the blockchain (like Lawnmower Man). A company called Proof of Weak Hands Coin, referring to themselves as “a Ponzi scheme” on Twitter complete with a pyramid avatar, raised $800,000.ref 205 Hackers promptly drained its funds. Another Ponzi scheme was so bad that the Russians shut it down, but it has resurfaced and is thriving in the Heart of Darkness (Africa).ref 206 A video promo for BitConnect was produced Gangnam style—some serious sleaze on display.ref 207 BitConnect turned out to be a Ponzi scheme and, unlike the other Ponzi schemes offered by Wall Street, actually collapsed.ref 208 There is no BitConnect without Bitcon. The miracle of creative destruction is on full display as Uber scooped up the influx of new drivers.

Legitimate (albeit pathetic) companies added “blockchain” to their names, causing their market caps to soar.ref 209 Eastman Kodak announced a crypto coin, causing shares to take off in flash. “Long Island Iced Tea” became “Long Island Blockchain." Smith Corona changed its name to Smith Coinola and did an ICO. (OK, I made that one up.) After a brief spike, the Kool-Aid swillers gave it all back, of course.ref 210 There are, however, emerging legitimate uses of blockchain. The LegalFling app, for example, records consensual sex agreements (blockchain keys to the chastity belts).ref 211 As Jim Rickards said, “Have fun, kids.” Here's some funny satire.ref 212

Real Estate

“There is a tsunami of supply comin’ down the road. If someone on this panel can tell me where the demand is gonna come from to meet that supply, then we got something to talk about.”

~Sam Zell

Seems like a truism to me that as rates drop, real estate prices will rise—and vice versa. It’s not shocking that big real estate bubbles occurred in the 1920s and 2000s during periods of loosening policies. And, of course, rates being too damned low for too damned long should goose prices too damned high, but I don’t sense that buyers and lenders have completely lost their minds this time. With mortgage rates at a 7-year high and rising (Figure 24), we will soon find out.

Figure 24. Thirty-year mortgage rates.

Some think we will have another crippling real estate bust. My canaries in the coal mine are the single-family rentals. As Joe and Jane Six-pack drove away from the burbs in ’09 watching their former abode shrink in the rearview mirror, the rest of you witnessed the absurdity of rising home prices in the face of falling occupancy (Figure 25). Nobody slipped you acid. The private equity guys jumped in to buy the houses at steep discounts and then drove the prices higher.ref 213 Mind you, single-family rentals are a terrible business that works only when the paper-thin capitalization rates (profit margins) are amplified by leverage—cheap money—relying on low interest rates. The obvious risks are, of course, rising interest rates. That risk didn’t stop Cerberus from increasing its portfolio with a $500 million expansion of FirstKey Homes.ref 214 I suspect, however, that the boom (and Cerberus) may die as rising interest rates and commensurate falling cap rates cause the private equity guys to decide the game is over and start liquidating their large shadow inventory to flood the real estate market. For now, however, we are witnessing more froth than fragility. For those interested, that image in Figure 25 in which two normally correlated prices diverge is called “alligator jaws.” There are a lot of 2018 charts from all over the financial universe that look like that. Alligator jaws are known to slam shut without much warning. It is not a subtle metaphor.

Figure 25. Home ownership rate versus price.

The enthusiasm for housing did get a bit manic, with a third of U.S. homebuyers (or should I say buyers of U.S. homes) bidding sight unseen.ref 215 A five-story Manhattan townhouse sold for a new record of $37.2 million—quadruple what the buyers had paid in 2012.ref 216 Credit unions are once again offering 0% down for mortgages up to $2.5 million.ref 217 I saw a show this morning describing how a divorced couple who had a house-flipping show during the last bubble have gotten past their hatred and contempt to restart the show. (Ding! Ding! Ding!) Real estate analyst Mark Hanson lays out city-by-city plots showing serious froth (Figure 26). These numbers are not inflation corrected.ref 218

Figure 26. Mark Hanson analysis.

Despite surveys showing a willingness of the majority of California residents to at least consider leaving the state,ref 219 the California housing market is on fire! (OK, that was tasteless.) As we witness a net population exodus from The (shit-stained)ref 220 Streets of San Francisco for the first time ever,ref 221 the cost of a median single-family dwelling in San Francisco rose to $1.6 million (Figure 27).ref 222 An 804-square-foot house in nearby Palo Alto sold for $100K in 2003 and $5.3 million in 2018.ref 223 A 900-square-foot bungalow near downtown Palo Alto listed for $2.6 million,ref 224 below the median listing in Palo Alto of $3 million.ref 225

Figure 27. San Francisco housing and their feces reports.

Evidence of housing market softening, however, is very real. Shares of homebuilders have been getting crushed (losses of 29–55%) in an economy said to be booming.ref 226 According to prominent economist Lakshman Achuthan, the national home price index was contracting by mid-year.ref 227 I—a friggin' chemist—saw the subprime and banking crisis as far back as 2002. ref 228 Bank and credit analyst Chris Whalen reminds us that the bust was clear by 2005.ref 229 He now says “nothing changed since 2008, but as in 2006, we have convinced ourselves that everything is just fine.” Total real estate sales in Manhattan fell 11% year over year.ref 230 Offers are coming in well below asking prices.ref 231 The drop was attributed to an acute oversupply of luxury units as foreign buyers sat on their hands, rising material costs of construction, and changes in tax deductibility of mortgage payments.ref 232 This latter point is important: If you can only deduct $10,000 per year of your state taxes on your Federal return, the prices of higher-end housing will necessarily adjust downward.

Canada never really experienced a bust when the U.S. did. It seems like they have rolling booms and busts as hot money moves from city to city. While the British Columbia median prices rose 9.2% year over year, the once-hot Vancouver housing market dropped over 40%.ref 233 The two biggest Canadian banks cranked up lending rates right before 50% of all Canadian mortgages were poised to reset.ref 234 Stay tuned. Toronto buyers were feeling their oats, as people were flipping their pre-sale houses—tripling the money on their down payments before the sale even closes.ref 235,236 The down payments were acting like levered options. That game may have ended. A 3,500-square-foot lot with a 650-square-foot house sold for only $1.1 million because it is too close to a highway.ref 237 The Carlyle Group is committing a $225 million senior secured loan to Canadian homebuilder Empire Communities.ref 239 Timing seems sketchy, eh? This turn-key, ready-for-occupancy gem in Vancouver is listed for $4 million:

Figure 28. Vancouver handy-man's dream.

The price of a house in London has increased fourfold in 20 years.ref 240 It appears as though Brexit, political upheaval, and mounting consumer debt may finally be causing the formerly red-hot London market to drop precipitously.ref 241,242 Spain’s housing bubble seems to have burst too.ref 243 China’s cap rates are in the razor-thin 1–3% range. Down in the Woop Woop of Australia, the credit bubble and housing boom seems be a bit of a boomerang, leaving homeowners a bit crikey and stonkered. Australian house prices are down 14% from their peaks and may not even be halfway to the lows,ref ref 244 which would pose way more systemic challenges than 30–45% drops in equities.

Another housing bust will call for more government intervention. It will be as feckless as the last:

Pensions

“If you were going to look for what’s the possible real crack in the financial architecture for the next crisis, rather than looking in the rearview mirror, pension funds would be on our list.”

~David Hunt, CEO of $1.2 trillion asset manager PGIM

“But if you look at these state pension funds, they’re a mess. These bills have got to be paid. . . . [A] good rate of return today of 2.5% to 3.5% doesn’t do the job. A big fear to me is who the hell in their right frame of mind would be buying bonds now?”

~Ken Langone, former CEO of Home Depot, on quantitative easing (QE)

"U.S. pension fund collapse isn't a distant prospect. It could come in 5 years"

~Bloomberg headline

"Why your pension is doomed"

~Wall Street Journal headline

"42% of Americans are at risk of retiring broke"

~CNBC headline

In ancient Rome, Augustus set up a military pension fund using the equivalent of $500 million of his own money and put ex-military trustees in charge. It got pilfered.ref 245 We have pilfered essentially every modern-day pension plan as well. Underfunded pensions are a form of leverage, and the pensioners are the creditors. Looming defaults will be devastating. Headlines focus on the risk posed by Social Security that, in conjunction with Medicare, is leveraged $50 trillionref 246 backed by a tax base racking up >$1 trillion (6–7%) annual deficits. The state, municipal, and corporate pension plans and private retirement accounts (401Ks and IRAs) are where the real bodies are buried. More than 100 million working-age Americans who should be progressing toward a stable retirement have saved precisely zero.ref 247 As you read the anecdotes below, keep in mind that pension holes are based on aggressive assumptions of 7–8% returns. The only safe bet is that those rates of return are not safe bets. The targeted balances—the balances the pros say you will need to retire comfortably—in personally funded accounts are pathologically understated.ref 248 If we really are in the Mother of All Bubbles (MOAB), what happens if it bursts?

The states’ unfunded pension liabilities have grown sixfold since 2003, and are now exceeding $1.4 trillion with the pedal to the metal. State pension costs are swallowing >25% of general revenues. The underfunding is estimated to eventually impose a surcharge to each household ranging from $30,000 for Tennessee to $180,000 for Alaska.ref 249 Kentucky has 16% of the funding needed, becoming the topic of a Frontline episode that made officials there look like a bunch of gullible hicks.ref 250 California's CalPERS is funded to <70%, with every private citizen in California owing >$100,000.ref 251 Illinois owes >$100 billion to its pension funds—six times the annual state revenue—and the liabilities are on track to double every 6 years (11% compounded).ref 252 It is said that if the Illinois state government put 50% of state revenue toward debt, pensions, and retiree healthcare, it will reach full funding in 30 years.ref 253 The state could raise taxes, but the Fighting Illini (tax payers) are already ranked #1 in the nation. Go team! New Jersey has $80 billion socked away to pay for $280 billion of future liabilities.ref 254 (The funding ratio fell from 93% in 2003 to approximately 30% in a dozen years.) Michigan, Pennsylvania, Florida, Ohio, Oregon, Colorado, Kentucky, and Rhode Island are said to not have the biggest actuarial problems but are at risk of running out of cash first.ref 255 I’m not even sure what that means. For 28 states, accrued liabilities have grown by 50% since 2003, way faster than their statewide GDPs.

Figure 29. Six states with problematic pension–GDP gaps.

What are states to do? The California Supreme Court will decide whether pensions can be cut on government employees.ref 256 I’m gonna guess no. The Illinois Supreme Court blocked state pension reforms in 2015, consistent with the idea that you cannot selectively screw one class of creditor.ref 257 CalPERS voted to increase the amount cities must pay, leading cities to foreshadow Chapter 9 bankruptcies.ref 258 Governor Jerry Brown wanted to crank up gas taxes by 40%, which could move him markedly closer to retirement.ref 259 Illinois wants to borrow $100 billion to speculate on equities.ref 260 That ought to help its already junk-level credit rating. The League of California Cities urged CalPERS officials to think “out of the box” to improve on their already aggressive 7% presumed annualized returns.ref 261 Short the VIX, dudes! It’s a one-decision trade. The state will be “totally bankrupt by 2021–2022.”ref 262 Between 2006 and 2017, Kentucky’s bond portfolio has grown from <1% junk bonds to 53% junk.ref 263

Reaching for yield is never a good idea, despite being forced at gunpoint by the Fed. Connecticut is broke: It may hock (sell) $2 billion worth of its buildings and lease them back at 7.5%.ref 264 Meanwhile the Fed has designed a bailout of the insolvent PBGC (Pension Benefit Guarantee Corporation)—a bailout mechanism in its own right—but one that does not cover state pensions.ref 265 My suspicion is that the Fed will loan the states money knowing full well it will never be paid back.

Figure 30. Total state pension deficits (dated data but trending).

The local (municipal) plans aren’t doing much better. New Orleans firefighters can expect 10 cents on the dollar based on their 10% funding level.ref 266 Wilkes Barre’s police and firemen’s pensions are <50% funded.ref 267Courts ruled that they couldn’t stick the pensioners. Next up: Chapter 9 restructuring, which is the legally correct solution. Cops and firemen in the tiny burg of Central Falls, Rhode Island, agreed to forfeit >50% of their pensions to escape insolvency.ref 268 New York, Philly, LA, Houston, and Phoenix all have $20,000–$30,000 per-capita pension IOUs coming due.ref 269 The murder capital of the country, Chicago, has a pension funded to 30%.ref 270 While the equity markets tripled from 2009 to 2018, Chicago’s liabilities more than doubled. Each Chicagoan is on the hook for more than $50,000 in pension debts and >$100,000 in total debts—not to mention the bar tab from the state.ref 271 Chicago’s problems are a little vague because Chicago’s and Moody’s bean counters disagree by a factor of two owing to different actuarial assumptions. Rahm Emanuel is taking a lifeboat—retiring...on a good pension—to distance himself from the Titanic problems. Before leaving, however, he wanted to borrow $10 billion to dump into the equity markets, but that got put on hold.ref 272 Maybe Illinois will lend you the money, Rahm. Similar strategies sent Detroit, Stockton, and San Bernardino into insolvency.ref 273

Figure 31. Municipal pension deficits versus tax revenue for 10 major cities.

There are countless reasons why we’re in this mess, but let’s just look at a bulleted list of waste that illustrates part of the problem, while retaining a comedic touch.

  • The head of the Oregon Health & Science University retired on a $913,000 per year benefit, while the poor University of Oregon’s retired football coach of 15 years only gets only $560K per year.ref 274 There are 2,000 Oregonians who get more than $100,000 per year.ref 275

  • The pooper scoopers who are charged with cleaning up shit off the streets in San Francisco make $184,000 per year.ref 276

  • The mayor of Ithaca, Svante Myric, is proposing that the city provide “free” child care. (I know Svante: He is a young man who I think will run for president someday. His platform will likely include some freebies.)

  • Illinois has been generous. The top 10 pensioners are each expected to pull an estimated $8–10 million from the state pension plan before they die (unless they visit Chicago). One gets over $400,000 per year as the superintendent of a school district with 1,200 kids.ref 277

  • Illinois taxpayers will be on the hook for more than 20,000 six-figure annual pensions for educators. Their pension benefits have compounded at 9% annually for nearly 30 years.ref 278

  • More than half the states have grown their pension promises at >5% annually since 2003.ref 279

One could make the argument that some of that is odious debt—debt incurred by somebody else (usually sovereign leaders) that is so odious that you say, “Screw it: I'm not paying.”ref 280 I believe, however, that the courts are unlikely to consider odiousness at lower levels.

Self-directed retirement plans—so-called defined contribution plans—are in brutal shape. Data from the Saint Louis Fed (Figure 32) show that the median retiree has almost nothing ($1,100),ref 281 and the highly indebted boomers with little time left to correct the error in their ways are altogether unready for retirement. The rallying cry that 80 is the new 50 ignores the harsh reality that 50% of retirements are forced by personal circumstances to retire,ref 282 and folks who do seek post-retirement employment—that's not retirement—take a 25% pay cut.ref 283 Most people have not been adequately trained to be their own human resource specialists.

Figure 32. Median retirement account and median boomer accounts.

On the bright side, the millennials are getting the memo early enough to act. The challenge is that the message seems to be either “Don't worry; be happy” or “Don’t bother.” Surveys show that even those with retirement accounts seem to have saved little. Those same millennials, not known for letting reality encroach on their world, want to retire, on average, at 56 years old.ref 284 Time to cut back on the bottled water, pumpkin spice lattes, and, for that matter, any form of food. It’s time to stop being a bunch of dingleberries, put your phones down, and pay attention.

On that latter point, there is a new group called FIRE—“financial independence, retire early.”ref 285 Members of the group want to work hard, cut costs, and then retire in their 30s and 40s to travel the world:

"How to retire in your 30s with $1 million in the bank"

~New York Times headline

“Nothing was wrong with the job—it was a great company, good money, six figures. I was 26 and I said, ‘Why am I going to spend my 20s sitting at a desk?’”

~Mason, 29-year-old retiree

There are over 400,000 subscribers to FIRE on Reddit,ref 286,287 sharing tips like “how to survive a Minnesota winter without shoes, gloves, or coats.” Suze Orman blew out both ovaries noting, “I hate it. I hate it. I hate it. I hate it.”ref 288 This group will be positioned perfectly for the Great Attitude Adjustment (GAA).

Well at least we have the corporate pensions to fall back on, but they are underfunded as well (Figure 33). Corporations could always top off their pensions if they diverted funds from share buybacks and other forms of financial engineering. Ironically, that would cut into the multi-sigma profit margins, crush share prices, and, ironically, shrink everybody’s pensions plans. That’s swell. Pension coffers should be bloated with FAANG-based returns as we near the end of this investment cycle. They obviously are not.

Figure 33. Corporate pension shortfalls.

The aforementioned PBGC bailout plan does not cover the state-funded (or should we say state-unfunded) plans. There are discussions of using Puerto Rico as a beta test to introduce Chapter 9 legislation to allow for state bankruptcies, which are currently not allowed under the federal bankruptcy code.ref 289 Bankruptcy laws are designed for precisely when available assets are insufficient to cover liabilities. Private defined-contribution pensioners—the IRA/401K crowd—are gonna be investing doggie style and playing a lot of Dialing for Dollars.

Debt

“It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on, would save one-half the wars of the world.”

~Thomas Jefferson

You have a debt problem when you have more debt than the capacity to pay it off. It arises from consumptive debt that is non-self-extinguishing. As far back as David Ricardo in the nineteenth century, we have known that debt-financed spending is not constructive to GDP. The debt problem goes global when the collective promises of sovereign states to their masses cannot be satisfied by future output. Not everybody can live the metaphorical American Dream no matter what global leaders have promised. There is a paradox in that you can save at the local level—personal, municipal, state, and even national—by having others outside your defined group owe you future goods and services (albeit accounted for using units of currency). You cannot, however, save globally. Because sovereign-level debt problems are PAYGO (pay-as-you-go) plans by definition, we’ve been trapped by compensation mechanisms that have increasingly relied on unfulfillable promises in the future rather than payment in the present. Now we find ourselves in a putative global asset boom—one that I find to be a sandcastle built by central bank largesse—while concurrently having debt problems. In the U.S., for example, average household net worth is soaring while the median family needs credit for basic needs and has squat for retirement savings.

“The great bond bull market began waaay back in 1982—36 years. And as governments were able to keep financing at lower and lower rates, they kept promising more and more.”

~Capitalist Exploits on the social justice movement

In the following sections I treat debt and savings as two sides of the same coin while somewhat arbitrarily separating corporate, personal, and sovereign debt problems from a looming global pension crisis and, for that matter, problems in the real estate market. I suspect that the Fed's pathological aversion to letting the economy sink or swim on its own may stem from its PTSD-levels of fear of the next recession, which—I hasten to add—is as inevitable as death and taxes. The Wall Street Journal worries that we will burn a decade recovering from the next recession. I worry that they are optimists.

All this debt has accumulated with a tailwind of relentlessly falling interest rates from a 36-year secular bull market in bonds. The blowoff phase of the bond bull is a decade of rates wrestled to 5,000-year lows by central bankers. Now we are in a rising-rate environment. The gyrations across global markets are just the trailer. If the secular bear market in bonds goes wheels up—if rates begin a multi-decade upward march because of our modern-era guns-and-butter policy—many of us may not be around to see resolution.

?Corporate Debt

“This time around, the big bubble is the extreme leverage on the corporate balance sheet, where the chart of debt-to-GDP looks a lot like the mortgage debt-to-GDP in 2007.”

~David "Rosie" Rosenberg

“Corporate debt has soared, but most of it has been used for financial engineering. . . . Who knows how many corporate zombies are out there because free money is keeping them alive?. . . Competition is a better tool than price control for protecting consumers. That applies to Amazon and the bond market.”

~Stan Druckenmiller

It is clear that this is a very different corporate bond market, and history-based financial models will most likely be found wanting.”

~Louis Gave, cofounder of GaveKal

The corporate debt market is a complicated story because huge amounts of debt to financially engineer pump ’n’ dump schemes with share buybacks were waiting to be extinguished by repatriated savings (tax amnesty) from overseas. Assessing corporate leverage—debt net offsetting cash and other assets—is more important than usual. That said, from my perspective up in the nosebleed section, loose monetary policy managed to create a mountain of corporate debt, which is unsurprising to everybody but central bankers. Whocouldanode? The 54 AAA-rated companies in the S&P before the crisis have been reduced to only two because of leverage.ref 290Many—myself included—believe that the corporate bond market will be Ground Zero of the next crisis. In case I haven’t said it enough times, we are in a rising rate environment: The fuse has been lit. Net leverage normalized to EBITDA (earnings before interest, taxes, depreciation, and amortization) has doubled in only a few years. Tighter banking regulations acted like Prohibition, opening the door to hooligans, hedge funds, and other non-bank grifters with their own leverage. There is a so-called shadow banking systemref 291 that is so enormous, complex, and hidden from the light of day for us Philistines. Here’s a trick question: Who do they borrow from? These corporate-focused lenders will scamper away in a heartbeat in a downturn. The retail investor will see bids for corporate paper (debt) buried in their portfolios disappear, and it could happen in a matter of days, hours, or minutes.

Mario Draghi’s European corporate-bond-buying binge sent some corporate bonds into negative interest rates—companies were being paid to borrow—and the Bank of Japan has now joined in.ref 292 The global bond binge caused the premium spreads—the extra interest paid for buying total garbage like commercial-mortgage-backed securities versus AAA bonds—to reach lows not seen since early 2007.ref 293 Those spreads are now widening. Companies are citing higher interest expenses chewing into earnings, which will amplify the credit spreads. Over $2.5 trillion—50% of the investment-grade corporate debt market—is rated just one notch above junk.ref 294Exchange-traded notes (ETNs) based on corporate debt are unsecured, subordinated debt that trades daily. A day will come when they don’t trade. The volume of covenant-lite corporate bonds—bonds with lower levels of constraints than the stuff we call garbageref 295—has soared and poses a huge risk because of (not despite) the fuzzy name. U.S. firms sold $9.2 trillion in bonds since 2013, a non-trivial $3.5 trillion being used for share buybacks ($850 billion in 2018).

Is this really a systemic problem? I think so. As I am writing, GE and Deutsche Bank are gasping their last breaths—debt rattles—while doing laps around the drain. GE has $170 billion in debt owing to years of financial engineering.ref 296 Its productive assets will live on in the hands of new owners, but current holders of its debt and equities will be dealt with severely. Deutsche Bank is so huge that it seems likely to be nationalized. Rumors of a merger with Commerzbank just surfaced in what seems like one of those '08-esque shotgun weddings.ref 297Companies like GM and IBM are not far behind. These are Mothra-sized butterflies flapping their wings.

“The debt load for U.S. corporations has reached a record $6.3 trillion, according to S&P Global. The good news is U.S. companies also have a record $2.1 trillion in cash to service that debt.”

~CNBC headline

What CNBC seems to have missed is that borrowing money (the $2.1 trillion part) to pay the interest on the $6.3 trillion is a Ponzi scheme,ref 292 and I’m not speaking metaphorically or hyperbolically. Individual companies that don't have the cash flow to make interest payments are called zombies, implying that they are dead but somehow still stumbling around the planet posing existential risks to the living. Of course, they are rare, right? Well, 20% of the Russell 2000 index and 14% of the S&P 500 are zombies.ref 299 Passive index investors own the shares of these gems and, if not, are financially linked to clowns called “counterparties" who own them. The problem is, as noted by the Bank for International Settlements (BIS), zombies do not come back to life.ref 300Unlike real zombies in which all you need to do is tie the recently departed's shoelaces together, these Walking Dead require the free market metes out shots to their heads.

The beginning of what looks like a serious bond bear is hammering risk-parity funds—bond funds that used leverage to seek the risk of equities.ref 301 Congrats, guys: You found it! And then there is the “leveraged loan market,” in which companies too weak to access the junk bond market go and borrow from a guy named Vinnie. These are the payday lenders for corporations. Retail investors with this crap in their retirement accounts will be toe-tagged and bagged.

“The selloff in GE is not an isolated event. More investment-grade credits to follow. The slide and collapse in investment grade debt has begun.”

~Scott Minerd, CIO at Guggenheim Partners

Let’s finish by taking a special look at GE’s debt. In 2002, I predicted that GE was headed for trouble in an email to a friend at Goldman.ref 302 Years of financial engineering finally worked their magic.ref 303 GE survived ’08–’09 with a lot of help from the authorities but appears to be on life support now. It is getting crushed by debt estimated at $40–$170 billion depending on who is doing the bean counting. The confusion is probably caused by off-balance-sheet debt . . . just like Enron. A bunch of GE debt is still investment grade, but it is “trading like junk,” which means we’re waiting for the rating agencies to read them last rites. To avoid bankruptcy, GE eliminated its quarterly dividend, causing double-notch bond rating downgrades.ref 304 The debt burden owing to a Hail Mary strategy of borrowing heavily for M&A (mergers and acquisitions) is probably now too high. GE is said to be “locked out of the commercial paper market,”ref 305 which means it’s time to call Vinnie. A default is said to be “unthinkable,” posing systemic risks as well as sentimental risks owing to a fall of an American Icon. On that note, Sebastian Mallaby gave us a "Crisis for Dummies" description of how cascading failures happen.ref 306

Personal Debt

“How do you make poor people feel wealthy when wages are stagnant? You give them cheap loans.”

~Vincent Daniel in The Big Short

According to a Federal Reserve study, Americans have $1 trillion of credit-card debt, $1.5 trillion of student debt (Figure 34), $1.5 trillion of auto loans, and $13.5 trillion in mortgage debt.ref 307 So many zeroes: What the hell does that even mean? We can manage the mind warp by bringing it down to the family level. The average household has $140,000 in total debt.ref 308 This number does not included unfunded liabilities at the municipal, state, and federal levels. The student debt is disturbing in that 40% of it is held by senior citizens and who are defaulting with troubling frequency (37%),ref 309 and the boomers now owe more than the millennials: “Thanks, Mom and Dad. I’ll swing by on my way to Fort Lauderdale this spring.” There are 101 individuals with over $1 million of student debt, and one dentist owes >$2 million.ref 310 The $100,000 student debt club has 2.5 million members. Owed mortgage debt is almost 5× the yearly salaries of the owners.ref 311 Credit card debt has climbed back to its 2008 peak,ref 312 but the average interest rose 3% to a lofty average 15.5%. Consumers are paying $100 billion a year in interest payments with their disposable income. One could argue that if you have credit card debt, you have no disposable income.

Figure 34. Student debt or monetary policy?

Consumer debt is growing at 2× the rate of salaries (Figure 35) while 100 million Americans have no job to make such a comparison. The auto debt market continues to show stress fractures. Approximately 30% of trade-ins are in functional default (worth less than the loan balance.)ref 313 Trading in a beater for an improved newer model is a bad decision. An estimated $280 billion of subprime auto loans are defaulting, stressing the smaller subprime lenders.ref 314 A heavily cited stat this year was that 40% of Americans do not have enough money to cover an unexpected $400 expense without borrowing the money or selling something they own, and 60% can’t cover a $1,000 tab.ref 315 This is not a moral judgment, just the facts.

Figure 35. Household debt normalized to disposable income.

It’s hard to know whether the consumers are feeling the stress. The millennials are certainly in a rush to retire with <$20K saved (see “Pensions”).ref 316 Another survey showed that 41% of them spent more money on coffee than on investing in retirement last year.ref 317 No problem: There is a Congressional bill that would allow students to pay student loans with future Social Security money.ref 318 You get just deserts only after you eat your seed corn. Whoever hatched that plan should take some of that bank lobby money they obviously accepted and get professional help.

For every debtor there is a creditor. A global debt problem is less about some crazy form of owing too much but rather counterparty risk—the risk that debtors can’t pay. Good news: Somebody owes you $500,000. Bad news: It's your teenage son.

“Twenty years ago there was $40 trillion of debt in the world; today there is $250 trillion worth of debt in the world.”

~David Stockman, former Reagan economic advisor and Blackstone Group

“$20 trillion got to $21 trillion in 186 days: That is blistering. . . . Donald is pro-Warfare State, pro-welfare state and has just slashed Uncle Sam’s tax take to 16.6% of GDP—the lowest rate since 1950.”

~David Stockman

Sovereign Debt

“The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians.”

~William White

The markets most important to the functioning of capitalism—the credit markets in which lenders and borrowers haggle to determine the cost of money—are damaged. Central banks have subverted price discovery, sending bizarre signals to market participants. I asked the Twittersphere what interest rate they would demand to buy a 30-year Treasury that they were required to hold for 30 years—no selling, trading, or hedging. The answer was telling:

Figure 36. Twitter poll about the term premiumref 319 that investors would require for 30-year treasuries.

It would appear that 30-year bonds are priced wrong because somebody will be holding these assets for 30 years. My personal answer is comfortably above 7%. The interest payments on U.S. debt rose by 14% over the last year owing to increased principal payments on inflation-protected securities ("just the TIPS"),ref 320 continued generalized debt growth motoring along at 6–7%,ref 321 and overall higher rates. We will add well over $1 trillion of debt before the year is over.ref 322 Stanley Druckenmiller submits that the next recession will usher in a $2 trillion deficit. Many say we should have issued century bonds—100-year treasuries—when interest rates were low. I disagree profoundly: Forcibly jamming rates low, eliciting fixed-income investors to do unnatural things with barnyard animals just to get income, and then stiffing your counterparties with such abominations would be bad karma. In any event, that ship may have sailed because sovereign holders of treasuries such as Japan, Russia, and China are now sellers.ref 323 We are on a path to our Minsky Moment at which debt overruns our capacity to make payments. We will just inflate it away, right? Maybe not. You create inflation by creating money, and you create money by creating debt. It makes me scratch my head.

“People who confidently think they know the consequences—none of whom predicted this—know what’s going to happen next? Again, witch doctors. How many in this room would have predicted negative interest rates in Europe?”

~Charlie Munger, Berkshire Hathaway

Global debt rose from 276% of global GDP in 2007, wallowed through the Great Recession, came out the other side topping 327% of global GDP, and continues to expand at >10% per annum.ref 324 Simon Black notes that while the economy grew 36%, the debt grew 123%.ref 325 The IMF blames the growth on a prolonged period of low interest rates—those foisted on us by central banks—for nearly a decade.ref 326 By early 2018, sovereign debt returning negative nominal interest rates—absurdities that should never exist in a functioning bond market—topped $10 trillion.

Figure 37. Negative interest rates on sovereign debt.

“If 2.60% is broken on the upside—if yields move higher than 2.60%—a secular bear bond market has begun.”

~Bill Gross, the former Bond King (2017) on the 10-year yield

“If we take out 3 percent . . . it’s bye-bye bond bull market. Rest in peace.”

~Jeff Gundlach, the new Bond King (2017) on the 10-year yield

Figure 38. Ten-year treasury yields.

Bank of America’s Michael Hartnett says, “the lowest interest rates in 5,000 years have guaranteed a melt-up trade in risk assets,” which explains the 600% wilding of the FAANGs off the ’09 lows. The rising-rate environment means that resolution and redemption—dead bodies—may start floating to the surface. JPM reported that the global bond yield curve inverted in June (Figure 39), which will trigger, sequentially, the following: (a) “yield curve deniers” will declare such inversions irrelevant, and (b) a potentially bone-crushing recession will arrive. There is also a big debt rollover coming in 2019–2028 (Figure 40). I've added the iconic plot of mortgage resets foreshadowing the ’08–’09 crisis just in case anybody else sees parallels.

Figure 39. Global bond yield curve turning negative.

Figure 40. Debt rollover, 2019–2028, versus mortgage resets, 2007–2012.

“Consider for a second that for the first time in 18 years (!), U.S. 10-year yields are trading at a premium (10 bps) to Australian comparables! The long bond at 3.21% is 6 bps above Italian 30-year yields. . . . America is an AAA credit, and Italy is BBB.”

~David “Rosie” Rosenberg

Europe seemed relatively quiet. Brexit looms, but I refuse to spend any more time reading about the carnage that will happen and patiently wait to see what does happen. The idiocy of central bankers is reflected by negative yields on Spanish sovereign debt, 10-year Swiss debt returning 0%, bonds maturing in 2055 returning 0.5%, emerging-market junk-bond yields that are now below U.S. junk-bond yields, and a Greek 10-year yield below that of the U.S. 10-year yield. Negative yields on Italian debt concurrent with the country’s budget imploding finally triggered a VIX-like response (Figure 41). Mario Andretti would be in awe of the acceleration on that price discovery. Meanwhile, the covenants underlying much of this sovereign debt are said to be weak.ref 327

Figure 41. Italian bond massacre.

“China is rewriting the economic history books because they have embarked on a view that they can simply borrow twice the amount of output growth as the growth in GDP.”

~Jim Chanos, Kynikos (on Real Vision)

The out-of-body experiences are found in the emerging markets. Emerging-market debt tripled during the last 8 years.ref 328 China’s bond market is opaque but said by many to be a profound risk to global markets. According to S&P, China’s local governments have $5.8 trillion of off-balance-sheet debt, representing “an iceberg with Titanic credit risks.”ref 329 Jim Chanos, who is a galaxy-class short seller, says that the Chinese are building two to three times the number of apartments that demand can absorb. Outstanding loans are growing by >10% year over year.

“My thesis is that over the next decade we will endure increasingly damaging debt crises that culminate in a coordinated global default—“The Great Reset,” as I call it. There are limits in how much leverage the world can handle and I think we are already beyond them. And that is before we have a global recession. The only question now is how we will manage the collapse.”

~John Mauldin, founder of Mauldin Economics

Japan doesn’t even have a bond market; it was nationalized by the Bank of Japan to the point that there are days in which not a single bond trades.ref 330 A market with a single buyer is called a "monopsony" (brought to you by Snapple.) Japan already spends a quarter of its tax revenue just to service its debt even though rates are ridiculously low.ref 331 If interest rates in Japan rose to 1% (not exactly usury), the nation’s annual debt service would literally exceed all government tax revenue. When what few private bondholders left sell causing rates to flicker higher, the BOJ intervenes (three times in a single week), buying up all the bonds.

Argentina defaults on its debt every 15 years on average.ref 332 In 2017 the country issued 100-year bonds—century bonds or what I call “Beanie Bonds”—that were oversubscribed by some of the biggest names in U.S. finance: Fidelity, BlackRock, Lazard Asset Management, and who knows how many multinational banks (Figure 42).ref 333 Gillian Tett of the Financial Times noted that these bonds “may end up being the government bond market equivalent of the Pets.com IPO during the 2001 tech boom—the sign of a bubble peak.”ref 334

Figure 42. Purchasers of Argentine century bonds.

It took less than 1 year for Argentina to functionally default.ref 335 Of course, its GoFundMe campaign secured $50 billion from the IMF to prevent global market turmoil by paying off its creditors.ref 336 Jim Rickards thinks the whole affair was a “backdoor way for China to lighten up on dollars. Yeah, it’s complicated.” That is outside my wheelhouse. What I do know is that it is never the country being bailed but rather the seemingly moronic creditors . . . which is not moronic if the creditors know bailouts are preordained. The IMF launders money from a number of countries to pay for such bailouts, but the primary sponsor is the United States—the U.S. taxpayer. Meanwhile, a 25% inflation rate and interest rates soaring to 40% are frying Argentina’s empanadas whether the country defaults or not.

“China reminded us that the tale of synchronized growth was false and that what we have been seeing in recent years has been synchronized growth of debt.”

~Daniel Lacalle, eighth-ranked “economic influencer” in the world!ref 337

I suspect that when the cost of money resets—when price discovery rears its fugly head—many of these assets will cease to exist. What’s left will likely have new owners.

Inflation and Deflation

“I just don’t see much inflation pressure.”

~James Bullard, president of the St. Louis Federal Reserve

“If I had to bet my life on higher or lower inflation, I’d bet a lot higher.”

~Warren Buffett

“We know how to deal with inflation. We don’t know how to deal with deflation in this country.”

~Gary Cohn, former CIO of Goldman Sachs and former chief economic advisor to President Donald Trump

“My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates. We put the cart of asset prices before the horse of enterprise. We entertained the fantasy that high asset prices made for prosperity, rather than the other way around. We actually worked to foster inflation, which we called ‘price stability.’ . . . We seem to have miscalculated.”

~James Grant, talking to our future selves and grandchildren, 2014

The Fed claims that a small amount of inflation is good and then wavers as to how much is optimal. Never mind that luminaries like Paul Volcker have denounced such thinking as delusional. I asked financial Twitter for the best arguments supporting the Fed’s ideas and got a host of answers, all of which had chards of truth and none of which made complete sense. The debate drew in big fish and little fry.

Some claimed that inflation is needed to coerce people to invest as though profit motive isn’t enough. Others said consumers will retrench if they know products are going to get cheaper, contrary to data on tech gadgetry and common sense aside. William White, formerly of the BIS, previously noted that “the widely held assumption that consumers and corporate investors will extrapolate from past price declines and hold off on making purchases as a result of deflation has essentially no empirical support behind it.”ref 338 Other Tweeters pointed to the dreaded deflation that has been MIA for almost a century. Of course, the reason deflation is so dreaded is that for it to appear against the headwinds of our inherently inflationary banking system means that central bankers already did way too much—they screwed the pooch.

Governments embrace inflation because they like to squander money they don’t have to buy votes and, as Milton Friedman said, "Inflation is taxation without legislation." They also like the covert tax of inflation, and love taxing nominal gains that are illusory.

“I hate the word deflation because it is only a symptom of the problem. It’s not the reason we have the problems we have today.”

~Richard Koo, chief economist at Nomura Research Institute, talking about Japan

Some chimed in that the psychological impacts of wage cuts are so devastating that they are better masked by positive nominal gains. Others believe paying somebody in debased money is better than laying them off; it is a sticky wage argument. The Wall Street Journal had made such an assertion:

“Higher inflation could have other benefits. It could help economies adjust after a downturn by lessening the need for outright wage cuts, because rising prices will erode wages anyway.”

~Wall Street Journal

The ultimate foolishness is that a Committee of Elders—the Fed—thinks it is better equipped than the Wisdom of Crowds—the free markets—at setting the price of capital. Its members appear to me to be just a bunch of fools making shit up based on hopelessly flawed Gaussian models claiming to be “data dependent.” It is odd that nobody in the mainstream seems to think that when deflationary pressures appear, maybe the markets are telling us that we need a dollop of deflation.

The article in the Wall Street Journal that enthusiastically endorsed inflation I found problematic and Tom McClellan found support for this monetary creationism inexcusable.ref 339 He attacked the Fed for trying to keep too many ligma balls in the air at one time:

The mystery of this most recent decade is that creating vast sums of new reserves in central banks—an estimated $20 trillion—did not generate high or even hyper-inflation (yet). I’m a goldbug; I thought inflation was coming. Ben Bernanke blamed the “savings glut” of our trading partners, which seems to be just looking for a scapegoat. Mervyn King (see “Books”), however, did a nice job of explaining that if our trading partners let trade imbalances chase financial assets rather than goods and services, you get a lousy economy and inflation in the financial assets. That’s exactly what we got. Of course, those who speculate in those financial assets love that kind of inflation until it unwinds (oftentimes violently).

“I’ve never bought into that.”

~William White, on the “savings glut” thesis

Just as deflation is demonized by the Fed, inflation is demonized by the blogosphere. Somebody called it the “the date rape drug of taxes.” Bloggers squealing about the dollar losing 97% of its purchasing since 1913, however, often forget that there are compensating mechanisms along the way in the form of nominal pay raises and nominal asset appreciations. David Andolfatto, vice president of the St. Louis Federal Reserve and who seems to function as an outreach coordinator for the Fed, addresses this in a thoughtful blog, noting that you are 97% poorer only if you took your 1913 dollars and stuffed them in a mattress.ref 340 Ironically, if they were in uncirculated condition, you would enjoy nominal gains of up to 200-fold in the numismatic marketplace. Andolfatto also makes the curious argument that high interest rates are anti-inflationary by stepping on the economy (check) but pro-inflationary by jamming gobs of interest into the system. Wait. What? That idea is new to me and creates a bit of a monetary paradox, but I keep thinking about it.

Michael Hartnett of Bank of America, noting 700 rate cuts and $14 trillion asset purchases by central banks since the Great Recession, sees parallels of 2018 and 1966.ref 341 Millennial chart monkeys will likely not appreciate that the years after 1966 witnessed virulent inflation, horrific real (inflation-adjusted) returns on financial assets, and an economic malaise that lasted until the early 1980s. The shift in preference from equities to hard assets and high-interest-rate bonds—notice I didn’t say “flow” into or out of anything, which is risible nonsense—caused severe turbulence. It was a terrible time to invest for most.

Official reports of inflation are starting to creep up, although by no means outside the Fed’s highly fluid comfort range. Anecdotal reports, however, are painting a more serious picture. The CEO of Sherwin-Williams said that “raw material inflation has been unrelenting and accelerating.”ref 342 Eric Cinnamond listens to hundreds of microcap investor conference calls each quarter and says that CEOs are all complaining of cost pressures.ref 343Companies like Caterpillar report that price increases are not keeping up with rising production costs.ref 344 The CEO of Lincoln Electric claims that “We’re in a very rapidly increasing inflationary environment.”ref 345

"J.B. Hunt says 10% raises are the antidote to the truck-driver shortage"

~Bloomberg headline

The tariffs discussed in the “Economy” section are causing companies to arbitrarily implement 15–25% price hikes anticipating raw material or finished goods costs emanating from China.ref 346 (I can’t help but wonder, admittedly with a low probability weighting, if the tariffs aren’t part of a covert bilateral agreement.) The wage pressures seem real. Teachers across America have been walking out of school classrooms to attend rallies in protest for higher salaries and improved classroom resources.ref 347 Jobs are going unfilled. Wage inflation scares macro bean counters. BIS economists suggest that a global shrinkage of the working-age population is causing inflation to trend up (more money chasing, fewer workers).ref 348 Paul Tudor Jones sees Fed chair Powell as George Custer, sandwiched between a mountain of debt on one side and inflationary pressures on the other.ref 349 He thinks Powell needs to hike rates pronto to curb margin debt in the markets and facilitate a more efficient allocation of capital.

“Volatility collapsed after the crisis because of central bank manipulation. That game’s over. With inflation pressures now building, we will look back on this low-volatility period as a five standard-deviation event that won’t be repeated.”

~Paul Tudor Jones

By now most have read about the distortions of substitution and hedonic adjustment foisted on us by the Boskin Commissionref 350 and unfoisted by John Williams.ref 351 I've already taken a bat to the MIT Billion Prices Project—I think there is an Achilles’ heel in it—and won’t return to it.ref 352 We also know that products that don’t last should be priced per unit function: They are not. Figure 43, showing the cost of various goods and services, blanketed the internet this year. Do you really think you can buy a TV for 4% of what you paid in 1990? Sure it’s a better TV (or at least a cooler TV), but you are not walking out of Best buy with an $8 TV even on Black Friday. Have prices of cars really not moved in 20 years? A Ford F150 cost $17,000 in 2007 and $40,000 in 2017. Yes, it now has a backup camera and anti-lock brakes, but it costs more than twice as much to move firewood, display our gun collections, and wield MAGA bumper stickers. Try Googling rents or single-family home prices: Are they really up only 61% since 1995? I am calling bullshit on this chart. It was undoubtedly created by hedonic-adjusting tools (economists).

“Americans are getting stronger. Twenty years ago it took two people to carry $10 worth of groceries; today a five-year-old could do it.”

~Henny Youngman, comedian

Figure 43. Hedonically adjusted prices.

I take a swipe at hidden inflation every year. The durable goods we buy have a programmed and accelerated senescence that borders on progeria. Your kids’ toys are cheaper, but do they last more than a few minutes? A toaster that cannot be repaired when it breaks is expensive, especially when it breaks fast. The quality reduction can be profound too. Processed food uses animal and vegetable parts that were previously fed to pigs. Food scientists have rendered them palatable through very clever tricks like adding buttloads of salt and sugar (or high-fructose corn syrup). The meat in Dinty Moore stew is disgusting. Cracker Jacks no longer are made from popcorn. Your appliances are shiny with lots of buttons that you never use, and they don’t last. Shrinkflation has been around for eons. Coke cut its 1.75-liter bottle to a 1.5-liter bottle and then raised the price. At some point, the company will offer a really large bottle (1.75 liters) for an even higher price. I still haven’t figured out how to account for laptops, iPads, iPhones, and internet service. For what you get, they are amazingly cheap. As a part of a family’s budget, however, they pose existential financial risk. How do you account for amazing technology that you must own—even the Mennonites own them—but that you cannot buy without a HELOC? Check out Figure 44. Try a little mental math on how much a paycheck could buy you in 1938.

Figure 44. Cost versus quality.

And here is a curious little anecdote:

1932 gold ounce = $20.67

1932 Yale University tuition, room, and board = $1,056 (51 ounces of gold)

2018 gold ounce = $1,225

2018 Yale University tuition, room, and board = $65,000 (53 ounces of gold)

Banks

“With mortgage applications declining, executives have a choice to make: Should underwriting standards be lowered? When volume becomes the defining metric for how loan officers and mortgage companies get paid, then loan quality deteriorates.”

~Chris Whalen, Whalen Global Advisors

“Your problem is that you are trying to understand it as an economic story. Once you think of it as a crime story, you’ll get it.”

~Insider to Matt Taibbi when writing about the subprime crisis

We’re told that the post-crisis banking rules were tightened to make the banks safe again, and now we are about to unwind these protections with the poorly named “Economic Growth, Regulatory Relief, and Consumer Protection Act” that would return the banks to their birthright as gigantic hedge funds.ref 353 A 1982 declassified memorandum included Jack Anderson, a journalist, discussing the upcoming collapse of the banking system and the CIA’s risk assessment.ref 354 There were crises of course; the late 80s savings and loan crisis may have been what was spooking the spooks. Do the bankers never learn? Are they doomed to loop around this infinite Mobius strip? In a sense, yes. This year’s winner of the Nobel Prize in economics, Paul Romer, and some famous guy named Akerlof, wrote a 1994 paper titled, “Looting: The Economic Underworld of Bankruptcy for Profit.”ref 355 They describe how the inefficiency of the boom–bust cycle is exploited by the banks during both phases. During the boom, the bankers make huge fees and pay themselves handsomely because, well, they are wonderful stewards of capitalism. During the bust, profits stem from looting the system, cloaked by the chaos and pandemonium of bailouts. The bankers then pay themselves handsomely because they are wonderful stewards of crony capitalism too.

Recall in ’09 when huge bonuses were defended to keep talent around long enough to save the world from the Apocalypse caused by all this talent. Banking is like Danegeld—payments to the Vikings to stop them from looting and spreading their DNA around the Isle of Britannia. Soon the Danes wanted more money and hot chicks. I suspect we have finished the boom half of the cycle again and are now looking for the raping and pillaging phase to commence. What will trigger the next crisis? Bank analyst Chris Whalen already sees lenders bracing for problems and reducing staff in their consumer and mortgage lending businesses.ref 356 Eyes are on the European banking sector getting its market caps deracinated. One of the popular risk measures—the Libor–OIS marginref 457—is vibrating like the puddle in Jurassic Park.

“The Senate just voted to increase the chances your money will be used to bail out big banks again.”

~Elizabeth Warren (@SenWarren), insert politically incorrect Indian joke here

Despite regulatory constraints, the banks have managed to insert leverage into every orifice imaginable while moving the risks away from themselves or so they say. Bank loans to non-bank financial firms have increased sixfold since 2010.ref 358 Big banks are not making lots of subprime auto loans but rather lending to subprime loan bundlers who have jammed a record $345 billion of subprime loans.ref 359 In a crisis, the autoloans default first, and then the bundlers hit a bridge abutment. Hmmm . . . who is on the hook now? Increasingly popular and dubious loans to unsuspecting, near destitute, and likely to be transitory homeowners are called “non-qualified mortgages.”ref 360 Truth in advertising. That particular form of high-risk lending doubled in a year and is said to be on track to double again next year.ref 361 The direct risks posed by notional derivatives, which have grown 50% to $1 quadrillion since ’07, are watched nervously.

“Getting a lot of calls about DB today. Where to begin? A hedge fund in drag that pretends to be a bank. . . . Earth [to] Merkel."

~Chris Whalen

Bearing down on a few specifics, the systemically important financial institutions (SIFIs) are all wobbling in synch—precessing—while their credit default swaps (CDSs) have arisen from their slumber.ref 362 Deutsche Bank (DB), for example, is five times the size of the former Lehman when it brought the system to its knees. DB also has the largest derivatives book on the planet. Of special interest, it is trading like Lehman, having lost 94% off its ’07 high (Figure 45). An 80% drop in earnings in 1 year suggests that the bank is insolvent and headed for nationalization. DB fired 10,000 employees (10% of its workers), a drop in the bucket.ref 363 I think it’s time it changed its name to Deutsche Blockchain.

Figure 45. Deutsche Bank.

“The best thing that could happen to society is the bankruptcy of Goldman Sachs.”

~Nassim Taleb, author of bestsellers (see “Books”) and former Goldman trader

Banking is supposed to be boring, but there were a few humorous moments this year. Goldman got caught stealing billions from the 1 Malaysian Development Bank (1MDB),ref 364 but who cares about the impoverished Malaysians? That’s a rhetorical question: Other sovereign wealth fund managers seemed to care.ref 365 As Jimmy Carter said, “I guess you just can’t trust Goldman.” Danske Bank laundered over $200 billion according to whistleblowers.ref 366 That ought to generate a few fines and send a lot of business back to HSBC. Wells Fargo had a “glitch” that led to double dipping on some payments and even some accounts being emptied.ref 367 It got fined $2 billion for stealing from millions of customers. Since fines for committing felony on a gargantuan scale are considered a business expense, the bank will get a nice tax break.ref 368 It was downgraded by its bank brethren for having inadequate safeguards to prevent getting caught.ref 369 Once Wells emptied its coffers to pump shares with stock buybacks,ref 370 it had insufficient funds to keep 26,000 people on payroll.ref 371 On the bright side, the CEO got a 36% raise this year to ensure that he sticks around to clean up his mess.

Of course, Wells Fargo’s largest shareholder, Berkshire Hathaway, played activist and jumped in to bring some honor back to this once great institution. Yeah, right. Neither side of Warren Buffett’s mouth was available for comment, but the irrepressible Charlie Munger chimed in:

“Wells Fargo will end up better off for having made those mistakes. I think it’s time for regulators to let up on Wells Fargo. They’ve learned.”

~Charlie Munger

Yes, Charlie, we’ve all learned: Crime pays, and your bluntness is surpassed only by your ruthlessness. The miracle of modern medicine is that you can sleep at night. That Wells hasn’t been auctioned off for parts and its high command marched off to a gulag illustrates the efficacy of the Obama-era “No Banker Left Behind” (NBLB) program. Being owned by Berkshire is also a “protected class.” The most satisfaction customers will get comes in the form of checks to compensate them for their losses. I’ve gotten two such checks for settlements of class action suits. They both were <0.1% of my assets under management. You know what this means? I got screwed three times: (a) the brokerages slipped roofies to me Cosby-style and repeatedly jammed illegal hidden fees up my . . ., (b) the lawyers took half the settlement, and (c) the justice system settled for squat and didn’t hang any of the bankers with their genitalia stuffed in their mouths. Do I sound bitter?

Several academic papers concluded that Wall Street firms trade on inside information and that “changing the law to fix that may not even be feasible.”ref 372 (Academics actually get paid to come up with such epiphanies.) Bank of America (BofA) did not have a single day trading loss in the first quarter.ref 373 Seems like an improbable run in a straight game. BofA also got caught robbing safe deposit boxes again.ref 374 Recall that the state of California was emptying safe deposit boxes and selling the contents without even inventorying them first.ref 375BofA has also been freezing the accounts of people suspected of being illegal aliens, no doubt out of a deeply moral conviction and support for Trump’s immigration policies.ref 376 One of Morgan Stanley’s highly compensated bankers has been driving for Uber in his free time.ref 377 Any bets on who gets the >$100 billion Uber IPO? Finally, Jeffrey Skilling of Enron fame got out of prison.ref 378 The bankers who helped set up all the off-balance sheet scams have not been released because, well, they never got arrested.

The party isn’t rockin’ until somebody calls the cops or puts an eye out. Until then, the social IQ of the partygoers just keeps dropping. Although nothing is happening yet—the KRE banking index is comfortably 200+% off the ’09 lows and only –20% off its 2018 highs.ref 379 There are, however, stresses building within the banking system. SocGen analysts list four triggers: trade wars, significant market repricing, European policy uncertainty, and a hard Chinese downturn.ref 380 The FDIC monitors “assets of problem banks” and reported a 200% increase during the third quarter of 2018.ref 381 The four largest U.S. retail banks are witnessing consumer stress in the form of credit card losses.ref 382 Scott Minerd suggests that small hikes in lending rates will blow out the zombies (see “Corporate Debt”), causing a wave of defaults that are long overdue.ref 383 Minerd notes, “There are a lot of companies that are zombie companies that survived the last cycle. As these companies have their debt repriced by the market with rates going up, it’s going to be harder and harder (for them) to stay alive.” The credit system is surely at risk if corporate paper starts defaulting. Jesse Felder suggests that “a cottage industry has developed to explain what is behind the dramatic move in Libor.”ref 384 Something is stirring below the placid surface. (Cue the Jaws sound effects.) Europe in general and Italy in particular pose serious risks, as does China. Whalen Global Advisors claims that net interest income for all U.S. banks will be declining by early 2019 and that, “the superficial narrative parroted by Wall Street pundits that rising interest rates are good for banks and other leveraged investors will be shown to be complete nonsense.”ref 385 Cheap funding is over. “Banks in the U.S. are about to get caught in an interest rate squeeze of gigantic proportions,” causing shrinking profits and—wait for it—a recession! There will be 11 Wells Fargo employees who couldn’t care less because they won a half billion dollars in California’s Powerball.ref 386

“From the economy’s vantage point, instead of asking how the banks are to be saved ‘next time’, the question should be, how should we best let them go under.”

~Michael Hudson, Levy Economics Institute

The Fed

“You will never see another financial crisis in your lifetime.”

~Janet Yellen, spring 2018

"I do worry that we could have another financial crisis.?

~Janet Yellen, fall 2018

“The lower-for-longer approach promises, in effect, to allow the economy to boom. The FOMC needs to make a credible statement endorsing such an approach, ideally before the next downturn.”

~Janet Yellen

“We have undertaken to stabilize economic forces, to mitigate the effects of the crash and to shorten its destructive period. I believe, I can say with assurance that our joint undertaking has succeeded to a remarkable degree.”

~Herbert Hoover, 1930

“The Fed can change the way things look, but it cannot change what they are.”

~James Grant

“The last duty of a central banker is to tell the public the truth.”

~Alan Blinder, former U.S. Federal Reserve vice chairman

“For more than three decades, macroeconomics has gone backwards.”

~Paul Romer, winner of the 2018 Nobel Prize in economics

The Fed has been oversteering and overmedicating the economy since 1913. The Fed promptly spawned a credit bubble in the 1920s that led to the biggest crisis in our history and was, in my opinion, the primary cause of the Great Depression.ref 387 The emergence of Greenspan sent us through a series of micro-crises ultimately leading to the big one in 2008–09. (Actually, I think the Big One is coming, but that is conjecture.) Everybody agrees that Greenspan kept rates too low for too long, laying the groundwork for the crisis. In response, Bernanke and eventually all central bankers began coloring way outside the lines. What did he do? As Stan Druckenmiller puts it, “They tripled down on what caused the crisis, and [they] tripled down globally.”

“Data dependent Fed: average real GDP growth during QE was 2.2%. During no QE and the 5 rate hikes it’s averaged 2.1%.”

~@GreekFire23, smart guy—possibly in prison or Goldman (but certainly not both)

Now the central banking cartel has created what appears to be an epic bubble of equities, bonds, and pretty much anything denominated in dollars. Bernanke opened the tap; Yellen kept it open and went for a smoke. All central banks served up buckets of punch, and the global economy became a sloppy drunk. Jerome Powell was left with the job of getting everybody to the vomitorium and cleaning up the vomit. Some think he’ll blink and let the party resume, but don’t forget that in 2001, the Fed hiked rates 50 basis points—a monetary bitch slapping—with the Nasdaq already 40% off its 2000 highs. Let’s hope that as Jay moose-knuckles the rates higher he has a steady, consistent hand on the rudder:

“I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses . . . we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy. I think there is a pretty good chance that you could have quite a dynamic response in the market.”

~Jerome Powell, chairman of the FOMC

“There’s no reason to think this cycle can’t continue for quite some time, effectively indefinitely.”
~Jerome Powell

“The US is on an unsustainable fiscal path; there’s no hiding from it.”

~Jerome Powell

“When it is time for us to sell [Fed assets], or even to stop buying, the response could be quite strong.”

~Jerome Powell, before becoming FOMC chair

As @GreekFire23 said—I can’t believe I just typed that—the average GDP growth during QE was only 2.2%. During the subsequent period witnessing multiple rate hikes GDP has averaged 2.1%. One might ask “What is it good for?” The answer could be “Absolutely nothing! Say it again!” Economists at the St. Louis Fed published a report card on the efficacy of QE and, shockingly, concluded that it was largely a bust.ref 388 The Fed made stone soup hoping that the free market would start bringing things to add substantial ingredients. While QE pushed up asset prices as intended, the economy limped along feebly. The Fed was trying to shove credit into a saturated credit market. This is how it plays out in my head:

Borrowers: “We would like to borrow some money.”

Savers: “OK. Here is what it will cost.” (Some haggling ensues.)

Savers: “We have a deal?”

Fed: “That price is too high. We know because we have PhDs! We’ll pound it lower.”

Borrowers: “Deal!”

Savers: “Dufuq?”

So how does QE actually work? In theory, banks can sell treasuries to get cash equivalents to be used as reserves for lending—treasuries are technically not considered reserves. Alas, that is a zero sum game because now cash is depleted elsewhere. When the Fed replaces long-maturity assets with short-maturity reserves via QE, no cash drains and the banks now have larger reserves against which they can lend more money with a 10- to 12-fold multiplier. Richard Koo noted that the 19-fold increase in reserves risked a 19-fold inflation and got . . . crickets.ref 389 Indeed, there was some lending, but arguably not lending conducive to economic growth (share buybacks, for example), and banks stored these reserves at the Fed in interest-bearing accounts more like an annuity to kick off a steady cash flow. The Fed economists who wrote the QE report seemed to question the practical consequences of QE and even the theoretical underpinnings:

“It is not clear that QE should have any effect and it might actually be detrimental to the efficiency of the financial system. . . . QE works much as conventional accommodative policy does—it lowers bond yields and increases spending, inflation, and aggregate output. But we should be skeptical of this interpretation.”

Frequent and willing sparring partner and vice president of the St. Louis Fed, David Andolfatto, often tells me that this cash-for-treasury swap is no big deal:

“I do not think QE facilitates credit creation. QE simply relabels the public debt as ‘interest-bearing reserves’ instead of ‘interest-bearing treasuries’.”

~David Andolfatto, vice President of St. Louis Federal Reserve

By the end of the ensuing debate, I find myself asking something like, “Then why did they do it?” I guess we will find out if it is no big deal in reverse, too, as they dehydrate the markets (drain liquidity) via quantitative tightening (QT). But I am ahead of myself.

Charles Gave notes, “purchasing government bonds from domestic banks, so flooding them with reserves, the Fed can engineer an increase in the U.S. monetary base." OK, but as Andolfatto would say, "so what?" Based on efforts in the U.S. and in Japan, where QE was big, or in Canada, where no QE is undertaken, the skeptics in St. Louis wondered whether there was any evidence that QE increases inflation or, more important, real GDP: “Evaluating the effects of monetary policy is difficult, even in the case of conventional interest rate policy. With unconventional monetary policy, the difficulty is magnified . . . perhaps the private sector can do a better job than the central bank in turning long-maturity debt into short-maturity debt.” We also got a report out of Deutsche Bank claiming that, with respect to “unconventional” monetary policies such as QE and negative interest rates, “the impact on the economy was negative.”ref 390 Prominent economist Daniel Lacalle concurs: Monetary stimulus does not work.ref 391

“In my view it failed, 100 percent. It caused the stock market to go up because people took all that liquidity and invested it in the stock market, but it did not cause the economy to grow even 10 basis points faster.”

~Steve Eisman on the effect of QE

One can only imagine what’s coming next and how we get out of this monetary lobster trap. Maybe QT will be a bust just like QE—no big deal. Oddly, Richard Koo claims he could find no papers whatsoever describing how to exit QE and submits that it might be quite a bitch—a Hotel California moment. Some say the Libor rate that determines corporate borrowing rates is already tightening ahead of the Fed. This is way above my pay grade, but the folks at BMO Capital Management seem seriously concerned.ref 392 They say a slow, methodical and putatively painless natural unwind by paying 2.5% on reserves will add $50 billion to our already bloated deficit every year. Why? Because it will deplete the cash flow from the Fed to the U.S. Treasury, which uses the cash flow to pay bills. Many don’t realize that the “FAST Act”, which authorized the U.S. government to plunder excess capital from the Federal Reserve, established a mechanism for the Fed to monetize Federal debt.ref 393

“Fed officials will be under enormous pressure to accommodate swelling federal deficits—even if it means pretending that the central bank is a source of revenue to the Treasury. The operative model of political economy here is Argentina in the 1970s.”

~Chris Whalen

“One of the characteristics of a struggling republic is the inability to separate its central bank's resources from the fiscal largesse of the federal government. Using central bank resources to avoid addressing funding of the government is a sure path to runaway inflation, economic decline, and periodic financial crisis.”

~David Kotok, co-founder of Cumberland Advisors

“Stop talking about ‘The Fed’. Talk about central banks. . . . Their balance sheets are the highest they've ever been.”

~Jim Bianco, founder of Bianco Research

Jim’s point is that everything you see the Fed doing is being done across the globe. The Bernanke QE model was implemented on industrial scales without even beta testing it. QT will be carried out with equal care and preparation.

“The success of our institution is really the result of the way all of us carry out our responsibilities. We approach every issue through a rigorous evaluation of the facts, theory, empirical analysis, and relevant research.”

~Janet Yellen

“Congress has taken away some of the tools that were crucial to us during the 2008 panic. It’s time to bring them back.”

~Bernanke, Paulson, Geithner

“Rubbish, they had all the tools necessary. They just never recognized beforehand that the economy was a massive credit bubble—just like it is now.”

~Albert Edwards, Societe General (SocGen), in response to the Bernank

Let’s finish with some quotes that give me pause and may give a few bloggers some quote porn.

“Although we work through financial markets, our goal is to help Main Street, not Wall Street.”

~Janet Yellen

“If the Fed can cause a 500-basis-point change in interest rates, it is absurd to wonder if monetary policy is important.”

~Paul Romer

“The Federal Reserve may have to press harder on the brakes at some point over the next few years. If that happens, the risk of a hard landing will increase.”

~Bill Dudley, former president of the New York Federal Reserve and former economist at Goldman Sachs

“Central bankers are like stupid magicians: They are as surprised as the audience when they pull a rabbit out of their hat that they just put there.”

~Sean Corrigan (@TrueSinews), Cantillon Consulting

"History suggests that if the Fed waits too long to remove accommodation at this stage in the economic cycle, excesses and imbalances begin to build, and the Fed ultimately has to play catch-up."

~Robert Kaplan, president of the Dallas Federal Reserve

“I see roughly equal odds that the U.S. economy’s performance will be somewhat stronger or somewhat less strong than we currently project.”

– Janet “Yogi” Yellen

“We’ve become so complacent about central bank policies that we’ve quietly tolerated a rise in financial asset prices to the point where even a little inflation would devastate portfolio returns.”

~Eric Peters, CIO of One River Asset Management

“We have been suppressing rates. If rates rise it’s a ticking time bomb.”

~Richard Fisher, former President of the Dallas Fed, speaking in 2015

“Everything we see about the near-term outlook is quite strong.”

~Ben Bernanke, July 2018

“The Fed has acknowledged no failures. All the experiments have been successful, every one: no failures, no negative side-effects, no perverse consequences, only diminishing returns.”

~Peter Fisher, former official at the New York Federal Reserve

“Try to publish an article critical of the Fed with an editor who works for the Fed.”

~J. K. Galbraith, Harvard University and author of The Great Crash, 1929

“Even when things happen in the economy that would otherwise have triggered inflationary episodes, they don’t today because financial markets trust the Fed to do the right thing to keep inflation under control.”

~James Bullard

The yield curve will soon be inverted
As many have clearly asserted
When everything tanks
The fault? ...central banks
Their policies? ...clearly perverted

~@TheLimerickKing

Human Achievement

“Opportunities don’t happen; you create them."

~Chris Grosser

We are now transitioning from economics and markets to the political and social events of 2018. As noted at the outset, I have over a hundred pages of quotes, notes, and anecdotes about Trump, Russian collusion, and the nefarious activities going on in the Deep State. It has grown progressively harder to wrap my brain around what I am actually witnessing. I can no longer write a chapter or two. I may be able to write a book, but certainly not in the months of November or December. It is what it is. I have focused on what catches my eye and what is achievable.

Random topics that come across my field of view that I capture are loosely defined as "Human Achievement". Who could forget the heroics in Thailand as cave divers saved the Thai soccer team?ref 394 Buddhist teachings by their coach helped them cope with stress and lower their oxygen intake for two weeks. Two heroic cave divers found them.ref 395 Divers from around the world suffering from toxic masculinity—no pussy hats or man buns on those guys—pulled them out. Meanwhile, Elon Musk was show boating with a useless submarine and calling one of the heroes a pedophileref 396 and then gets sued.ref 397

Although watching sports is too time consuming for me, I catch a lot on the fly. 2018 had some unlikely sports heroes. A 36-year-old accountant, Scott Foster, was called to play goalie for the Winnepeg Jets. The night before he was playing rec league for "Johnny's Icehouse" and probably did so the following weekend. On that one memorable night, however, he played 14 scoreless minutes in the Big League.ref 398 A 32-year old rookie got called up to play for the LA Lakers, came off the bench, and drained 19 points.ref 399 (It's not quite like those six three-pointers by the autistic kid,ref 400 but it's still amazing.) The winning Superbowl coach was coaching high school football nine years earlier.ref 401 (Trivia point: years ago, Cornell fired one of a long string of marginally successful football coaches. He was George Seiferth. You can't get talent into the Ivies.) The Boss of the sports world was an approximately 12-year-old fan who, when handed a game ball by the infielder, had the smarts to give it to a seriously hot chick sitting behind him... but not before switching it with the ball he bought from Dicks Sporting Goods.ref 402 That's metagame.

The PyongChang Olympics had six Cornell alums (mostly women's hockey).ref 403 In my opinion, women's hockey is as good to watch as men's hockey. Meanwhile, American Elizabeth Swaney achieved everybody's dream by competing for Hungary in the half pipe while being awful—seriously wretchedly bad.ref 404 She spotted a seam in the rules that qualified her for the Olympics by amassing top-30 finishes at international events. She traveled the world competing in all half-pipe competitions with fewer than 30 entrants.ref 405

Other bulletable achievements included:

  • Tiger won his first tournament since 2013. It's all about redemption.
  • Jordan Bohannan tied Chris Street's University of Iowa record for most consecutive free throws, 34, that had withstood two decades. Chris had died in a car accident 3 days after graduation. Bohannan, stepping up to the line to set a new record, looked at his brother in the stands, bonked it against the iron, and pointed to the sky: "It was not my record to have." Superheroes don't always wear capes. I am tearing while I type.ref 406
  • In March madness, #16 seeded UMBC beat #1 seed University of Virginia 74–54, busting every March Madness Bracket in the World.ref 407
  • Drexel came back from a 34-point deficit, setting a new comeback record for Division I basketball.ref 408
  • LA Tech football team lost 87 yards in a single play.ref 409
  • Watch this kid play catcher; you wouldn't notice if I didn't tell you he has only one arm.ref 410(hotlink) I hope he applies to Cornell.

"I think the question we have to ask ourselves is this: What is the right way to behave to honor our sport and to respect our opponents?"

~Martina Navratilova, returning Serena Williams' serve

And then there were the darker moments. Serena Williams reached hero status by delivering her latest kid and in the blink of an eye making it to the finals of the US Open Singles Championship.ref 411 In the final match, however, a serious shitfit at the line judge put a dark smudge on the game. The authorities kowtowed (which is a Chinese term that translates to "acted like pussies"), causing much of the glory to be taken away from the winner, Naomi Osaka.ref 412 It wasn't Williams' first outburst.ref 413

And for some more Bullets from the Dark Side:

  • Phil Michelson six putted (if you include the two-stroke penalty for whacking a moving ball) and then claimed (admitted) it was tactical to avoid an even worse outcome.ref 414 The Mets signed him because he could hit a moving ball.
  • USA Gymnastics admitted it had more coverups of pedophilia than the Catholic Church.ref 415
  • Khabib Nurmagomedov—Khabib for short and for obvious reasons—beat Conor McGregor in the UFC. (Khabibe literally wrestled grizzly bears as a kid,ref 416 so it was not a shock.) Risk was brought to a new level when a huge and arguably most dangerous sports brawl in history broke out.ref 417
  • A Russian curler was charged with doping using a well-tracked substance.ref 418 Something is fishy...so many questions.
  • Another female Russian Olympian donning a shirt stating, "I don't do doping" tested positive for doping.ref 419
  • Nigerian soccer star Emmanuel Eminike divorced Miss Nigeria 2013 to marry Miss Nigeria 2014.ref 420
  • The first zero-emissions solar-powered boat is said to be circumnavigating the globe this year.ref 412Correct me if I am wrong but one of Magellan's zero-emissions wind-powered boats made it around some time back. Contrary to popular opinion, Magellan did not.

"The art world is the biggest joke going. It’s a rest home for the overprivileged, the pretentious, and the weak."

~Banksy

Away from sports, Banksy punked the art world when, seconds after the auction gavel fell on one of his $1 million paintings, a mechanism hidden in the frame shredded it.ref 422 The art world punked him back by declaring the painting's value just doubled.ref 423 A guy jumped from 25,000 feet without a parachute and landed "safely" in a net.ref 424 Another got the coveted hat trick when, after having been mauled by a bear and bitten by a rattlesnake, he got attacked by a shark.ref 425 While astronomers recorded the first video from the surface of an asteroid,ref 426 others identified a new type of aurora and named it "Steve".ref 427 Watch this girl playing a concerto on the violin with a prosthetic arm connected from her collar bone.ref 428 That is toxic femininity! This woman piloting a passenger jet has the engine blow off the plane and blew a hole in the plane sucking a passenger out. She displayed nerves of steel.ref 429(hotlink)

If you dig long and hard, you eventually find the bottom of the barrel. A couple raised $400,000 for a homeless vet and just squandered it before the courts could intervene.ref 430 The author of "How to Murder Your Husband" was arrested for allegedly murdering her husband.ref 431 A man who thought he was possessed by crocodile hunter Steve Irwin was arrested for tranquilizing and raping alligators.ref 432

In the non-hominid division, Beadnose (Bear #409) displayed impressive salmon-sourced cellulite, toppling the reigning champ, Otis (Bear #480), in Alaska's 2018 Fat Bear Championship (Figure 46).ref 433 The Flying Dog Championship witnessed a new jumping world record of 31 feet.ref 434 I'd like to see Beadnose try that.

Figure 46. Beadnose Bear at top feeding weight.

Had to save two for last. Ten players and two coaches of the Humboldt Broncos Youth Hockey Team coming from Humboldt, Saskatchewan were killed in a bus crash.ref 435 They were dominant on the ice. GoFundMe raised a $15 million memorial fund,ref 436 but I don't know how that town of 5,578 inhabitants will recover. RIP boys. (I'm tearing again.) Keep it in perspective folks.

You know all those fires in Boston that lit simultaneously due to an over-pressurized gas line (without a peep from the news questioning terrorism)?ref 437 My son was at the "red dot" chatting with me on the phone when they started. Like I said, keep it perspective.

Nature

"I know what it means to know something, and it's hard."

~Richard Feynman, physicist

Every year nature takes a bat to us in predictable and not-so-predictable ways. I have long stayed away from the global warming (or climate change, whatever) debate just because it is too rancorous, and I have little to offer. I once told the Secretary of Energy I was agnostic. After cleaning snot off my glasses I explained that I had not put in the 10,000 hours needed to form an educated opinion. For that matter, few have. Thus, all my colleagues in science with relatively few exceptions will sign off on the notion of anthropomorphic global warming with what is a vote of confidence in their scientific brethren but inadequate self study, providing an overstated scientific consensus. Here's what I will say. There are highly credible scientists on both sides now, not just whackadoodles looking for ten minutes of fame. I was shocked when I started Googling some of the deniers on this list to find out they they are both prominent and disbelievers.ref 438 Let me be equally clear because I am a wuss and so you don't hang some PC label on my sorry butt:

If I had to bet a paycheck, I would bet anthropogenic global warming is real. If I had to bet ten paychecks, I would bet that we are going to do the experiment despite the best intentions of those who worry. Resource depletion is what scares me.   

Let me make one important point: you can't watch the weather or make any anecdotal observations and say, "See. I told you so. You guys are full of crap." You sound like an idiot to anybody who is not an idiot (unless you are being a snarky punk, which is fine). Hundreds of hurricanes have hit North America in the last century; nothing says the last 20 are anthropogenic. Snow in October and warm days in January mean nothing:

"This week in 1936, North Dakota was 121 degrees. This week in 1913, California was 134 degrees. This week in 1901, hundreds of New Yorkers died in the streets from the heat."

The warming trend, even if raging and eventually creates wind chill factors of 114 °F, is well inside the detection limits of simple human observation. With 365 days in a year, 100 years in a century, and more metrics of weather than pregnant teenagers, do you know how easy it is to break an all-time record? Those who claim to see patterns are being Fooled by Randomness. And the celebrities all know there is global warming. Remember when the star in TV medical drama "Quincy, M.E.", Jack Klugman, testified to Congress about health care? Most celebrities are idiots as are members of Congress. Why do you think they didn't study robotics or bioengineering? Only good science supported by good data analysis can tease signal from the noise. And what may prove to be the most ironic part of the global warming debate is that NASA scientists have found that a "big crack opened in the Earth's magnetic field and plasma started pouring in."ref 439 Meanwhile, a disturbing lack of sun spots and solar flares suggest an impending mini ice age is coming.ref 440 "Men plan, God laughs" or as Emily Litella would say, "Never mind."

Why don't I worry about climate change? It is for practical reasons. Humans are not proactive; they follow the Law of the Commons, also known as the Law of Selfish Bastards. Look how happy the French are after being told they will get to pay a nominal energy tax to stop global warming. There was some serious heat on the streets of gay ol' Paris. We are going to do the experiment.

We had lots of hurricanes this year, with Hurricane Michael being the headline grabber. As it wiped out Mexico Beach, Florida,ref 441 it appears to have whacked a handful of our stealth bombers inside a hanger.ref 442Although there is a nice tutorial on why not every stealth bomber can be moved on short notice,ref 443 it's less obvious why you would store billions of dollars worth of hardware in a hanger that was not hurricane proof. Moving on to Hurricane Florence and North Carolina, we find that only 3% of homeowners have flood insurance and those that do also have counterparty risk; the Federal program providing flood insurance is $20 billion in the hole.ref 444 On a funny note, Hurricane Florence appeared to be ravaging a reporter struggling to hold his ground against gale-force winds to get a story...until two guys strolled by in shorts:ref 445

Figure 47. Risking life and limb.

Of course, fooled by randomness applies to other events like activity on the Ring of Fire. For those not paying attention, we are not talking about a Bangkok-hot curry but rather the ring circumnavigating the Pacific Ocean loaded with volcanic and other geological events. Seems to be acting up a lot lately. This year's Hawaiian volcano reminded homeowners that their houses built on formerly red hot lava might get squeegeed away, and they may no longer own ocean front property. Where some see disaster others see opportunities: can you buy futures on land that is not yet above sea level? I also waited with bated breath for Paul Krugman to write about his "broken pineapple fallacy". The Yellowstone caldera—an ancient super volcano—keeps rising a lot and spewing reminders that rare events happen.ref 446 By the way, "Krakatoa" by Simon Winchester is a great book and offers a fascinating description of plate tectonics.

The anti-vaxxers may have a case, but the evidence against a number of claims is profound (convinced me). I have zero doubt that, all things considered, vaccinations save lives. In regions where anti-vaccination campaigns have gotten legs, we are starting to see epidemics reappearing for the first time in many years.ref 447Disturbingly, polio has reappeared in Venezuela.ref 448 I guess we didn't eradicate it after all. I'd be vaccinating against that one. The only thing that scared me as a kid were (a) my Dad's stink-eye, and (b) images of iron lungs and polio wards:

Contrary to popular opinion, scientists in Big Pharma would love to cure diseases; there is no conspiracy there. Popular opinion is also correct that marketing teams will try to get you to snarf down as much healthcare as theoretically possible. We continue to be seriously outnumbered in our battle against bacteria. I think those in the know are worried. Bacterial resistance to antibiotics is appearing before the drugs hit the marketplace. They are becoming non-cost effective to produce. At the street level, new flesh-eating bacterial infections of the genitals are somehow linked to best-selling diabetes drugs, causing the flesh around the genitals to literally rot away.ref 449 The CDC is now warning of an antibiotic-resistant strain of gonorrhea.ref 450 An oral cancer epidemic in men is linked to oral sex.ref 451 The message is clear: abstain. A mind-controlling parasite—yes, these things are precedented in biology and can have wildly cool effects on animal behavior—has been found in cat feces.ref 452If you are eating cat feces you now officially have shit for brains. On the bright side, the virus has been linked with an almost reckless entrepreneurial spirit (not joking). It has been identified and named Elon Muskovitis (joking).

Of course, Nature's wrath amplified by Man's poor judgment was on full display as fires ravaged California. I was in a house fire in high school; I jumped out of a second story window into –2 °F weather buck naked (but who hasn't done that a few times.) People are dying from watching TV shows about fires. You have seconds to get the hell out. When your neighborhood is on fire, get out. Pepperdine University made the call to leave all students on campus.ref 453 That could have been a tragedy of a higher order. Some criticize the administration for commandeering the resources of all firefighters in the area. Others criticize them for doing it on purpose to ensure the university was protected. It is an interesting hypothesis, but I cannot fathom that level of sociopathy, even at a university.

I watch people lamenting the loss of their house and memories and think, "You're alive, your belongings were tacky, and your memories are safe in the cloud. Get over it." It is altogether different, however, when your house, school, church, stores, and employer burn to a crisp like in the ironically named Paradise, California. You really do have nothing now. It's not Yemen, but it's bad. There are regions in California that got one inch of rain since May in a much more secular (multi-year) draught. It was only a matter of time. I have read that the 20th century was the wettest of the last ten centuries in the State of California. It seems possible that millions moved into a desert without realizing the consequences.

Humans are a durable lot; they do not take guff from Mother Nature without a fight. In a battle against the weather, Volkswagen shoots off "hail cannons" near their Mexican factory to prevent formation of car-damaging hail stones, denying Mexican farmers rain for their crops.ref 453 We managed to finally exterminate the last white rhino because, well, who needs another large mammal that doesn't even make good stew meat.ref 455 Round-up is suggested to not only be solving our weed problem, but also eradicating those damned bees.ref 456 I'm sure Monsanto will figure out how to pollinate everything at some nominal cost. We are winning the war against sea creatures by filling the oceans with remarkable heaps of single-use plastic, generating an enormous wad of crap called the Great Pacific Garbage Patch.ref 457  The Chinese are rumored to be planning condos or a military base. 

Middle East

“We’re going to take down seven countries in five years. We’re going to start with Iraq, then Syria, Lebanon, then Libya, Somalia, Sudan. We’re  going to come back and get Iran in five years.”

~Wesley Clark, Four-star general in 2002, quoting a peer

According to Ellen Brown, none of these countries is "listed among the 56-member banks of the Bank for International Settlements (BIS). That evidently puts them outside the long regulatory arm of the central bankers’ central bank in Switzerland. The most renegade of the lot could be Libya and Iraq, the two that have actually been attacked." And from an interview long, long ago...

Lesley Stahl: "We have heard that half a million children have died. I mean, that's more children than died in Hiroshima. And, you know, is the price worth it?"

Madeleine Albright: "I think this is a very hard choice, but the price — we think the price is worth it."

That 1996 60 Minutes exchange hasn't aged well.ref 458 In the sequel, we pick up the plotline in the same country by following the antics of Bush the Younger. Press secretary Ari Fleisher referred to it as "Operation Iraq Liberation",ref 459 somehow not seeing a problem with the acronym. I find our Middle East policy to be confounding except for one guiding principle: keep them all fighting. It is not really about oil but about war and banking. Following the collapse of the Soviet Union our multi-trillion-dollar defense industry needed a new foe. (Bombing Canada was a non-starter.) As we mow through conflict after conflict it all makes sense if you assume that our goal is to keep the Middle East in a perpetual state of war. Quadafi gets too strong? Kill him. Assad gets too strong, throw a false flag and bomb him. We also don't hesitate to remind those that we haven't bombed (yet) about the merits of the petrodollar: we agree to buy oil in dollars and, in return, they agree to fund our federal deficit and prop our asset markets with these dollars.

In case it isn't obvious, we don't really like democracies. As The Donald showed in 2016, we don't know how to control them. We are having issues with that will-of-the-people malarkey. They're tolerable for Europe but less developed regions—the shithole countries as the Donald is known to say—require focused targets for bribes and threats of death and dismemberment. Dictators are optimal—Shahs for example—but a small gaggle of warlords is manageable. Stephen Kinzer's Overthrow describes 13 explicit US-backed coups that overturned foreign leaders, including democratically elected ones.ref 460

Our adventures in the Middle East have cost us an estimated $6 trillion dollars. Some is salary paid to soldiers but most is going to companies as part of our No Defense Contractor Left Behind Program (NDCLBP). Take a look at the price chart of Boeing, Lockheed Martin, Halliburton, Raytheon, or any other defense contractor (Figure 48). They are well bid based on both past and future earnings. Trump promised to be the least militaristic president—a low bar—and then increased our military budget.

Figure 48. Share price of Boeing

The Saudi regime is ruthless. They fly planes into buildings, chuck gays out of windows, and behead people for non-violent crimes. Women are tortured who dare to drive a car, remove their hijabs, or have the audacity to get raped. If you are the wrong person in Saudi Arabia, Islamophobia is not even a theoretical construct because the fear is not irrational. You wanna see a hero in the flesh? She's Iranian (not Saudi), quite possibly dead, but now an iconic image of global feminism, a meme:

Figure 49. Principled when it's neither cool nor safe.

Meanwhile the Saudis are slaughtering Yemenis (Houthis specifically), risking starvation of as many as 18 million of them.ref 461 Let's go to CNN headquarters to get the latest on the global uproar:ref 462

Rand Paul: "We are refueling the Saudi bombers. So we are essentially part of the Saudi campaign. We are helping them choose targets. It is said that thousands of civilians have died in Yemen because of this. Yes, we need to have a debate over this."

Wolf Blitzer: "So for you this is a moral issue cause, as you know, there are a lot of jobs at stake certainly if a lot of these defense contractors stop selling war planes, other sophisticated equipment to Saudi Arabia. There’s going to be a significant loss of jobs and revenue in the United States. That’s secondary in your standpoint."

The stark truth of that must-see exchange slathered with latent sociopathy leaves me gagging on my vomit. The Pentagon insists we are minimizing civilian casualties when it's just infanticide masquerading as politics. "OK guys: let's keep it under 18 million if we can." US foreign policy is fostering this carnage by providing the Saudis with "the engines of death." You can blame Trump but don't you dare blame just Trump.

Enter one Washington Post journalist named Khashoggi. He gets suckered into an embassy, sliced into pieces, and fed to the camels.ref 463,464 The journalists kicked it into gear and denounced the horror.

"You gonna eat that?"

~Jeff Dahmer to Mohammed bin Salman

Here is my very unpopular take: It was a bit gruesome, but not by Saudi standards that we enthusiastically tolerate. He is also just one damned journalist. Let's put this in perspective: 18 million dying Yemenis versus One Dead Kashoggi (ODK). The world has gone collectively sociopathic on this one. You know why y'all care about some guy whose name you didn't even know six months ago and still can't spell? It is, in part, because Journalists Lives Matter (JLM), and psychopaths in high places are telling journalists to tell you what to worry about. Wake up or shut up. Let's get those priorities in order. And as happened before, Nassim and I have locked arms once again:

"A single journalist is a tragedy; ten thousand Yemenis is a statistic".

~Nassim Taleb channeling Joseph Stalin

Epilogue: The journalists are now starting to notice the carnage in Yemen. Alas, it was never about Khashoggi or Yemen. They are just chess moves.

Syria

“We’ll be coming out of Syria, like, very soon. Let the other people take care of it now.”

~Donald Trump

“A new confirmed chemical attack in Syria would pose a dilemma for President Trump, who … recently said he wants to get the United States out of Syria.”

~NYTimes

"Just so there's no confusion here, if the Syrian regime uses chemical weapons we will respond very stronglyand they really ought to think about this a long time."

~John Bolton

Three days after Trump's announced pull out there was a chlorine gas attack attributed to Assad. That is some serious bad luck. A leaked 2006 memo shows we have been trying to "election monitor" and destabilize Syria for quite some time.ref 435 For several years I have been writing about false flag attacks under the Obama administration trying to georelocate Assad's remains across the Levant. A Sputnik article predicted fake chlorine gas attacks were imminent.ref 466

Figure 50. 2014 Department of State tweet declaring "Mission Accomplished: "Heckuva a job Johnny!"

A disturbing trend is that those pulling off such scams are getting sloppy, relying increasingly on simply controlling the press coverage. There are, however, rogue pundits who refuse to play along. Seymour Hersh declared the chlorine attacks and anti-Syrian rhetoric to be a crock.ref 467 Tucker Carlson, as he so often does now, stepped out on a limb and gave a brilliant must-see diatribe denouncing the neocons for marching us toward a military conflict.ref 468  Pat Buchanan joined with the doubters.ref 469 And, of course, Russia’s Ambassador to the EU in Syria declared it was a complete farce, a hoax concocted by the ‘white helmets’ to justify US forces to bomb Assad.ref 470 I did an RT interview on the chlorine gas attacks as follow up to the Skripal poisonings (see "Nerve Gas Poisonings"). I was so brain dead trying to keep it all straight that I Freudian slipped into a Skripal poisoning plotline before the interviewer reeled me in.ref 471 German Chancellor Angela Merkel denounced the attacks as evidence we failed to eradicate Assad's chemical arsenal, but Germany refused to enter the fray.ref 472 British ambassador to the United Nations, Karen Pierce, blamed the Russians of course.ref 473 (She must have slipped plotlines too.)

Social media dismembered the story. You would have time to run from the house, admittedly coughing and feeling really crappy, maybe even dying later.ref 474 The stacks of bodies inside the house smelled wrong, and the notable absence of sick survivors was odd.ref 475 The bodies were in different states of decay, showed assorted traumas, and displayed blood accumulating in the wrong places. (I'm sure there are Middle Eastern startups that provide bodies on-demand—there is no shortage—but the quality control might be lacking.) Most tellingly, the same bodies were being recycled for different photos.ref 476 One kid claimed he was walking along the street (probably staring at his cell phone), grabbed without warning, and hosed down in front of camera-wielding observers capturing his ordeal.ref 477 An intrepid western reporter, Robert Fisk, actually went to the scene—I'm surprised too—and found nobody knew about the attacks.ref 478 That's a special kind of PTSD. The public seems to not buy into these stories. Mike Krieger of LibertyBlitz blog caught a Fox News Twitter poll asking whether people were for or against attacking Syria because of the chlorine gas attack.ref 479 With 49,000 votes tallied—a non-shabby sample size—69% did not support action. Within two hours, 140,000 pro war supporters joined in and supported the attacks (Figure 51). We are all getting duped.

  

Figure 51. Fox poll swinging wildly (h/t @LibertyBlitz)

Who are these "unarmed and impartial" good Samaritans—these caped crusaders—known as the "White Helmets" who clean up the messes caused by pro-Assad bad guys?ref 480 They are called the Syrian Self-Defense Group. Max Blumenthal, a journalist with considerable experience in the Middle East, calls them a "shadowy group" who also appear to be creating the messes (the arsonist-firefighter combo platter.)ref 481 White Helmeted caped crusaders by day, dark villain mad bombers by night. According to Max, the group is part of a well-funded larger organization called the United States Agency for International Development (USAID) that travels the globe intervening in places like Cuba and Venezuela. The Netherlands figured this out and pulled their support.ref 482

I repeat my original assertion: our interest in the Middle East is more about war than oil. Eisenhower nailed it in his farewell address.ref 483 It's about money and power—the military-industrial complex. I found this Creature from Jekyll Island-like documentary about banking and war to be entertaining.ref 484

Nerve Gas Poisonings

A former colonel in Russian military intelligence who turned MI6 agent and his daughter Yulia were found unconscious on a public bench in Salisbury, England. Headlines flashed that a novichok-class nerve agent put the Skripals into comas. They eventually recovered and were whisked away to a secret location for their safety.ref 485 This is just spy versus spy stuff at best, but Prime Minister Theresa May and the British authorities were quick to condemn the Rooskies:

"It is now clear that Mr. Skripal and his daughter were poisoned with a military-grade nerve agent of a type developed by Russia. This is part of a group of nerve agents known as novichok. Based on the positive identification of this chemical agent by world-leading experts at the Defense Science and Technology Laboratory at Porton Down, our knowledge that Russia has previously produced this agent and would still be capable of doing so."

~Theresa May, Prime Minister of the UK

This is a heap of Moose and Squirrel feces. "Hey. There's novichok in the mass spectrum; let's start World War III!" The authorities were lying their asses off. The hyperbolic language—"military grade" to distinguish it from the crap sold at Walmart—and the suggestion that only the Rooskies know how to make it is hogwash. These novichoks are some of the simplest organic molecules with biological activity.ref 486 They are no harder to synthesize than Tylenol, so I called them out:

Although that tweet got picked up later,ref 487 it was crickets at the time. As the international sabers began to rattle loudly, I took another Tweet at it:

"That Russia Tweet was a fkn DAISY CUTTER man you are controversial. I applaud it."

~Tony Greer, @TGMacro  

That "f*cking daisy cutter" did the trick. It was all over the international press that a Cornell chemist threw a flag. As a nouveau Roosky apologist I found myself on George Galloway, Russia Today (RT),ref 488 Stranahan and Nixon on Faultlines,ref 489 Scott Horton,ref 490 and a missed opportunity to hit Al Jazeera. I was warned by nervous Cornell authorities about the propaganda machine RT, to which I asked, "Worse than CNN?" It also brought Tweeters into my feed from intelligence organizations prompting me to STFU.

The UK authorities say that the incidents in Amesbury and Salisbury are linked, but Professor of Chemistry at Cornell University, Dave Collum, told RT that “it’s impossible to make a connection as there’s been no data presented” to the public to back those claims. He also reiterated that London’s statements of only Russia being capable of producing the novichok chemical were “totally false.” He described the nerve agent as “a simple compound,” which is actually just “three steps from commercially available materials." “I’ve put it on a final exam in my course… and they [the students] all got full credit. It was so easy, I knew none would lose credit because it’s like asking a bunch of bakers to make chocolate chip cookie recipe,” the US chemist said.

~RTref 491

The boys and girls at Britain's Porton Down—the nerve center of the UK chemical weapons program(me)—refused to finger the Rooskies,ref 492 causing the rhetoric to target motive:

"There is no doubt the nerve agent used in the attack was the military-grade nerve agent from the Novichok series. This has been confirmed by specialists, our specialists,...There is also no doubt that the Novichok was produced in Russia by the Russian state. Russia has investigated ways of delivering nerve agents likely for assassination purposes. Part of this programme has involved producing quantities of Novichok agents. The fact that the Novichok was produced in Russia and the fact that Russia has a history of state-sponsored assassinations and the fact that Russia has responded with the usual playbook of disinformation and denial left us with no choice but to conclude that this amounts to an unlawful use of force by the Russian state against the United Kingdom. All of the UK's actions have been fully consistent with our obligations under the Chemical Weapons Convention."

~Dr. Laurie Bristow, British Ambassador to Russia

Who had the skill and motivation? Russia and any country interested in making it look like Russia did. That narrows it down to pretty much every sovereign state in the World, including, in the vernacular, the "shitholes." According to a private communication from a physicist in Finland, novichoks appear to have been made by the US, Iran, UK, Canada, Czech Republic, France, Israel, Sweden, The Netherlands, and Germany. The head of the military laboratory said his lab had made 'novichok'-related chemicals for testing. His statement was called "unfortunate" by the country's Prime Minister, and then he got fired.ref 493

To test my theory that it was easy to make, I put a question on the final exam of my first-year graduate-level organic chemistry course:

Figure 52. 2018 Final exam in Chem 6660, Synthetic Organic Chemistry.

All got full credit except one kid who obviously will never cut it as a terrorist. It's worse than that: I think you could pour the four critical ingredients in a bucket simultaneously and end up with a punch that would flatten way more than just a bunch of fraternity brothers (at Yale). These nerve agents weren't state secrets: their structures were reported in an eight dollar bookref 494 (that apparently only the Russians can afford) or, if you are particularly tech savvy, Wikipedia.ref495

I wasn't standing alone in my doubt. Craig Murray, former UK ambassador to Uzbekistan, was screaming at the top of his lungs.ref 496 The Spiez Laboratory at the Swiss Federal Institute for NBC-Protection, a division of the Federal Office for Civil Protection, got a sample and claimed it wasn’t even a novichok that whacked the Skripals but rather a substance used by the United States, the United Kingdom, and other NATO states.ref 497 Seymour Hersh didn't buy it:ref 498 “When the intel community wants to say something they say it…High confidence effectively means that they don’t know." Famous British journalist, John Pilger, called the Skripal poisoning "total bolox" and wondered "Why do we journalists write down what governments tell us?"ref 499 (That's a trick question: they are made men and women, many of whom on payroll.) The Ron Paul Institute noted that the British claim of Russian assassinations "reads like another desperate repetition of the falsehoods and insults towards Russia issued by Theresa May’s lame-duck Government."ref 500 The most interesting theory is that the Skripals got shell-fish poisoning from a seafood restaurant they ate at that day.ref 501

The Rooskies blamed Porton Down, which is only eight miles from Salisbury and had recently cut 132 staff (motive), prompting their spokesperson to say, “There’s no way that anything like that would ever have come from us or leave the four walls of our facilities.”ref 502 The internet sleuths dug in. Nobody could understand how a contaminated door nob at the Skripals could fail to kill the Skripals—there is a non-lethal dose, of course, so that logic is wrongref 503—and why nobody else got sick.ref 504 Before long, Skripal was being connected to the Steele Dossier.ref 505 I am not joking. I dissed that idea until more evidence emerged.ref 506

"One should be mindful that the chemical components or precursors of A-232 or its binary version novichok-5 are ordinary organophosphates that can be made at commercial chemical companies that manufacture such products as fertilizers and pesticides."

~Ex-Soviet Scientistref 507

This ex-Soviet scientist who wrote "the book" on Soviet nerve agents was remarkably obtuse, seemingly playing both sides.ref 508 Go figure. One exchange was particularly entertaining:

Mirzayanov: It is obvious to me that Moscow hoped that no one would catch them.

Interviewer: But you published the formula for novichoks eight years ago.

Mirzayanov: I don’t know if the FSB [Russia's security group] saw my book.

As the story began to die down and people were left pondering the whereabouts of Yulia Skripal—maybe with that Vegas security guard?—it happened again. Another couple in Salisbury got poisoned supposedly by somebody filling her Chanel perfume dispenser with eau du novichok.ref 509 She died; he recovered. Theresa May was at it again:

“No other country has a combination of the capability, the intent, and the motive to carry out such an act.”

~ Prime Minister Theresa May on the Salisbury poisonings

“Mr Speaker, we are quite clear that Russia was responsible for this act. As I set out for the House in my statements earlier this month, our world-leading experts at the Defense Science and Technology Laboratory at Porton Down positively identified the chemical used for this act as a Novichok – a military-grade nerve agent of a type developed by the Soviet Union. We know that Russia has a record of conducting state-sponsored assassinations and that it views some former intelligence officers as legitimate targets for these assassinations. And we have information indicating that within the last decade, Russia has investigated ways of delivering nerve agents probably for assassination, and, as part of this programme, has produced and stockpiled small quantities of Novichoks.”

~Theresa May on the Salisbury poisonings

This time they rounded up a couple of Roosky assassins, but that story began to fall apart almost immediately. The two patsies were fingered by two officers who were said to have a "rare skill in memorizing faces."ref 510Hokey Smokes, Bullwinkle: now the are just lying like teenagers. The residue detected in the assassins' hotel room found two months later could not be detected the following day.ref 511 That's not how chemistry works, folks. As they separately walked down the jetway at the airport a camera caught them at the exact same position in the jetway with the exact same time stamp to the second (Figure 53).ref 512 If they were even a second apart, one picture would necessarily show two men. Camera's showed them walking around London far away from the crime scene minutes before the putative crime, walking in the wrong direction.ref 513 The camera angles were also wrong.ref 514 If this was a Russian hit, they have lost their groove; real assassins get the job done (bumper sticker). One disturbingly knowledgeable tweeter noted that serious assassins have an independent team do the reconnaissance.

Figure 53. Fake photos showing two spies at the same place at the same time.

So what is it all about? More sanctions. More Russophobia. More demonizing of Putin. The New Cold War. Theresa May’s Government imposed sanctions on Russia, including the expulsion of 23 diplomats.ref 515 While France refused to play along,ref 516 the US chummed the water:

"This attack on our Ally the United Kingdom put countless innocent lives at risk and resulted in serious injury to three people, including a police officer...To the Russian government, we say, when you attack our friend you will face serious consequences."

~US State Department's Official Statement

The Russians weren't happy:

"The Skripal poisoning was not an incident but a colossal international provocation… Any threat to take ‘punitive’ measures against Russia will meet with a response. The British side should be aware of that."

~Maria Zakharova, Russian Foreign Ministry Spokeswoman

“I simply don’t have any normal terms left to describe all this...expulsions won't go unanswered...I said that the United States took a very bad step by cutting what very little still remains in terms of Russian-American relations."

~Sergei Lavrov, Russian Foreign Minister

Rob Slane of Blogmire blog summed up the situation nicely:ref 517

"It’s all remarkably clever, and it seems to have been specifically designed to generate the impression to the uninitiated that investigators are simply making it up as they go along.”

Any Russian will tell you that when things look bleak, drink vodka. A Bristol distillery promptly offered a new product, "Novichok Edition." Staggering from withering criticism, they found themselves apologizing, as often happens when alcohol is involved.ref 518                                   

Kavanaugh versus Blasey Ford

“We now live in an age that risks a new form of sexual McCarthyism. . .  The best way of assuring that we don’t is to accord every person, regardless of his status, the kind of fundamental fairness we would expect for ourselves if we were accused.”

~Alan Dershowitz, Harvard University

At risk of life, limb, and all forms of appendages, although I punted the ball on a lot of political topics this year, I've got to write about the Kavanaugh hearings because I believe the casual observer missed most of the plot. Quick disclaimer: As a pro-choice atheist I probably have a few bones to pick with Kavanaugh’s politics. Highly respected journalist Ambrose Evans-Pritchard described his dealings with Kavanaugh in unflattering terms years back during the Vince Foster and Whitewater investigations.ref 519,520 (That just got weird fast.) Unfortunately, hearings that were supposed to vet his credentials to be a Supreme Court justice were reduced to one simple question: Is Brett Kavanaugh a drunken serial rapist? Kinda gives me pause.

The protests against Kavanaugh began the minute his nomination was announced. Protesters hired by companies like Crowds on Demand to “astroturf” any issueref 521,522 sifted through stacks of signs opposing all possible nominees to pull out the anti-Kavanaugh signs.ref 523 As the story goes, Christina Blasey Ford (CBF) contacted Senator Dianne Feinstein about a sexual assault by Kavanaugh when she was 15. The details were both sketchy and fluid, possibly because she had forgotten about the whole affair until 2012 counseling sessions dredged up suppressed memories.ref 524 Feinstein paid for a lie detector test and then sat on the story until the time was right to pounce. I suspect that CBF thought she could drop a quick grenade and move on to a new career as a decidedly elevated heroine of the progressive community. As so often happens, all bets are off once the first shots are fired. Her name was leaked, and the journalists were off and running.

Reinforcements showed up. A woman claimed Kavanaugh swaffled her in the face at Yale, but she was decidedly fuzzy on details and it was a bit late to swab her face for DNA.ref 525 Another showed up with the Lawyer of the Porn Stars, Michael Avenatti, claiming she witnessed a dozen Kavanaugh-sponsored gang rapes until she realized how self-incriminating that sounded.ref 526 In an odd coincidence, she had previously filed a sexual harassment suit against New York Life . . . using the attorneys representing CBF.ref 527 (Wait. It gets weirder.) She and Avenatti are now under investigation for bearing false witness.ref 528 A guy claimed he witnessed Kavanaugh rape a woman on a boat until the FBI entered the scene. He lost his bearings fast and found himself out on the gangplank.ref 529 A new Jane Doe sent an anonymous letter describing being raped by Kavanaugh in a car, but she’s now not-so-anonymously heading for an altogether different hearing after admitting it was a fib and that she had never met him but was pissed off.ref 530 NBC knew that at least one of his accusers was lying like a dog but ran with the story anyway.ref 531 I’m old enough to remember when NBC was staffed by respected journalists.

“We have already reviewed your client’s allegations. We focus on credible allegations. Please stop emailing me.”

~Mike Davis, U.S. Senate Committee on the Judiciary, to Michael Avenatti

Kavanaugh detractors asked inane rhetorical questions like, “Why would they lie?” You just can't fix stupid I guess. The anti-Kavanaugh #MeToo team submitted that all those accusers, no matter how non-credible when in isolation, couldn’t all be lying. Recall that over 100 people found syringes in their Pepsi cans.ref 532 Why would they lie? They were all convicted of fraud. The pundits seemed to forget that rapists are determined by 12 of their peers in courts of law. With the accusers’ stories getting scalded by the light of day as non-hyperbolically summarized by The Weekly Standard,ref 533 David French,ref 534 Byron York,ref 535 and others.ref 536 the future of the Supreme Court came down to just two people in an epic he said–she said battle in the Congressional Octagon.

“I only drank beer to excess one time in college. When? If I’m remembering right, it was from 1977 to 1981.”

~Andrew C. McCarthy, contributing editor of the National Review

“I do not believe that the temperament of Kavanaugh can be judged from this one, unique circumstance. He was accused, among other things, of leading a virtual rape gang in high school. That would leave most people rather ticked and angry.”

~Jonathan Turley, constitutional law scholar at George Washington University

Kavanaugh threw early punches trying to make the case in a pre-game interview that he was a choirboy, but nobody bought it. His yearbook showed an amazing résumé but included jargon-rich comments typical of young men, showing he might have been a hooligan at an all-boys prep school. Allusion to a girl dubbed “Renate Alumnius” mentioned by name only (except to those who do not know what that semi-colon thingie is) was inferred as evidence that she was a favorite among the boys—a slut in the vernacular—but she was also one of the 65 female signers of a letter of support saying they knew Kavanaugh and he was honorable.ref 537 Police records from New Haven showed that Kavanaugh may have chucked a glass of ice on somebody at a bar while at Yale.ref 538 That proto-ice bucket challenge was morphed into a violent-drunk plotline. CBF had a yearbook too that was scrubbed but retrieved by the WayBack Machine.ref 539 It is said to be salacious, but I didn't bother to look; it's not relevant.

During the hearings Kavanaugh threw what appeared to be tantrums. I think they were ill-advised in retrospect, but I have no doubt that they were advised, not just spontaneous outbursts. Many say his bahavior was unbecoming of a judicial nominee. Here's how I see: If I am being falsely accused of such heinous crimes, I would get so medieval that my next hearings would be in a court of law looking at serious time spent in a condo that locks from the outside.     

“There is something deeply unsettling in the scene of a United States senator going through the yearbook entries written by a teenage boy in High School as a material issue for a confirmation to the United States Supreme Court.”

~Jonathan Turley

In a matter of a few months, Kavanaugh had been reduced from the lofty position of Supreme Court nominee to mean, beer-guzzling gang rapist displaying violent mood swings. As to the accused assault of CBF, he pulled out a calendar showing that he was out of town when the alleged assault took placeref 540 and has acute CCHD (compulsive calendar hoarding disorder). The dog piling came from every direction and was astonishing. USA Today accused him of being a pedophile (Figure 54). The American Civil Liberties Union (ACLU) committed $1 million dollars to keep a Supreme Court nominee off the court. Wrap your brain around that irony. Kavanaugh’s current employer, Harvard University, managed to start a Title IX charge against him and implied that if he did not get confirmed, he would be unemployed.ref 541

Figure 54. Fair and balanced

The battle was fierce. Lindsey Graham put on a now-legendary tirade:ref 542

“This is the most unethical sham since I've been in politics. . . . Boy, y'all want power. Boy, I hope you never get it. I hope the American people can see through this sham, that you knew about it and you held it.”

~Lindsey Graham, US Senator from South Carolina

Oddly enough, the media immediately began omitting, “Boy, y’all want power. Boy, I hope you never get it.” I think it had a little too much truthiness.

The day of CBF's testimony finally arrived, and what a show! Rachel Mitchell, the questioner with 25 years’ experience prosecuting sex crimes, allowed the skanky old white guys with sordid pasts and taxpayer-funded slush funds to bribe their own victimsref 543 to sit back and watch. The PTSD that caused CBF to forget the entire event until it was resurrected by therapy in 2012 gave way to lurid details with “100% confidence.”ref 544 She described how she had a second door installed in her house out of feelings of insecurity from the decades-old event and leaving family members baffled at what was going on in her head. Even flying was said to be a horrifying experience. CBF described her lie detector test as a bewildering new experience. Mitchell followed up with an equally bewildering question as to whether CBF had ever helped anybody else take one.ref 545 WTF was that about? Hold that thought. Mitchell subsequently summarized her concerns in a letter,ref 546 concluding that CBF’s testimony did not pass Mitchell’s smell test (although the GOP did hire her.) The court of popular opinion had a few opinions of its own, expressed in thoughtful, measured tones:

The press referred to her testimony as emotional, gripping, compelling. She described the trauma of being thrown on a bed and barely escaping. So what is the problem here? Let’s just hang the bastard. I’m gonna open big: I don’t care what all the sycophantic virtue-signalizing pundits had to say, CBF was not credible. I know enormous numbers of women in academics. They all have gravitas. Teaching anywhere from 40 to >100 lectures a semester grooms stage presence and amplifies the gravitas. Her résumé shows that she is rather accomplished.ref 547 Although I could quibble over factual errors in what she said (and there were a quite a fewref 548) the problem was in the presentation. She spoke like a 9-year-old girl, a rather pathetic one at that. We all had childhood memories that were ruined by our childhood, and then we #moveon. I grew up with a drunk mother—a face-in-her-mashed-potatoes drunk mother. It groomed independence. Oh, now I can hear you saying, “But Dave, you privileged punk: You've never been sexually assaulted," and you would be wrong. When I was about 8 years old—even unresurrected memories get a little fuzzy in detail—my brother and I were molested by an eye doctor named Dr. McGraw who grabbed our nuts for an hour straight. “First or second? I’ll take neither, you goddamned perv!” If I had been a little older, I probably could have reshaped his Prince Albert with a ball-peen hammer. Instead, we told my dad, ate dinner (probably mashed potatoes), and sat down to an episode of Mr. Ed (“Willlburrrrrr”).

When a well-known voice actress called out CBF’s fake voice—her “fry”—on YouTube, the actress was promptly fired.ref 549 I tried to find footage of CBF lecturing and came up with a goose egg. I’m waiting for some to show up after the fact, showing her in her natural state. Some screen grabs of her RateMyProfessor.com evaluationsref 550 provided insight into her unedited and unflattering demeanor. For example:

“Prof. Ford is unprofessional, lacks appropriate filters, and I am honestly scared of her. She’s made comments both in class and in e-mails, if you cross her, you will be on her bad side. I fear to think of the poor clients that had to deal with her while she got her MSW and her LCSW. Absolutely the worst teacher I ever had.”

~RateMyProfessor.com from a furry screen grabref

Supporters cried, “Fake!” OK, but how would we know? The originals got scrubbed from the website (probably with help from the Googleheads.)ref 551 Be my guest: go check.

And when you thought it couldn’t get weirder, her friend of 10 years and boyfriend of 6 years said in a sworn affidavit that CBF never mentioned the assault and flew in planes (including some sketchy ones) many times without fear.ref 552 The new front door installed to alleviate her PTSD just so happened to allow her to illegally rent part of her $3 million house to affluent Google techies, and its timing failed to match her claims.ref 553 The question about helping others with a polygraph is the plot thickener. The boyfriend testified that he witnessed CBF coaching a friend on how to pass a polygraph test.ref 554 Pretty good for somebody who has never taken one. Must have worked, because that friend soon thereafter joined the FBI and stayed until soon after Trump’s win “triggered” her resignation. CBF’s decidedly shifting memories of the assault that had been suppressed until 2012 are curious given that she is a psychologist. By the way, what is her research specialty? Glad you asked: suppressed memories and how one can shape them and even create new ones.ref 555,556

Then it gets super weird. CBF is said to have CIA ties, FWIW.ref 557 Sounds like internet legend, but renowned pundit David Icke seemed to buy it.ref 558 Her parents also have been tied to the CIA.ref 559 Her FBI buddy and handler, Monica McLean,ref 560 worked for Preet Bharara,ref 561 a highly political former prosecutor. One of McLean’s superiors answered to Jim Margolin, who just so happened to be working the Michael Cohen case.ref 562 Another CBF handler during the hearings had also helped Anita Hill take on Clarence Thomas.ref 563 Politics is a very dirty business indeed. CBF’s brother has been tied to Fusion GPS,ref 564 the same clowns who faked the Trump–Russia collusion dossier. My head just exploded, destroying yet another keyboard.

Let’s wrap this up, ACLU claims aside, to make a case against somebody, you need data. Otherwise, it’s just a lynch mob. Just ask Tom Robinson. Some subset of the #MeToo movement doesn't agree with this, but they are wrong. It is a profound problem that sexual assaults often leave no evidentiary trail. I hasten to add that if you read Martha Stout’s The Sociopath Next Door,ref 565 you’ll learn that an estimated 1 in 25 people are said to be clinical sociopaths. Stir in dirty politics, and the odds of flawed testimony soar. You’re welcome to blindly take people at their word, but on issues of such polarizing importance, you would be a fool (or, worse, a virtue signaler). In short, I will not just believe you in the absence of evidence. That’s not how Western justice works.

The final chapter may be unfinished. The democrats took a beating for tactics that seemed evil even among independents.ref 566 Of course, they blamed Avenatti, not themselves.ref 567 After Stephen Colbert asked, “So how did our politics get so poisonous?” one of his staffers, Ariel Dumas, expressed the left’s horror at their failure and solace in their pyrrhic victory:

Oh dear Ariel. You are a hateful person. I hope I haven't offended you. I presume you already know this.

The political establishment has no further use for CBF. It did, however, leave her with a GoFundMe campaign, which kept the spigot cranked open even after everything quieted down, raising over $867,000 to pay off whatever bills and costs were incurred during the ordeal (which is none because the DNC picked up the entire tab).ref 568 I’m sure it helped her remember why she did it.

One could argue that the Kavanaugh story is one of redemption—a potentially precocious teen showing some questionable judgment. Whoopie Goldberg, Malcolm X, Nelson Mandela, and Tim Allen did. I’m willing to let the ambiguity of what Kavanaugh may or may not have done as a teenager be corrected by time as well.

A GoFundMe campaign also left Kavanaugh with >$500,000, which he promptly and certainly mandatorily donated to charity.ref 569 Kavanaugh is now a justice on the Supreme Court of the United States. Those on the left may try to impeach him.ref 570 If they fail, maybe they will take the case all the way to the Supreme Court. Pundits on Fox enjoyed the final victory by, no kidding, downing a couple of beers on air.ref 571 Lindsey Graham seems to have recovered, displaying what may be the smuggest look I have ever seen. That pedophilic eye doctor in need of a beating with a ball-peen hammer is probably dead, but his legend lives on in his nickname: Quick Draw McGraw.

Epilogue: A video of Kavanaugh and his wife celebrating with Trump brought up one last serious question: Does he beat his wife? Oh FFS! Women claiming to work with battered women, however, say they have seen the look a million times. I confess that I watched the damning footageref 572 it quite a few times and, while the narrative is a reach, I could be convinced. This one is gonna live rent-free in my head for awhile.

Political Correctness: Adult Division

“Political correctness is elevation of sensitivity over truth.”

~Bill Maher, comedian

The construct of political correctness finds its roots in 1930s communism, in which it was “a semi-humorous reminder that ‘the Party’s interest is to be treated as a reality that ranks above reality itself.’”ref 573 A national survey showed that 80% of American adults think that political correctness is a problem,ref 574 suggesting that a relatively minor 20% are highly educated virtue signalers. Technically, I am a doctor of philosophy, but I identify as a medical doctor and can write you a prescription for a new pair of gonads. Virtue signaling—saying things to impress those around you to show that you are thinking correctly—is said by Taleb to be like paying for indulgences. It is a form of lying that, according to late evolutionary biologist John Maynard Smith, is a way of getting laid. He called it the “sneaky fuckers strategy.”ref 575 But am I not also virtue signaling to the 80% when I pejoratively call the signalers a bunch of wankers? No, because I may be dead wrong but I’m not lying.

A malign interpretation of political correctness—PC for short—is how the politically far left and left-wing power structure exert control over the population. Don’t blame me: I got this little thesis from Malcolm X:ref 576

“If you study the structure of the negro community—economically, politically, civically, psychologically, and otherwise—it’s controlled by the white liberals who usually pose as the friend of the negro who actually differs from the white conservative. . . . I’m suspicious of whites who join negroes and always have to be in the lead. Who always have to be at the top. Who always have to be in negro organizations. Let them give some advice to negroes and stand on the sidelines. . . . [Negro leaders] are puppets who have been put in front of the negro community.”

~Malcolm X, Nation of Islam and civil rights activist

PC encompasses all sorts of oddities, including cultural appropriation and overt disdain for the hat trick of evil—white/heterosexual/male. The blunt but highly effective tool is to hang a repugnant-sounding label on your opponents—misogynist, racist, homophobe, or Canadian—which is guaranteed to send them scrambling for safe spaces (or Jonestown). If the label sticks, you’ve vanquished the bastards.

2018 may have been a turning point. One senses that pushback will not necessarily get you fired. (Keep your savings account topped off, just to be safe.) The Supreme Court ruled that wedding cake bakers do indeed have constitutional protections.ref 577 We saw the emergence of Jordan Peterson, a decidedly no-frills University of Toronto psychologist who cut his teeth opposing mandated PC speech.ref 578 All imaginable labels have been tattooed on Jordan’s ass, but the guy has thought deeply about his beliefs and is a worthy foe. In what became an epic must-see interview—a meme in the making—he eviscerated Cathy Newman.ref 579  Newman was so brutalized by his logic and her inability to brand him by shoving words in his mouth that she embarked on a post-debate victim march and enrolled herself in a concocted witness protection program.ref 580 No, Cathy: Your beating was painful but only metaphorical. The left’s hatred of Jordan helped sell millions of copies of his book that would have sold a few hundred copies to friends and family otherwise (see “Books”). As is so common nowadays—what kind of word is nowadays?— ideas pose a threat. We can’t have any of those! Peterson’s ideas took root so fast that his personal YouTube channel was closed down but then reinstated.ref 581 I watch his interviews like a coach watches game films to see how not to get beat by skullduggery. Cathy would have owned my sorry ass.

Let’s take a peek at the year’s PC Follies in the adult world using a bulleted list—Can I use the word bulleted?—revealing what the “batshit crazies” got into this year. You may find yourself checking the mirror for facial drooping and listening for slurred speech:

  • A rapist identified as a trans woman was incarcerated in a women’s prison, where she sexually assaulted four more women.ref 582
  • A survey claims that 50% of millennials are socialists and that 75% of those don’t know what it means.ref 583
  • The #MeToo movement has spread to corporate America, wherein men supposedly meet to “talk through their feelings, allowing themselves to grow more vulnerable, and, yes, to cry together.”ref 584 I’m tearing up just thinking about it (sob). Despite the fact that this is clearly hyperbolic crockery, some have expressed concerns that these are men’s-only groups.
  • A woman hired by Facebook to review content flagged as highly dubious has sued Facebook for being “exposed to highly toxic, unsafe, and injurious content” that caused PTSD.ref 585
  • A controversial release of a pedophile on bail got the perp’s decapitated corpse delivered to the judge’s front door.ref 586 That, by the way, is not PC.
  • Transgender women continue to do shockingly well in women’s sporting events, including a gold medal at the 2018 UCI Masters Track Cycling World Championships.ref 587 To all you moms and dads who drove your daughter to practices—to the moms in the must-see iconic P&G “Thanks, Mom” Olympic commercialref 588—just remember that everybody is a winner.
  • Columbus Day celebrations were canceled in Columbus, Ohio.ref 589
  • The pink pussy hat has been deemed offensive to transgender women and gender non-binary people who don’t have typical female genitalia (pussies) and to women of color, whose genitals are not always pink.ref 590
  • GOP candidate Ron DeSantis got slammed for telling voters not to “monkey it up” by voting for his gubernatorial opponent in Florida (who happens to be black).ref 591 The left went nuts, saying they have never heard of this phrase or, apparently, this thing we call Google. Obama showed his white-nationalist roots by saying he “monkeyed around” with something.ref 592
  • NASCAR’s Conor Daly lost sponsorship of Lilly Diabetes owing to a racially insensitive remark made by his father in the 1980s.ref 593
  • Silicon Valley elites are spending $20 per gallon on raw water—water that is fully untreated.ref 594 An old SNL spoof ad sold Swill, mineral water from Lake Erie.ref 595
  • The Miss America pageant is removing the bathing suit competition.ref 596 Major news outlets reporting the story invariably showed pictures of prior contestants in skimpy bathing suits. They are replacing this leg of the competition with a quantum mechanics exam and calling it the Cal Tech Admissions Pageant.
  • A Canadian restaurant manager booted a customer for wearing a MAGA hat. Customers choked down their bear-meat omelets and left irate.ref 597
  • A woman tried to hang her kid in the basement—we’ve all done that one—and struck a bicyclist and a car driven by a pregnant woman while being pursued. The judge gave her probation.ref 598 I must confess that she is statistically unlikely to repeat that again.
  • The new celebrity fashion trend is to get facials made from cloned baby foreskins.ref 599 The nickname "Dicknose" seems appropo although something more subtle like Smegyn would work.
  • People are squealing for the rights of sex dolls to not be abused.ref 600
  • The Brits, never bashful about asking somebody to hold their beers, are discussing whether to make misogyny a hate crime or just let the birds fend for themselves.ref 601 Some note that “everything in the UK has been criminalized except crime.”
  • Microsoft is warning customers using Office, Xbox, Skype, and other products that the company is prohibiting offensive language and inappropriate content. Can I use phrases like "totalitarian", "Stalinist", or even "rot in hell fascist pigs?"ref 602
  • The mayor of London tweeted that “there is never a reason to carry a knife. Anyone who does will be caught, and they will feel the full force of the law.”ref 603
  • A restaurant in Britain charges white customers £13 more than people of colour—it's spelled color, you plonkers—to challenge racial wealth disparity.ref 604 I would guess that the owners personally helped narrow the wealth gap.
  • The French had their hold-my-Chablis moment: They are considering a bill to make cat-calling of women a crime punishable with a €750 fine.ref 605
  • A Polish brewery, The Order of Yoni, produced a beer marketed as being brewed using vaginal secretions from two smoking-hot models.ref 606 Yoni is Sanskrit for vagina. (I’m not joking . . . and it’s not PC either.)
  • Students in Indonesia are making moonshine out of used Tampons.ref 607
  • Black Lives Matter and former NAACP kingpin Shaun King was exposed for having some very white parents.ref 608 Rumors of a romance with Rachel Dolezal remain unconfirmed.
  • #MeToo activist Asia Argento is said to have paid off a 17-year-old (underage) actor to shut him up about an affair. She now claims her underage love muffin assaulted her.ref 609
  • Rhode Island is pondering a one-time $20 fee to access porn sites or other “offensive material” online.ref 610 That really sucks.
  • High fashion’s latest trend is said to be male models wearing prosthetics to look pregnant and macho men wearing bras.ref 611 The marketing head at Target says they can’t keep them in stock.
  • Literature published by a California health information provider, in an effort to deal with modern gender issues, refers to the vagina as the “front hole.”ref 612 Those who hatched this idea are now called “A-holes.”
  • A Roanoke City social services worker was fired and escorted from the building for having a concealed carry permit.ref 613 Not the gun; just the permit.
  • Nurses in South Africa have to acknowledge their white privilege before treating aboriginal patients (or get their heads hacked off).ref 614
  • The BBC is reducing the salaries of some male journalists after criticism over unequal pay.ref 615 Can’t say I saw that one coming.
  • Craigslist shut down personal ads—“SWM looking for hot monkey love”—after Congress passed a bill on sex trafficking.ref 616
  • The Manchester Art Gallery took down pre-Raphaelite paintings of naked nymphs to appease the pervs who think other pervs can’t look at them as just art.ref 617
  • To fight obesity, the UK wants to legislate that pizzas shrink or lose their fattening toppings.ref 618 Are you guys trying to have a revolution?
  • I personally heard a rumor that an employee at one of the FAANGs got reprimanded by human relations for calling a tall colleague a “long drink of water." The correct greeting is, “Hey, Stretch!”
  • A judge meted out a 25-year sentence without parole for drunk driving in which nobody got hurt.ref 619 I imagine there was a chronic problem, but you get less for shooting your spouse. Something like house arrest with an ankle bracelet for tracking might have sufficed.
  • Team USA was criticized for cultural appropriation for having Native American motifs on their gloves at the Winter Olympics.ref 620 Lacrosse teams around the country are scrambling to figure out how to play without sticks.
  • The former head of the CDC grabbed the ass of a friend of 30 years at a party, apologized, and nine months later was arrested and fired.ref 621 The woman said she worried about hurting someone by coming forward . . . and then wrote an article in the New York Times.ref 622 It just so happens that he was up to his ass in the politically charged vaccine debate.
  • Swedish authorities pixelated the face in the photo of a man wanted for murder.ref 623

Anything called “The War on . . . " is likely to be a bad idea and ineffectual. The War on Big Gulp Sodas has given way to the War on Straws. Restaurant owners who hand out unsolicited straws in California are subject to $1,000 fines and 6 months in prison for each infraction.ref 624 The originator of the movement, Milo Cress, claimed that 500 million straws are handed out unnecessarily. Milo’s data comes from—wait for it—a phone survey of straw manufacturers he conducted in 2011 when he was just 9 years old.ref 625 The Raw Water lobby was unconcerned because it sells its products in plastic bottles. Some wonder if a plastic straw conviction will keep you from getting a gun permit.

Starbucks is remarkably progressive, but it discovered that the intolerant left eats its own. It got into a spat about whether several black customers were loitering.ref 626 It’s likely that mistakes were made. A corporate-wide policy change to tolerate all such loiterers has now converted Starbucks into a safe space for crackheads.ref 627The bathroom-dwelling coke-snorters will have to bring their own straws. Starbucks’s new inclusiveness training also warned employees not to “accidentally mistake scruffy-looking husbands for homeless men.” Finally, somebody defends me.

“Dumbass fucking white people marking up the internet with their opinions like dogs pissing on fire hydrants.”

~Sarah Jeong, journalist and New York Times editorial board

Journalist Sarah Jeong was brought onto the editorial board of the New York Times. The newspaper claims to have been fully cognizant of her polarizing tweets over the years. How polarizing? She supported killing cops, killing men, and being remorseful that she will reach the end or her life without having killed a single guy.ref 628,629,630,631,632 The defense that she was fighting trolls by illustrating troll tactics fell apart when the vile tweets just kept surfacing spanning years.ref 633 Vox noted that “a lot of people on the internet today [are] confusing the expressive way antiracists and minorities talk about ‘white people’ with actual race-based hatred, for some unfathomable reason.”ref 634 The Verge, where Jeong still worked, described any assertion of racism in Jeong’s tweets as “dishonest and outrageous.”ref 635 Slate, a publication just slightly left of Putin, came to her defense referring to the work of conservative trolls.ref 636 Of course, she was fired immediately and booted off Twitter. Just kidding. She kept her job and got verified on Twitter because we couldn’t possibly know whether it was her or just some generic hateful, foul-mouthed troll. She hit peak irony when old tweets trolling her current employer surfaced in vast numbers.ref 637

“After a bad day, some people come home and kick the furniture. I get on the Internet and make fun of The New York Times.”

~Sarah Jeong

I didn't write about media this year—I had plenty of material but not enough time—but I will say that with Constitution protections offered to journalists come Constitution-level responsibilities. So many of you really suck now. I am talking the bottom-of-the-barrel, "suck the chrome off a trailer hitch" levels of suck.

There is nothing more sanctimonious than Hollywood multi-millionaires shaking their Oscars and talking about oppression. I find it odd that every TV show and movie now includes profound violence and multiple scenes where a lead actor sweeps off the top surface of a desk or kitchen table, plops some starlet’s yoga-tightened ass down, and bangs her lights out. Aren’t they supposed to ask permission—“May I touch your breast?”—or is that rule negated when your paycheck is on the line? Let’s see what Hollywood was up to this year:

  • In the moon-landing movie First Man, actor Ryan Gosling refused to plant the American flag. 
  • The BBC faces backlash for its decision to cast able-bodied Charlie Heaton in its adaptation of The Elephant Man rather any one of dozens of seriously deformed men who decided their best option was to go to USC’s acting program.ref 638
  • Hollywood pulled Scarlett Johansson from the role of a transgender man in Rub and Tug because she is not a transgender man.ref 639 That’s why it’s called acting. Daniella Greenbaum defended casting her, but then quit at Business Insider when it pulled her column.ref 640 On the bright side, it was a principled call because they surely didn't boot Scarlett to pump up the box office proceeds.
  • Bill Cosby was found guilty of sexual assault. Good riddance.ref 641
  • ABC executives regret their “knee-jerk” decision to fire Roseanne Barr because of a few tweets (that I happen to think had no racial intent) after realizing that destroying its best show (and her career) was an expensive blunder.ref 642 Norm MacDonald defended Roseanne for saying the #MeToo movement has gone too far and then was promptly pulled from a Tonight Show appearance.ref 643
  • The Weinstein Company filed for bankruptcy, ending all non-disclosure agreements. This could get interesting.ref 644
  • Elijah Wood had spoken out boldly about pedophilia in Hollywood saying, “It was all organized. There are a lot of vipers in this industry, people who only have their own interests in mind. There is darkness in the underbelly . . . victims can’t speak as loudly as the people in power. That’s the tragedy of attempting to reveal what is happening to innocent people: They can be squashed.”ref 645 Elijah now declares no direct knowledge of pedophilia in Hollywood.ref 646 The pervs got to him. 
  • Having attained predator status as an alleged pedophile, Kevin Spacey got written out of the script of House of Cards.ref 647 His new movie, somewhat ironically named Billionaire Boys Club, which was already in the can, opened in eight theaters and made $287.ref 648 That is not a typo. It would have been less if the one guy who went and sat in the back pleasuring himself—let's call him just "Kevin"—also bought a large Coke and popcorn. (How do you know when it is bedtime in the Spacey house? When the big hand touches the little hand.)
  • The Academy Awards hit an all-time low Nielsen rating—a 24% drop year over year—because sanctimony doesn’t sell.ref 649 Remember the olden days when they would defend victims like Juanita Broaddrick? Me neither.
  • The new Jack Ryan series was “blasted” for pushing “masculine American heroism” and “white male entitlement.”ref 650
  • My wife dragged me off to see Mama Mia (the sequel). The four men in the theater that night were literally congratulating each other for falling on their swords. By movie's end, I wondered if Hollywood may start delivering us leading men—three in this case—lacking any semblance of masculinity.

PC loses its humorous component when it goes violent. Antifa seems to have taken over Portland, Oregon. I never expected to read about “The Battle of Portland.”ref 651 This liberal enclave seems to be unprotected by the police, who were told to stand down.ref 652 Antifa has now been declared “domestic terrorists” by the authorities.ref 653 Portland citizens cheered as a squad of police scrubbed the streets of Antifa rascals harassing passersby.ref 654 Antifa vandalized the Metropolitan Republican Club in New York City and sees no irony in talk about punching Nazis.ref 655 A professor of philosophy who cold-cocked an unsuspecting person is out on $200,000 bail.ref 656 Apparently, if you are a prominent republican, you are no longer eligible to dine in public because the intolerant left has the right to make you miserable. A rare unmasked Antifa thug screamed vile insults to the widow of a 9/11 victim (a fireman).ref 657 The assailant escaped harm by a razor-thin margin. The Unmasking Antifa Act of 2018 proposes laws prohibiting protesting with a mask.ref 658 I’m fence-sitting that one. An investigative journalist undercover probing Antifa appears to have been whacked shortly after he vowed to expose George Soros.ref 659

A friend of the family supported this no-rules approach to politics, prompting me to “lose my shit” and state, “You are declaring war. Do you realize that my team has all the fucking guns?” This prompted my wife to send me to the store on an errand.

There is a really ugly side to the gender battles that I had underestimated until now. Let’s open with a tweet that sat in my notes for months:

“Well, I don’t want to go up and talk to her, because I’m going to be called a rapist or something.”

~Henry Cavill, actor who plays Superman in the DC universe films

Mike Pence, darling of the left (not), noted his policy to never have dinner alone with a woman who is not his wife.ref 660 This got called the Pence Rule and led to some investigative journalism. What they discovered is that corporate America, in addition to all the misogynist white men, is heavily populated with men fearing that they will be accused of something without cause.ref 661 Some said that they won’t ride alone in an elevator with a female colleague. Others have age cutoffs, below which the women are avoided. This is truly horrifying—what economists might call a negative externality of higher order. Young women need access to mentoring and opportunity. Fear of association—call it a phobia if you wish—is profoundly destructive. One gent said that the solution is obvious: “Just don't be an asshole.”ref 662 He is trivializing this paradox (and virtue signaling). We are moving women and minorities into positions of power and authority. Society hasn’t completely worked out some of the details.

Political Correctness: Collegiate Division

“The wind of freedom blows.”

~Stanford University’s motto

“You can’t spend your whole life worrying about your mistakes. You fucked up! You trusted us.”

~Otter in Animal House

Many administrators, professors, and students are working their asses off to get it right, going about the business of scholarship and education. Parents hand us their kids and ask us to equip them with technical and social skills needed to become functional adults. They also ask us to keep them healthy and safe for their first road trip. Most exceed our expectations outside the control of their parents (at least before cell phones). Forget not that these students descended from mammoth hunters. The headlines you read and YouTube clips you see of faculty and students acting like assholes belie the thousands of success stories that would make you proud and that Make America Great. (OK. Maybe I’m pressing my luck now.) There is, however, a creeping Tyranny of the Few—noisy whack jobs—who can alter the tenor of campus life. When they start throwing their feces, all hell breaks loose. I would call it Tyranny of the Minority, but that might be misconstrued as some racist dig, and I would find myself in front of a tribunal or angry mob (which I file in the Department of Redundancy Department).

“The darkest part is not the rise of radicalism, but the passive acquiescence of the vast majority of faculty and students.”

~Lee Jussim, professor of psychology at Rutgers University

“When they come to you—your kids—and say, ‘I’d like to study critical race theory and intersectionality and bullshit 101 whiteness.’ Then you say, ‘Yeah, well, you are going to pay the $60,000 because I am not going to pay the money that I have amassed through my hard work for you to be polluted learning about nihilistic academic fields that are intellectual terrorism.”

~Gad Saad, professor at Concordia University

Universities suffer from a host of self-inflicted wounds. Surveys show that what was a 2:1 left-wing lean among some faculty now tips the scales at anywere from 10:1 to well over 50:1.ref 663 Some colleges are said to have no conservatives. (I suspect they are in closets.) The rallying cry is that faculty members are all left leaning because of their great intellects. There is a core group of academics (students and faculty) that seems to have an insatiable need to gripe about wide-ranging topics that have been codified as “grievance studies.”ref 664 If your kid’s major ends in the word “Studies,” you might want to peek at the curriculum. Actions that are so insignificant as to be called “microaggressions”—mathematically one-millionth of a normal aggression—are now campus horrors to be strangled in the crib. In a grand bargain to create the most inclusive communities, universities are dismantling freedom of association of like-minded students.ref 665 Removal of such self-assembled support groups—think fraternities, for example—is forcing students to suffer an odd crowded isolation. If you oppose this new order, be ready to be tagged with a pejorative label that ends in “–phobia,” “–archy,” or “–ist.” Society is also trying to remove all semblances of hierarchies as being unfair or not inclusive, ignoring the fact that they are biological and cultural evolution's mechanism to minimize conflicts.

“My daughter is looking for a summer job. She’s a millennial so she’s hoping to find part-time work as a CEO."

~Brian Kiley (@kileynoodles)

We as a nation measure our intellectual worth by numbers of college graduates. Of course, students and their parents are loading up on mountains of debt to spend four or more years to “find themselves.” The military or Peace Corps will do so more cost-effectively, and for a mere $150,000, I will personally find your kid and save you a lot of money. The proliferation of college experiences that leave students with little or no chance of discharging their debt after graduation has done irreparable damage to a generation. This is not hyperbole: irreparable damage. I suspect that replacing half of our college degrees with technical training would provide huge benefits. An elevator repair guy told me that after a five-year paid apprenticeship, he will make a six-digit salary. What does four or five income-free, debt-laden years in college guarantee you?

“Whereas the University of Chicago has traditionally sought to cultivate an intellectually robust and diverse student body by seeking out creative and unconventional thinkers, the introduction of a pre-professional business major would attract applicants who view their education primarily as a preparation for lucrative careers.”

~An activist’s letter, nailing it!

The Department of Education claims that administrative positions have grown at 10 times the rate of tenured faculty positions.ref 666 The University of Michigan currently employs a staff of 93 full-time diversity administrators.ref 667 More than 25% earn in excess of $100,000—as much as elevator repair techs. These soaring added costs are exacerbated by an arms race to provide better food, dorms, study and safe spaces, and gym facilities. Schools either upgrade or watch the talent head off to greener pastures. Jonathan Haidt and Greg Lukianoff (see "Books") say that colleges crossed the Rubicon when they began thinking of students as consumers, and we all know the consumer as King. The unwillingness of college administrators to stand up to precocious and, at times unruly, consumers has been called an “epidemic of cowardice.”

“Universities are becoming ungovernable.”

~Anonymous university president

Now let us wander through anecdotal disasters that occasionally visit college campuses—stories that should touch a wide range of emotions, including the fear somebody slipped you a roofie. Colleges and universities constitute the mothership of political correctness.  Let’s begin with just some seriously goofy shit. Bear in mind that some of these ideas get attributed to universities when they are more likely emanating from university-sanctioned organizations—student clubs—that are given the coveted right to free speech, which they promptly exploit to suppress free speech from others:

Standardized tests are being removed so that objective measures of skill and merit can be replaced with more subjective measures of things like, oh, ideological conformity.

  • A Michigan State University study concluded that Latinos who support meritocracy, hard work, and independence are perpetuating a bias problem.ref 668
  • A Clayton State University professor offered students extra credit to attend an event of the Democratic Party's gubernatorial candidate: The school intervened.ref 669
  • Gonzaga University hosted an “International Day of Tolerance,” urging students, particularly “white people,” to ask themselves, “Am I a tolerant person?” and “Do I stereotype people?”ref 670 There is a concept rich in irony.
  • The University of Colorado-Boulder has removed the term “illegal aliens” from its library catalog in favor of “more ethical subject headings” to foster an “inclusive atmosphere.”ref 671 I have thoughts on what else you could remove from where.
  • University of Texas treats masculinity as a “mental health issue,” empowering young men to “break the cycle.”ref 672 I'm guessing the Alamo is no longer in the curriculum.
  • Clapping has been banned at the University of Manchester student union to avoid triggering anxiety and improve accessibility. It has been replaced with “jazz hands.”ref 673

  • A Fresno State professor followed a series of dubious tweets—we've all done that— with one baiting people to call her. The phone number she posted was for a mental health hotline instead.ref 674 Bet that worked well for this high-function moron.
  • Students at law schools are being triggered by curricula covering entire branches of study. Lectures on rape law, for example, are popular targets.ref 675 These same activists are likely to speak out in support of rape victims, albeit in total ignorance.
  • Emotional support dogs are growing by leaps and bounds.ref 676 That’s cool; I have three Labrador retrievers, although I would not call them supportive.
  • George Washington University students launched a petition to change the school’s mascot from the Colonials to the Hippos because Colonials is too evocative of colonization and oppression.ref 677 Hippos are really fat: aren't you fat shaming and culturally appropriating hippos?
  • Princeton put on (packed on?) a “fat-positive dinner” to discuss “fat-positive programming for the spring semester.”ref 678 The university also offered a course to help students fight “fat phobia” through dance. I'm more than a few pounds heavy now, and my wife fat-shames the heck out of me.
  • “If someone calls you fuckin’ fat, they may be bullying you, but you might be fuckin’ fat.”
  • ~David Goggins, former Navy Seal
  • I did the math: The famous “Freshman 15”—the pounds gained from all-you-can-eat buffet-style dining—causes Cornell’s North Campus housing to gain 45,000 lbs. every fall semester. I wonder if building codes accounted for this.
  • Students at Lee University petitioned to disinvite Vice President Mike Pence, declaring that Pence’s political views are “at odds with Christian values.”ref 679 What would Jesus say?
  • A professor who teaches politics and global security at Virginia Tech tells us that fossil fuels are contributing to a warped sense of “masculine identity” and “authoritarianism” among men, coining the phrase “petro-masculinity” to describe what she sees as a convergence of “climate change, a threatened fossil fuel system, and an increasingly fragile Western hypermasculinity.”ref 680 Nailed it.
  • A group of UCLA students earning $13 an hour to promote diversity on campus started a “Toxic Masculinity Committee.”ref 681 I'm guessing that they don’t lift weights together.
  • A St. Mary’s College professor offered a term project instead of a real final exam on topics ranging from “environmental racism,” “the Green Movement in Africa,” and “eco-normativity in Western environmental campaigns.”ref 682
  • Mount Holyoke College, an all-women’s school, is discouraging calling female students “women” to promote a “gender neutral” classroom environment.ref 683
  • A Cornell student gave her senior thesis defense in her underwearref 684 because her professor—a progressive and widely respected female faculty member—suggested that what she was wearing in her practice talk was potentially inappropriate.ref 685 Yeah, well, I was Cornell’s first streaker, running through Bio 101 in the fall of 1972.

“I tell 18-year-olds, ‘Six years ago you were 12; what the hell do you know?’”

~Jordan Peterson, Professor of Psychology and author of 12 Rules for Life

  • A University of Wisconsin student filed a dreaded “bias report” after a peer hogged weights at the campus gym then yelled at him to back off.ref 686
  • A website entitled, “Make them scared UW,” run by University of Washington students, allows individuals to anonymously accuse people of sexual assault with no evidence.ref 687
  • A Marquette University student group is telling “white folks” to “stop calling the cops” when they feel threatened. “Hey, what do ya say you put down your dukes and give me a big hug?”ref 688
  • A math paper was withdrawn in an uproar because it tried to model the genetics of gender differences.ref 689 (There’s an “irrational number” joke in there somewhere.)
  • A paper suggesting that males have fat-tailed intelligence bell curves—they tend to occupy the extremes of the spectrum—created such a ruckus that the National Science Foundation wanted acknowledgement of support removed. The paper got retracted.ref 690
  • A professor at Wilfred Laurier University wrote a book with a chapter entitled, “When a Man’s Home is Not a Castle: Hegemonic Masculinity Among Men Experiencing Homelessness". The detailed description does not clarify the idiocy.ref 691
  • A professor who was charged and pleaded guilty to a work-unrelated domestic violence charge years earlier was written up in the school newspaper. A shitstorm ensued, and he killed himself.ref 692 Y’all have blood on your hands and maybe lucky he turned the gun on himself. There are good articles on “academic mobbing” and other neo-Stalinist behaviors.ref 693
  • A paper on gender dysphoria by a Brown University assistant professor drew so much attention that Brown distanced itself from the work. A dean at Harvard hammered the president of Brown for being a coward (my words).ref 694
  • The University of Minnesota is considering introducing a “Pronoun Rule.” Professors, staff, and students who use the wrong pronouns (he, she, ze) risk firing or expulsion.ref 695 Zat is nuts.
  • Food workers at NYU’s dining facility celebrated Black History Month with “racially insensitive” meals.ref 696 The employees are African-American. Seems like it ought to provide some cover. The real crime was that the girl—can I call a teenager a girl?—said she—can I say she?—was “ignored.” A woman scorned...

“[T]his modern-day trend of cultural appropriation of yoga is a continuation of white supremacy and colonialism, maintaining the pattern of white people consuming the stuff of culture that is convenient and portable, while ignoring the well-being and liberation of Indian people.”

~Shreena Gandhi, a religious studies professor at Michigan State

“Nothing could be more asinine than outrage against ‘cultural appropriation’.”

~Steven Pinker, professor at Harvard University

  • A psychology study by researchers at San Francisco State University claims that 25% of millennials have PTSD because of the 2016 elections.ref 697 Heterodox Academy says it is the Gen-Zers, not the millennials, that began disrupting campuses abruptly in 2014-ish.ref 698
  • Hofstra students want to remove a Thomas Jefferson statue (because he was such a douche).ref 699
  • The removal of a Civil War statue at North Carolina State by protestors took hours, but campus police did nothing. Turns out the protestors were outside agitators, not students.ref 700
  • Students at Baylor University will receive training in microaggressions.ref 701 This training includes “talking to the victim” and “educating the attacker.” Recall that complimenting a woman on her shoes is considered a microaggression, so maybe the term "attacker" and "victim" is just a wee bit hyperbolic.
  • Feminists at Yale University are lobbying the administration to force all-male fraternities to open recruitment to women while not pushing to integrate sororities.ref 702
  • University of Wisconsin-Stevens Point will be cutting programs to "recognize a growing preference among students for majors with clear career pathways".ref 703 Tenured faculty in Art, English, Geography, History, Philosophy, Political Science, and Sociology will be packing their bags. I'm speechless.

“I cultivate a cutting-edge approach to human geography through a theoretical edifice that foregrounds emerging thematic concerns within the discipline by incorporating both poststructuralist critique and a radical revival of anarchist philosophy.”

~Simon Springer, professor and anarchist-geographer at the University of Victoria

Hyper-active political correctness is not unique to the United States. Lecturers in Britain have been told “not to use words in capital letters in course assignments because it might ‘frighten students’.”ref 704 BOO! Made ya flinch. A journalism school’s staff have been told to mollycoddle students by “writing in helpful, warm tones, avoiding officious language and negative instructions."ref 705 The memo refers to “enhancing student understanding, engagement, and achievement” and listed frowned-upon words. A Dutch university mob protested the appearance of Jordan Peterson because of “his politically-incorrect worldview.”ref 706

Three academics totally punked the grievance studies community by writing a bunch of fake papers—getting a few published and another pile accepted—before they pulled back the curtain.ref 707 My favorite podcaster, Joe Rogan, interviewed two of the perpetrators, Peter Boghossian and James Lindsay (Helen Wilson was not present).ref 708 This is 2 hours of eye-watering hysteria. They describe fake papers about gendering dogs at dog parks and putting men on leashes. They used the search-and-replace command on Hitler’s Mein Kampf to replace “Jew” with “white male” and then wrote a paper using the new sentences. A paper titled, "Going in Through the Back Door" described the desensitization of heterosexual men to homophobia by inserting various objects into their butts. The referees’ suggestions, without fail, made the papers even nuttier. They learned to “problematize” the target thesis and use “word laundering” to take a normal word and give it special meaning. (If you like binge-watching stuff, try Joe Rogan's 1200 podcasts.)

“There is no such thing as black racism.”

~A professor at Florida Gulf Coast University

Psst. Professor. Come here. Closer...YOU'RE AN IDIOT! Goofy ideas begin to do damage by leaking into the curriculum. As told by one of my favorites, Campus Reform, Berkeley offers courses about white privilege to “confront uncomfortable conversations about privilege and positionality” and to “understand where white bodies have the responsibility to be in movements against white supremacy and in solidarity with marginalized peoples and groups of color."ref 709 Berkeley offers over 150 student-taught courses, which helps keep the lights on and is said to be “an excellent way of meeting the University’s minimum unit requirement." One can only imagine the course content. A course at Salisbury University in Maryland titled, “Pyramid of White Supremacy” teaches students about—I don’t know—maybe pyramids of white supremacy?ref 710

Those little twinges of bias can get rather specific. A gender studies professor at Northwestern University suggests we should be able to “hate men.”ref 711 I can sign off on a few. If you surmise that the professor is referring to women, you might be wrong. Self-loathing and virtue signaling is considered admirable among young men. A University of Maryland support group called “White Awake” was designed to help white students who may “sometimes feel uncomfortable and confused before, during, or after interactions with racial and ethnic minorities.”ref 712 Pressure caused the University to change the name to “Anti-Racism and Ally Building Group.” How about just “Race Baiting 101”?

One of the big stories is that Harvard is getting pounded in court for racism in its admissions.ref 713 When a school bends over backward to accept underrepresented kids, it necessarily excludes others. Society decided long ago that, in moderation, this is an acceptable price to pay. Apparently, those of Asian descent—what we call Asian Americans—are taking the brunt of it, and numbers showing the bias are compellingref 714 and drawing fire from the courts.ref 715 I once personally stepped on a rake by claiming just such a latent bias exists. I can't even fake the PC thingie I guess. Evidently, kids with Asian-sounding names were scoring rather poorly in the subjective categories involving personality. I think universities have the right to accept only Americans if they want, whether such a policy is advisable is an altogether different story. They do not, however, have the right to discriminate against those named Chang, Chen, Lee, or Park.

“The greatest threat to free speech is no longer governmental.”

~Bret Weinstein, former professor at Evergreen State College

“This is beyond free speech; this is disrespectful.”

~President of Fresno State University

Probably the largest and most consequential political shift is the move away from free speech. One survey showed that 50% of students would support a law making it illegal to say offensive things in public.ref 716 Another revealed that only 35% of female college students think free speech is more important than “diversity and inclusion.”ref 717 A Gallup poll showed that the majority of American college students support “disinviting” speakers they don’t like; 37% support shouting them down; and 10% support using violence to silence them.ref 718 Anti-abortion clubs have been banned because the ideas being discussed are considered subversive.

“Identity” politics—the decidedly left-wing idea that you subsume your identity to that of the group and, thus, necessarily forfeit independent thought—arrived on campuses with little warning around 2013–14. Scholars like Haidt and Lukianoff have burned a lot of ATP trying to understand from whence it came and why. I have a theory! Kids are influenced profoundly during their formative years—their Wonder Years. What book series totally dominated the childhoods of current college kids? That’s right: Harry Potter. Early in the first book, the little wand-wielding wizards are assigned a group for the rest of their stay at Hogwarts by a magic hat. Once assigned, they assume the behavioral norms of their group. May God have mercy on your soul if you become a Slytherin. This is the stuff of Harvard psychology PhD theses showing how quickly people form group identities. It’s the classic prisoner–guard experiment.ref 719 It’s what inspires normally sane people to sit in –20°F weather in Green Bay wearing a cheese hat while rooting for a team full of guys with whom they have absolutely noshared ideals or experiences. We are witnessing the Slytherins coming of age and arriving on campuses.

“Apparently, all that is required to throw a student out of school is that some other student claims to feel unsafe."

~Gregory Germain, professor of law

The Title IX program that began with normalizing college commitments to women’s sports has morphed into a commitment to women’s rights more generally. It’s a great idea on paper. In the hands of activist university administrators, however, it can be nightmarish.ref 720 On the heels of a tenure case at Cornell in which an unsubstantiated assertion arguably cost an assistant professor tenure according to the courts,ref 721 the young accuser—Jane Doe, of course—subsequently exacted retribution on one of the faculty member’s graduate students, slamming the brakes on his PhD defense by filing yet another Title IX complaint.ref 722 Two dozen Cornell law professors interceded, demanding that Cornell grant the student his PhD and stop the bullshit (my words, not theirs).ref 723 As I've said before, if you ever run into John Doe or Jane Roe, for heavens sake stay away. Nothing good can happen.

A decidedly progressive sociology professor at University of Michigan, after accusing a student of plagiarism, was accused of harassment.ref 724 In a world where accusations are so vague and difficult to sort fact from fiction, Oberlin has a 100% conviction rate.ref 725 That is what they used to call "a hangin' judge". The courts are routinely beating up universities and exacting large fines when due process drops below minimally acceptable levels. Courts are demanding universities up their games on due process, which is sorely lacking on some campuses. This long-overdue pushback against unchecked Title IX cases has the most militant supporters of the #MeToo movement angry. After years of sexual harassment and abuse at the hands of men, they feel that women’s evidence-free accusations should suffice. Nearly 100 students at the University of Southern California demanded a tenured professor be fired after he sent a reply-all email noting that “accusers sometimes lie.”ref 726Others hold the quaint view that trying to destroy somebody’s life is a problem regardless of the weapon of choice. Cases of demonstrably false accusations keep piling up in numbers not approaching legitimate accusations but sufficient to underscore the importance of due process.ref 727 Here is my bottom line: If you have no data you have no case, regardless of how heinous the crime. I repeat: It’s how our system works.

“Racism is a serious issue, and unfortunately what we found were many examples of students willing to use that charge in an attempt to get back at their peers in everyday squabbles.”

~Chris Rochester, director of communications at MacIver Institute

I chose not to describe dozens of grisly stories, including many false accusations, and instead finish by noting that progress toward normalcy is detectable. We are starting to have discussions about identity politics. The now legendary Evergreen State College appears to be going even further down the rabbit hole toward totalitarianism and headed for insolvency.ref 728 That’s probably a win. Nationally recognized progressives including Alan Dershowitz, Steven Pinker, John McWhorter, Bret Weinstein, Heather Heyling, and Jordan Peterson—collectively referred to as the “Intellectual Dark Web”ref 729—are now defending against leftist McCarthyism on college campuses. Betsy DeVos, secretary of education, is attempting to tighten up some of the details of Title IX (much to the horror of fuming progressives).ref 730 Nicholas Christakis, one of the controversial Yale professors who found himself in the middle of Social Justice Warfare by supporting the idea that Yale students are capable of choosing their own Halloween costumes, has been awarded one of Yale’s Sterling Professorships, the highest honor a faculty member can receive.ref 731 Right-wing activist group TPUSA has watchlists of left-wing professors. That would look like a telephone book and is very bad idea for a bunch of free-speech libertarian types.ref 732 Princeton University has become the second Ivy League school, after Yale, to face a federal Title IX investigation into allegations that some of its programs discriminate against male students.ref 733 This too shall pass.

“We’ve been paid to leave a burning building.”

~Heather Heyling, commenting on her and her husband Bret Weinstein’s severance packages to leave Evergreen State College

Political Correctness: Youth Division

“Prepare the child for the road, not the road for the child.”

~Jonathan Haidt, author of Coddling the American Mind

No generation is completely ready for the next one. Certainly the Greatest Generation was ill-prepared for the arrival of drug-addled boomers who trusted nobody over 30. The latest generation of young punks has discovered porn on their phones, rendering back issues of National Geographic obsolete. Cyberbullying is acute, especially for girls who seem to be more at risk and are more prone to destroying social structures without having to resort to formal violence according to Haidt and Lukianoff (see "Books").ref 734 (When you Google this you will get articles about the girls as victims without clear statements about girls as perpetrators.) The boys, taking cues from the Jackass series, impale themselves from skateboards, dive into bonfires, and eat Tide Pods (killing more than one of these Tide Podlers).ref 735 Procter & Gamble is making its Tide Pods even less appetizing, if you can imagine that.ref 736 The sport of snorting a condom and pulling it out of your mouth probably has a funny back story.ref 737 Efforts to test boundaries are now “hold my phone” moments. Although Darwin Awardees in Training are not new, one wonders how many fatalities uploaded to the cloud are caused by the iPhone.

What has changed, however, is what the boomers will do to protect the little dumplings, inadvertently doing more damage in the process. These protective measures range from sketchy to moronic. (Sorry: If the shoe fits wear it, pinhead.) Parents are now monitoring their kids’ calls, email, and phone messages. Phone apps now exist that make the kid check in, or the cops get called and the phone tracked.ref 738 “We found your kid, Mr. and Mrs. Stalin. Their battery had died. Would you like us to take them to the Gulag anyway?" What happened to “be home for dinner by six and don’t be late?” An Edmonton day care is requiring kids bring helmets to protect them on the playground.ref 739 Sugared drinks are being mandated by law to be removed from children’s meal menus at restaurants.ref 740 Several towns have made it unlawful for a 12-year-old to trick or treat,ref 741 presumably to protect the littler kids who are, without fail, now accompanied by dozens of adults. A fine of $25 or “up to 6 months in jail” seems a bit weird. "I’ll take the $25, your Honor." We check the kids’ candy to make sure there are no razor blades or poison, unaware that every documented case of such attempted infanticide has been traced to a family member. “Honey, I poisoned the kids.” In one county, 10- and 11-year-olds must have at least one parent “get to the choppers” (helicopter parent) when the kids are outside playing.ref 742 Disney’s Sleeping Beauty is finally drawing scorn for the scene in which Prince Charming ravages the sleeping girl with a non-consensual kiss.ref 743 Hey, Amnesty International: Don't you have bigger fish to fry?

Of course, once the kids hit high school, it’s time to give some slack to the leash. Yeah, right. One high school declared that oral presentations in class are an unreasonable burden for those with anxiety.ref 744 Jonathan Haidt notes that we have about 100 kidnappings per year—most by a pissed-off divorcee parent—while 10 kids per day are killed texting and driving. One Girl Scout got the clever idea of selling her cookies in front of a pot dispensary.ref 745 I suspect a boomer parent hatched that plan. She sold 312 boxes to the stoners. Girl Scouts of America declared it “not cool.”ref 746 The GSA administrators in the Colorado chapter, however, declared that it was "totally cool, Dudette."ref 747 One teacher decided that the term “Ma’am” was inappropriate in the current PC culture. When the kid just couldn’t shake this rural nicety, she made him write the word repeatedly (which seems kinda backward) and have his parents sign it.ref 748 The teacher also said that if she had had something, she “would have thrown it at him.” I can only imagine that parent–teacher conference. Schools are banning children from using the term best friend over fears that some really unlikeable, spoiled little douche may feel left out. This also ensures that kids will not form tight, lasting relationships. A teacher in Florida was fired for refusing to give students a grade of 50% even though the assignments were not turned in.ref 749 The school had an unstated “no zero” policy. Ironically, the school was run by a bunch of zeroes.  

Most of these are marginally harmful lobotomizations that may not leave scars (provided the kid doesn’t become a cutter). However, many child psychologists suggest that increasing academic problems in young boys stem from repeated chastisement for acting like, well, young boys. Schools are denouncing toxic masculinity in kindergarten.ref 750 Kids caught “sexting”—sending semi-lewd or lewd pictures via cellphone—are being charged with trafficking in child porn.ref 751 One elementary school passed around flyers denouncing “white privilege.”

The institutionalization of PC not only hurts the kids but also infringes on parents’ rights to add any post-genetic finishing touches and determine levels of risk. A mom was investigated for letting her 8-year-old walk the dog around the block. Another received a visit from the police because her kids were playing in the front yard “unsupervised.” She noted that, "For something like this to happen to me, there’s something really wrong." Ya think? Something like this once happened to my wife and I, and a woman from social services showed up. Once this sanctimonious piece of human detritus—Do I sound like I’m over it?—started citing the scriptures in a decidedly sanctimonious way, I told her that "I am fighting the urge to throw you out the door on your fucking head." My wife suggested my comments were counterproductive. I thought I showed great restraint.

Schools are throwing Common Core math at them, ensuring that they will all share a common denominator: total mathematical ignorance including not knowing what “common denominator” means. After dropping $400 million on its development, the Gates Foundation declared common core math a total failure.ref 752 It is still in use, lobotomizing children across the country. I suspect its deep-seated purpose was to forcibly engineer equal outcome at any cost. So much for inclusivity. Ian McEwan, an award-winning author, began to wonder about the system as a whole when after helping his son with an essay about his own novel his son received a C.ref 753

“If you breastfeed your sons, you are training them to be rapists when they grow up. You’re basically teaching them that they can touch a woman’s body whenever they want. If you oppose rape, stop breastfeeding boys!”

~Shaykha Alia (@AliaAbheed), activist, not joking

Schools are increasingly filled with boys, girls, and fence sitters. I must confess that sexual and gender ambiguities must be traumatic for kids who are already in traumatic periods of their lives. I watched my son for at least 5 years wondering if and when he would come out (even to his family). He waited till it was time. Nobody else gets to make that call. Let the parents ponder how to raise the kid in the most nurturing and constructive manner possible.

I even support parents who are serious loons doing stuff I think is sketchy because it’s not my kid. A new class of child called “theybies” are babies and kids raised gender neutrally, ensuring that they will consume copious quantities of mental health services later in life.ref 754 One woman fought gender norms by naming her son Vagina.ref 755 Middle school may get a little rough. Didn’t Johnny Cash write a song titled, "A Boy Named Vagina"? There are, however, some real consequences moving down to the younger age brackets. Pediatricians and psychologists are battling it out over gender dysphoria, what it means, and what to do about it. Scientists are using fMRI to study transgenderismref 756 (sounds good) to aid earlier "transition" (gettin’ a little sketchy), possibly as early as age 3.ref 757 Hold your horses there, Buckeroos: You might want to wait till they can talk and get through a whole day without Pull-Ups (gender-neutral colors, of course.) Some worry about “social and peer contagion” of the gender dysphoria;ref 758 this is not like some passing lesbian phase sophomore year in college. One judge removed a 17-year-old transgender teen from her parents because they refused to allow hormone treatments.ref 759 All of this reminds me of the Saturday Night Live skit with the doctor who delivered 4,000 girls in a row. Half needed only a minor postnatal surgical procedure. One thing is clear, if your son transitions to become a girl, get ready to pay more for toys and clothes.ref 760 Somehow the free market has figured out that there is a recessive X-linked gene for insensitivity to price. If, on the contrary, your daughter transitions to a boy, you will be able to afford college. Jazz hands!

When I was a kid we had one rule: Be home for dinner. I was riding my bike miles from home by age 8 and groping young girls (not like Brett Kavanaugh!) and hitchhiking with permission at 12, drinking without permissionat 13, smoking pot at 14, and dropping acid at 15. I started to study at 17, graduated from Cornell with a degree in genetics at 22, and got my PhD in chemistry at 25. (Yes folks: That is a 2.7-year PhD from Columbia and no post-doc, all with damaged chromosomes to boot.) Nobody broke my spirit by declaring me flawed. My peer group played copious quantities of only self-supervised sandlot sports until middle school. We laid out the field, made up the rules, refereed the games, and had some Lord-of-the-Flies moments. This peer group generated a three-time first-team All-American lacrosse player at Syracuse, the 12-year center for the Dallas Cowboys, and probably the only faculty member in the modern era to have been an assistant or head coach of two collegiate sports (me).

How about some solutions or suggestions, Dave? OK. Since you asked. First, read Jonathan Haidt’s and Greg Lukianoff's book, Coddling the American Mind (see “Books”). I sent it to one of Cornell’s deans, and he said it described the problems landing in his office to the letter. Let them go outside, get hurt, cause trouble, and pay some consequences. No broken bones or lost eyes? That was a good day. Stop depriving kids of constructive play by inserting vast numbers of résumé-boosting activities with oppressive levels of adult supervision. I’ve read college and graduate admissions applications for many years; most parents haven’t a clue about what really matters. Watch the movie Stand by Me or the often overlooked Tree of Life. That was my childhood. And don’t you dare say those were simpler times; that’s a load of garbage asserted by helicopter parents.

Others are also taking action. The French are talking about banning phones in school. At first I flinched, but I realized that they’re onto something.ref 761 A woman named Lenore Skenazy has started the free-range parenting movement, which supports the type of parenting that used to be considered normal.ref 762 I am also now an enthusiastic supporter of school choice. If you insist on indoctrinating kids, at least give the parents the choice of which gulag to ship them off to every morning. And on the more micro level, give families some choice: (a) common core math versus actual math; (b) learning how to write versus reading books like Waiting for Godot, and (c) secular or religious philosophical underpinning. Parents shouldn’t have to pay double for private schools at least in the more populated areas where multiple tracks and schools are already necessary; there would be no added cost. Finally, let the kids determine their peer groups—let’s call them “boys” and “girls”—and let them play separately without adults force-feeding inclusion. Are what we called “cooties” now microaggressions with “attackers” and “victims”? There will be plenty of time in the later years for coed binge drinking and teen pregnancies. If none of this makes sense, that’s OK, but may God have mercy on your soul, mofo.

Conclusion

Bad times create strong men.
Strong men create good times.
Good times create weak men.
Weak men create bad times.

It’s safe to say we have tough times ahead, because that has always been true. If equity markets regress to the mean while the 38-year-old bond bull market turns into a bear, we will witness some serious wealth destruction. I could be wrong, of course, but if the case for overvaluation in both equities and fixed incomes is sound, I remind you that gravity always wins. It is undefeated. China seems on the cusp of the first serious lesson about the downside of capitalism. The European Experiment of a super-sovereign world may falter when fill-in-the-blanxits start leaving. If the U.S. finally comes to terms with its debt problem through a mechanism I haven’t yet imagined, the 12-step program will not include excessive consumption on the back of more debt (hair of the dog). Boom–bust cycles are normal, but this one could be a bit too synchronous for comfort, and it follows a supernatural monetary policy.

“I think the next downturn is going to be a different kind of downturn. I think it will be more severe in terms of the social-political problems. It will be harder to handle. . . . It will have bigger international implications."

~Ray Dalio

“There is a numbness out there, there is an ambivalence out there that’s concerning. . . . When the next turn comes—and it will come—it’s likely to be more violent than it would otherwise be if we let some pressure off along the way.”

~Michael Corbat, Citigroup CEO

Here’s what is bugging me. There has been a growing malaise since the ’08–’09 crisis manifesting upheavals that seem correlated. I blame Obama and his Department of Justice in part. This is not because of his politics—they shockingly never bugged me that much, and I like the guy—but rather because he let the bad guys go by policy. They stitched up festering wounds that laid foundations for social upheaval (mixed metaphorically speaking). The Occupy Wall Street movement was toothless but a beta test. Now we have Antifa, which is a combination of dangerous people and gullible followers. Presumably there are right-wing analogs, but I find them harder to identify as coherent groups.

“Liberals claim to want to give a hearing to other points of view, and are then shocked and offended when they discover there are other points of view.”

~William F. Buckley, founder of The National Review

I think the reason that those on the left are so prominent on my radar right now is that they went berserk when Hillary—the first female presidential contender—got beaten by the most repugnant opponent they could imagine. You don’t have to look hard to see educated and intelligent people—they are not one and the same—saying some of the most vile things. From the left has spawned an intolerant liberal left. There seems to be a prevailing wisdom that if you know you have the moral high ground (who doesn’t think that?), there are no rules. You first label your opponent—white, male, conservative, heterosexual, neo-Nazi, fascist, insufficiently progressive, or all of the above—and then attack verbally and even physically. I reached out to a decidedly progressive faculty member who was being eviscerated unjustly—scorn, hate mail, the whole enchilada. I’ve done this many times simply to let them know they’re not alone. When I noted the irony that it was coming from the left, they responded:

“The harsh criticism on my role in the story (as reported by the media) is not coming from folks on the left, it’s coming from liberals. There’s a big difference, as you know.”

What a fascinating response. As I understood it, liberals were compassionate and tolerant, albeit a little rich in fanciful ideas. The graphic in Figure 55 shows that everything has changed.ref 763 As your political opponents move to the extreme, you move to the other extreme. We were OK in 2004, quite healthy actually. By 2017, however, we had polarized.

Figure 55. The growing political and social divide.

“War is when your government tells you who your enemy is, and revolution is when you discover it for yourselves.”

~Source unknown

When the riots in France started, they were reputed to be about an energy tax. You would be shocked at the number of journalists and bloggers trolling Twitter trying to find someone who could explain what was reallyhappening. Here is my answer: Government is like a fiat currency. Once faith in it is lost, you will witness cascading failures that are too complex to comprehend in detail. Arab Spring began when one highly flammable Tunisian lit himself on fire. As Billy Joel says, “We didn’t start the fire.” Avalanches, explosions, earthquakes, and fires all thwart serious efforts to model them. Metastable systems—systems displaced markedly from equilibrium waiting for the right spark or trigger—return to equilibrium unexpectedly, quickly, and often violently. Social movements start small (by definition) and unexpectedly, but they move quickly and can end violently. France has been down this path. Edmund Burke was one of the few who saw the social movement in late eighteenth-century France as the first rumblings of a murderous rebellion. The Rodney King–sparked LA riots started to spread; we got lucky when they burned out. When everyone is grumpy and some guy decides to light a car on fire, don’t be surprised when others join in. They all share a common denominator: they're PO’d.

“The collapse is fundamentally due to the unstable position; the instantaneous cause of the crash is secondary.”

Didier Sornette, Professor of Entreprenurial Risks, ETH Zurich

The solution is to have strong social institutions and social capital that unifies the populace. This gets to my criticism of the left, not the people but rather the leaders and power brokers denounced by Malcolm X (above). When you deem it your job and derive power from providing goods and services to the masses, self-governing and self-sufficient groups represent risk. It’s a turf war. Under the guise of inclusion, people are now being discouraged from self-assembly. Men and women as well as boys and girls are not allowed to have their own sports. The Boy Scouts of America, where fathers and sons congregated to train and civilize a new generation of responsible fathers, is no longer just fathers and their sons.

Fraternities are an interesting case study in social cohesion. They are on the lam from society. You house a few dozen 18- to 22-year-old men away from their parents for the first time. A few mishaps are a certainty. Statistically, if you select a few dozen men from a campus randomly, give them a Greek label, and monitor their behavior they will collectively look like a dumpster fire. I will admit there is also groupthink that amplifies behavior and drops average IQs to levels that can shock adults. They also represent legal bull’s-eyes for lawyers when things go bad. Some universities have replaced fraternities with communal living units. Why do other schools support this increasingly polarizing Greek communal system? First, the nouveau communal units are not as cohesive as those that are self-assembled. I have a data-less theory: If universities analyzed suicides on campuses—they are common on all campuses because of the risky age bracket—they would find that the suicide rate in fraternities is low. When things go poorly—a flunked exam or being dumped by a girlfriend—the dejected kid goes back to his fraternity and gets shitfaced with dozens of his friends. It is a support group unlike any others (except for maybe in the military). From these collectives of incorrigible crazies emerge future leaders, not only of corporate America but also of university alumni organizations. I am stunned by what the Bands of Losers I lived with turned into as they got older. During reunions, fraternities fill with old friends sharing common stories—stories that are common even if they didn’t overlap in college—while independents wander the campus looking at new buildings or don’t bother to return at all. Are these really organizations you want to dismantle?

Let’s swing our gaze elsewhere for a moment. I always viewed gentrification of dilapidated neighborhoods in big cities as a rebirth of sorts, a spontaneous urban renewal. Out with the old, in with the new. I recently stayed with a friend (Andy Huszar) in Harlem. My life expectancy would have been 5 minutes when I was in grad school. What a miracle. What I failed to realize, however, was that those dilapidated buildings were part of neighborhoods, not just dwellings. Neighborhoods are like Cheers where “everybody knows your name.” Gentrification forces people to find cheaper housing elsewhere. They will find it, of course, but they won’t find a community. You can hear the fabric tearing.

"We live in a society of decreasing circles. More and more of us know fewer and fewer of us. We live alone and eat by ourselves, often with a TV or computer rather than a human being for company."

~The American Conservative (@amconmag)

Now I will go where no rational man has gone before: religion! I have been a pro-choice atheist my whole life—just a pagan with a busy sword—and am unlikely to switch sides now. As a scientist, extreme Christian views on creation and evolution are never gonna make sense. Over the years, however, my thinking became more nuanced as an accumulated broader historical perspective caused cognitive dissonance to encroach. The Church in medieval Europe certainly has plenty of blotches on its record, but in a “World Lit Only by Fire,” the church brought order where there would have been only chaos. Vivid imagery of Hell that made medieval life look cushy by comparison kept the nobles from abusing the peasants. How about the Spanish Inquisition? Well, they were legally trained well above the norm of their time. A documentary on the massive "inquisitor archives" showed that the inquisitors executed fewer people over four centuries than the state of Texas offed over a far shorter span. There is also evidence that the inquisitors viewed religion as outside of their jurisdiction during some periods. Why the bad rap? Every time Spain got into a war, which was quite often, the opposing team would pull out horrific tales of the inquisitors to rally the troops. Also, the norms for the era were pretty damned bad anyway (see Pinker in "Books").

How about all the scientists that got oppressed by the Church? A little history of science shows that gets a little fuzzy too. Leonardo da Vinci carved up people in the basement like John Wayne Gacy without getting flack. When scientists discovered something new, the Church would often say, “God is even more grand than even werealized.” A savvy scientist would say, “You betcha, Pope.” The scientists who got into trouble may have lacked the self-control to avoid pushing the Church’s buttons. I know enough scientists like this to say that my thesis is in the realm of possibility.

“Defending rights against the encroachments of the government saves the common liberties of the country.”

~Alexis de Tocqueville, 18th century French diplomat, historian, and political scientist

When Alexis de Tocqueville came to America, he marveled at how much freedom Americans enjoyed and how religious they were. He also marveled at the lack of lawlessness (brawling aside, which he noted was way too consensual). The message was that our strong Constitution and limited laws gave us unprecedented freedom while religion gave us the will not to abuse it. You resisted stealing from your neighbor simply because it was wrong. You helped your neighbor because it was right. Charles Murray in Coming Apart (see "Books") paints in graphic detail how the last half-century has witnessed a stunningly abrupt replacement of morality for rules. What happens when we have lots of rules but nobody feels morally obliged to follow them?

From the left there is a relentless push to remove Christmas from schools, denounce those who support the American flag, control what is taught to children and where, emasculate men, move decisions from the local to the centralized national government through rules and regulations, take away our freedom of choice with whom to do business, confuse abstract feminism with women's rights, take away parents' rights to choose what is best for their children, and decide with whom we can affiliate and who we get to exclude. These institutions and ideas represent a critical social glue. Be careful what you take away.

Thus, I am an atheist living in a unique society that was built on strong moral values that find their roots, at least in part, in religious convictions that I do not share in their detail. I should be very careful, however, to not lose sight of the fact that I am reaping what I did not sow. I should have more faith in those who already have faith. I am now a cognitive dissident. And with that, my work here is done. You're welcome.

“Maybe our favorite quotations say more about us than about the stories and people we're quoting.”

~John Green (who?)

Acknowledgements

There are so many people from the world of finance and markets who patiently allow me to invade their space with inane comments and questions. Many are household names—real legends—even outside of the finance world. One year I tried to thank a ton and found out how many more I excluded. As The Donald would say, “I love all of you” (but Rudy, you are the best. I love ya, man.) That said, people do reach out, and I’m happy to chew some fat. My email is dbc6@cornell.edu. If I don’t answer an email, it’s either because MSFT Outlook has filtered yet more emails (thanking Steve Sinofsky, friend and former president of Microsoft under Ballmer, for that one) or because I just screwed up. And if I know you, I’ll cook you burgers on our deck overlooking Cayuga Lake if you come to Ithaca. Some of you already have standing offers. People, not places or experiences, are what fill my bucket list. And, by the way, send your kids to Cornell because it is a truly wonderful school. How wonderful? We have more departments in the top ten than any other school in the country . . . and “everybody knows your name.” I have no strings to pull, but I do understand the system if you want some advice.

There are always new additions. That’s Sean in the middle sleeping on Grandpa, Miles on the left, and Liam on the right in the photo on the left. Sean’s a boy until he’s old enough to decide for himself. In the right-hand photo is Claire, a rescue from a breeder. This picture is after we peeled 25 pounds off her. She identifies as a Lab, our third, although similarities to bear #409 (Beadnose) are inescapable.

Figure 56. Three punks in training and The Master (left) and “Claire” aka “Claire the Bear” aka “The Tank” aka “Butterball” and The Master of that too (right). 

Books

“Moses wrote one book. Then what did he do?”

~Sidney Morgenbesser, Columbia University philosopher

I would have read more books when I was younger if the ones they made us read didn't suck salty balls and if it were not for acute CLCS (chronic lip cramping syndrome). I was a typical boy on the lower end of the reading scale with a highly targeted curriculum: