Some of the stocks that may grab investor focus today are:

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Nearly two months ago we explained "How Beijing Is Responding To A Soaring Dollar, And Why QE In China Is Now Inevitable" in which we cited Cornerstone who reminded us "that from 2007 to late 2008, U.S. fed funds dropped 500 bp, and then the Fed still needed to do QE? The backdrop for China looks a bit similar. We had a credit bubble, they have a credit bubble. We had a housing bubble, they have a housing/investment bubble. Will China eventually have to go down the same path as the U.S., and the Eurozone? ... The PBoC will first cut rates to 0%, before contemplating QE."

To this we added that "once China, that final quasi-Western nation, proceeds to engage in outright monetization of its debt, then and only then will the terminal phase of the global currency wars start: a phase which will, because global economic growth and that all important lifeblood of a globalized economy - trade - at that point will be zero if not negatve, will see an unprecedented crescendo of money printing by absolutely everyone, before coordinated devaluations mutate into uncoordinated, and when central bank actions morph from "all for one" to "each man for himself."

We may not have long to wait because just hours ago, MarketNews first among the wire services hinted at what we suggested was the endgame.


Bloomberg adds more, citing MNI as saying that the Chinese central bank discussing "adopting unconventional policies to rebuild its balance sheet and reinvigorate economy, including making direct purchases of local government bonds from market."

Of just as we predicted.

MNI continues that "although wide range of possibilities tabled about how PBOC operations could change, common thread of discussion involves need to expand balance sheet to ensure supply of liquidity meets economy’s demands, report says."

In other words, China is about to engage in the biggest QE of them all, and drown the world with exported deflation as the global supply glut which we explained yesterday, hits unprecedented levels and ultimately leads to the biggest inventory dumping phase in global history which central bankers will have no choice but to offset with Friedman's infamous "helicopter drop" of money, finally leading to the terminal phase for fiat currencies.

MNI continues:

PBOC discussed quantitative easing, which would tie in with aim of having local governments sell CNY1t in bonds this year to lower interest costs, mitigating systemic risk and boosting economies at local level.


PBOC could buy assets directly from the banks, freeing them up to purchase local government bonds, or buy local government bonds directly from the market, according to sources who have been briefed on discussions.


Unlike reserve-requirement cuts, which involve funding already in PBOC accounts, these operations would expand bank’s balance sheet, helping it to counter impact of sustained capital outflows.

Because apparently $22 trillion in global central bank assets is not enough to show the world's Keynesians, who are now eager to push the world to war just to avoid being proven wrong, that QE does not work.

To be sure others promptly jumped on the report: according to Shanghai Pudong Development Bank, the "possibility exists for PBOC to adopt unconventional policy such as bond purchases as onshore commercial banks may have limited appetite for such notes."

Move will help fund infrastructure projects more smoothly at a time when growth is slowing, Shanghai-based senior analyst Cao Yang says, adding that the Yuan will continue to be stabilized as authorities keen to promote currency internationalization

And while no decision has been made and China is clearly unsure if this is the correct policy...


... the market has already made up its mind, with the Yuan falling 0.14%, set for biggest drop since March 23, to 6.2036 per dollar, while the Shanghai Composite was up 3% in overnight trading, rising above 4,500 for the first time since the last financial crisis, and up 40% since we first predicted in the beginning of March precisely what the Chinese endgame is.

by Adam Butler, GestaltU/Skew

There’s been much made of the recent move by Ben Bernanke accepting a position – less than a year after leaving his position as Chairman of the Fed – with hedge fund Citadel.

I’ll admit that my initial reaction was the populist one: Here we go again with the revolving-door between Washington and Wall Street that functionally kills any and all possibility for meaningful reform. Consider that the same people tasked with regulating financial firms have not only their political coffers stuffed by contributions from said firms, but also cushy and high paying job prospects waiting in the wings, and it’s very easy to be cynical about the current system.

But the populist reaction notwithstanding, I was pretty quickly turned around when presented with truly radical proposition by one of the world’s per-eminent cynics. Enter famed author, professor, researcher, and fight-picker Nassim Taleb. In his book Antifragile, he writes (emphasis mine):

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A simple solution, but quite drastic: anyone who goes into public service should not be allowed to subsequently earn more from any commercial activity than the income of the highest paid civil servant. It is like a voluntary cap (it would prevent people from using public office as a credential-building temporary accommodation, then going to Wall Street to earn several million dollars). This would get priestly people into office.

Though Taleb and I may be on the same side of this debate philosophically, I have reservations about this proposal. Priests often go into the priesthood because of a spiritual calling. In other words, the price of their labor is inelastic; No matter what a church decided to pay a priest, it would likely have a similar amount of applicants. Does this extend to civil servants? Specifically, to what extent might impairing future income diminish the quality of individuals willing to engage in civil service?

Researchers have done extensive research on the question. While there are many papers on the topic, the general findings indicate that when politicians are paid more for their service, the profession attracts more candidates, and candidates tend to be more educated, stay in their positions longer and be more legislatively productive.

The singular, central tenet of economics is that people respond to incentives, so this shouldn’t come as much of a surprise. The implications of this, however, are likely to scramble your brain: If you want civil servants to be more effective, maybe the best strategy is to pay them more, not less. In the case of civil servants tasked with regulating Wall Street, perhaps a LOT more. It might seem contrary to the fundamental notion of “civil service,” but if we want a politician to ignore the future monetary incentives that might be offered by, say, one of the world’s largest hedge funds, one possible strategy would be to make them fabulously wealthy in their role as a servant.

At the end of the day, I don’t disagree with Taleb on the desired outcome. It’s impossible to ignore that the revolving door creates a principal-agent problem. But any honest assessment of the revolving door must take into consideration two opposing effects of limiting civil servant incomes:

1. We are likely to attract a more virtuous brand of politician, while simultaneously…
2. …attracting a less educated, committed and productive brand of politician.

If we limited the income potential for financial regulators, I suspect many of them would skip civil service entirely and go straight to Wall Street. How many? Would it be worth it anyway? Which of the above effects would be greater? I don’t know the answer, but it’s certainly worth considering before we go looking to the priesthood for the next Fed Chairperson.

Copyright © GestaltU/Skew

by Frank Caruso, CIO, U.S. Growth Equities, AllianceBernstein

Precious gems, Old Masters artwork and certain brands of scotch: scarcity makes them more desirable and adds to their value. The same can be said of organic growth. As the economic cycle matures, we expect the stocks of companies that have it—and can maintain it—to become increasingly prized.

There are numerous reasons why top-line (and, in turn, bottom-line) growth is in shorter supply these days. While the economy remains relatively healthy, the stimulative punch of low borrowing costs and quantitative easing programs is weakening. Low oil prices, a strong US dollar and the forthcoming tightening of US monetary policy are further headwinds. After six years of slow recovery, there are simply fewer obvious pockets of pent-up cyclical demand to drive meaningful volume gains.

Take, for example, the US auto industry. Annual production has roughly doubled from its recession lows to more than 16 million units today. Even if builds were to rise another 4 million units to 20 million over the next five years—which would be a record high—the cumulative gain would be just 25%, a quarter of the rate of the prior five years. This math holds true for other end markets, with US home construction being one potential exception.

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Interpreting the High Value of Sales

So why is the market attributing such a high value to sales today? Despite slowing aggregate growth rates, the S&P 500 Index is currently trading at a median price-to-sales (P/S) ratio of 2.1 times, a 50-year high (Display 1). This can be interpreted in several ways. It may mean that investors expect today’s near-record profit margins to persist, if not rise further, as a reviving economy keeps sales buoyant. Or it could reflect the market’s valuing of future earnings streams using interest rates that have been falling steadily for nearly three decades (mirroring the ultralow forward yield potential embedded in fixed-income assets). It could also mean that investors anticipate a sharp acceleration in sales growth. In our view, it’s probably some combination of all three possibilities.

Regardless, there’s a lot of hope—and risk—built into current valuations. P/S multiples this extreme haven’t been good for stock performance historically. According to Ned Davis Research, when the S&P 500’s median P/S ratio has exceeded 1.53—which has happened only 18% of the time since 1965 and is well below the current levels—stock prices have been essentially flat one year later (up a mere 60 basis points, on average). If this pattern were to recur, it would pose a tough performance hurdle, whether we’re talking in absolute terms or relative to other asset classes.

Stable Organic Growth to Gain Cachet

As the economic cycle matures, we expect sustainable, stable organic growth to increasingly gain cachet. This stable growth is likely to be highly idiosyncratic—either because the companies possess an enduring competitive advantage (like those with long-established network effects), are forging new markets (from emerging new technologies such as DNA sequencing, which is enabling diagnostics and treatment capacities not possible just a few years ago) or are benefiting from secular changes in existing markets (like airframers and aircraft engine manufacturers riding the aircraft upgrade cycle and the push for greater fuel efficiency).

In our experience, the market consistently underestimates the durability, the ultimate magnitude and thus the underlying value of these idiosyncratic, differentiated growth themes.

In contrast, companies with high sales cyclicality present an elevated risk, particularly at economic inflection points. Though these stocks’ low earnings multiples may appear to be compensating for this risk, the depth and duration of the sales and earnings downturn are often more severe than the market anticipated. We have seen these dynamics play out recently in the global mining industry, which we believe is portending a similar fate for other capital-intensive, long-cycle end markets.

Between two otherwise identical companies, a 1% faster top-line growth rate would be worth an additional 10% to current market capitalization. However, if we are right about the likely divergences in future corporate growth prospects, the valuation gap could be much greater. Accordingly, we see particularly rich payoff potential in well-managed companies that can deliver outsized multiyear top-line growth and high (and hopefully improving) cash returns on investment, and we would avoid companies in more mature, cyclically sensitive end markets. While we believe this focus is a smart strategy at all stages of an economic cycle, we expect sustainable, high-quality growth to be particularly coveted in these times of growth scarcity.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

Copyright © AllianceBernstein

Submitted by Ray McGovern via Consortium News,

The leniency shown former CIA Director (and retired General) David Petraeus by the Justice Department in sparing him prison time for the serious crimes that he has committed puts him in the same preferential, immune-from-incarceration category as those running the financial institutions of Wall Street, where, incidentally, Petraeus now makes millions. By contrast, “lesser” folks – and particularly the brave men and women who disclose government crimes – get to serve time, even decades, in jail.

Petraeus is now a partner at KKR, a firm specializing in large leveraged buyouts, and his hand-slap guilty plea to a misdemeanor for mishandling government secrets should not interfere with his continued service at the firm. KKR’s founders originally worked at Bear Stearns, the institution that failed in early 2008 at the beginning of the meltdown of the investment banking industry later that year.

Gen. David Petraeus in a photo with his biographer/mistress Paula Broadwell.

Despite manifestly corrupt practices like those of subprime mortgage lenders, none of those responsible went to jail after the 2008-09 financial collapse which cost millions of Americans their jobs and homes. The bailed-out banks were judged “too big to fail” and the bankers “too big to jail.”

Two years ago, in a highly revealing slip of the tongue, Attorney General Eric Holder explained to Congress that it can “become difficult” to prosecute major financial institutions because they are so large that a criminal charge could pose a threat to the economy – or perhaps what he meant was an even bigger threat to the economy.

Holder tried to walk back his unintended slip into honesty a year later, claiming, “There is no such thing as ‘too big to jail.’” And this bromide was dutifully echoed by Holder’s successor, Loretta Lynch, at her confirmation hearing in late January.

Words, though, are cheap. The proof is in the pudding. It remains true that not one of the crooked bankers or investment advisers who inflicted untold misery on ordinary people, gambling away much of their life savings, has been jailed. Not one.

And now Petraeus, who gave his biographer/mistress access to some of the nation’s most sensitive secrets and then lied about it to the FBI, has also been shown to be too big to jail. Perhaps Holder decided it would be a gentlemanly thing to do on his way out of office – to take this awkward issue off Lynch’s initial to-do list and spare her the embarrassment of demonstrating once again that equality under the law has become a mirage; that not only big banks, but also big shots like Petraeus – who was Official Washington’s most beloved general before becoming CIA director – are, in fact, too big to jail.

It strikes me, in a way, as fitting that even on his way out the door, Eric Holder would not miss the opportunity to demonstrate his propensity for giving hypocrisy a bad name.

A Slap on Wrist for Serious Crimes

The Justice Department let David Petraeus cop a plea after requiring him to admit that he had shared with his biographer/mistress eight black notebooks containing highly classified information and then lied about it to FBI investigators. Serious crimes? The following quotes are excerpted from “U.S. v. David Howell Petraeus: Factual Basis in support of the Plea Agreement” offered by the U.S. District Court for the Western District of North Carolina, Charlotte Division:

“17. During his tenure as Commander of ISAF in Afghanistan, defendant DAVID HOWELL PETRAEUS maintained bound, five-by-eight-inch notebooks that contained his daily schedule and classified and unclassified notes he took during official meetings, conferences, and briefings. … A total of eight such books (hereinafter the “Black Books”) encompassed the period of defendant DAVID HOWELL PETRAEUS’S ISAF [Afghanistan] command and collectively contained classified information regarding the identities of covert officers, war strategy, intelligence capabilities and mechanisms, diplomatic discussions, quotes and deliberative discussions from high-level National Security Council meetings, and defendant DAVID HOWELL PETRAEUS’s discussions with the President of the United States of America. [emphasis added]


“18. The Black Books contained national defense information, including Top Secret//SCI and code word information.”

Despite the sensitivity of the notebooks and existing law and regulations, Petraeus did not surrender them to proper custody when he returned to the U.S. after being nominated to become the Director of the CIA. According to the Court’s “Factual Basis,” Petraeus’s biographer/mistress recorded a conversation of Aug. 4, 2011, in which she asks about the “Black Books.” The Court statement continues:

“ [Petraeus] ‘Umm, well, they’re really – I mean they are highly classified, some of them.  … I mean there’s code word stuff in there.’ … On or about August 27, 2011, defendant DAVID HOWELL PETRAEUS sent an email to his biographer in which he agreed to provide the Black Books to his biographer. … On or about August 28, 2011, defendant DAVID HOWEL PETRAEUS delivered the Black Books to a private residence in Washington, D.C. where his biographer was staying. … On or about September 1, 2011, defendant DAVID HOWELL PETRAEUS retrieved the Black Books from the D.C. private residence and returned them to his own Arlington, Virginia home.” [emphasis added]

I would think it a safe guess that Petraeus’s timing can be attributed to his awareness that his privacy and freedom of movement was about to be greatly diminished, once his CIA personal security detail started keeping close track of him from his first day on the job as CIA Director, Sept. 6, 2011.

“32. On or about October 26, 2012, defendant DAVID HOWELL PETRAEUS was interviewed by two FBI special agents. … [He] was advised that the special agents were conducting a criminal investigation. … PETRAEUS stated that (a) he had never provided any classified information to his biographer, and (b) he had never facilitated the provision of classified information to his biographer. These statements were false. Defendant DAVID HOWELL PETRAEUS then and there knew that he previously shared the Black Books with his biographer.” [emphasis added]

Lying to the FBI? No problem. As “Expose Facts” blogger Marcy Wheeler immediately commented: “For lying to the FBI – a crime that others go to prison for for months and years – Petraeus will just get a two point enhancement on his sentencing guidelines. The Department of Justice basically completely wiped out the crime of covering up his crime of leaking some of the country’s most sensitive secrets to his mistress.” [emphasis added]

Talk about “prosecutorial discretion” or, in this case, indiscretion – giving Petraeus a fine and probation but no felony conviction or prison time for what he did! Lesser lights are not so fortunate. Just ask Chelsea (formerly Bradley) Manning who is serving a 35-year prison sentence for disclosing information to the public about U.S. war crimes and other abuses. Or Edward Snowden, who is stuck in Russia facing a U.S. indictment on espionage charges for informing the people about pervasive and unconstitutional U.S. government surveillance of common citizens.

Or former CIA officer John Kiriakou who was sent to prison for inadvertently revealing the name of one Agency official cognizant of CIA torture. Here’s what Neil MacBride, U.S. Attorney for the Eastern District of Virginia, said then: “The government has a vital interest in protecting the identities of those involved in covert operations. Leaks of highly sensitive, closely held and classified information compromise national security and can put individual lives in danger.”

When, on Oct. 23, 2012, Kiriakou acquiesced to a plea deal requiring two-and-a-half years in federal prison, then CIA Director Petraeus sent a sanctimonious Memorandum to Agency employees applauding Kiriakou’s conviction and noting, “It marks an important victory for our agency …  there are indeed consequences for those who believe they are above the laws that protect our fellow officers and enable American intelligence agencies to operate with the requisite degree of secrecy.” [emphasis added]

Consequences for Kiriakou but not, as we now know, for Petraeus.

If you feel no discomfort at this selective application of the law, you might wish to scroll or page back to the “Factual Basis” for Petraeus’s Plea Agreement and be reminded that it was just three days after his lecture to CIA employees about the sanctity of protecting the identity of covert agents that Petraeus lied to FBI investigators – on Oct. 26, 2012 – about his sharing such details with his mistress.

Why Did Petraeus Do It?

Old soldiers like Petraeus (indeed, most aging but still ambitious men) have been known to end up doing self-destructive things by letting themselves be flattered by the attentions of younger women. This may offer a partial explanation – human weakness even in a self-styled larger-than-life super-Mensch. But I see the motivation as mostly vainglory. (The two are not mutually exclusive, of course.)

Looking back at Petraeus’s record of overweening ambition, it seems likely he was motivated first and foremost by a desire to ensure that his biographer would be able to extract from the notebooks some juicy morsels he may not have remembered to tell her about. This might enhance his profile as Warrior-Scholar-“King David,” the image that he has assiduously cultivated and promoted, with the help of an adulating neocon-dominated media.

Petraeus’s presidential ambitions have been an open secret. And with his copping a plea to a misdemeanor, his “rehabilitation” seems to have already begun. He has told friends that he would like to serve again in government and they immediately relayed that bright hope to the media.

Sen. John McCain was quick to call the whole matter “closed.” A strong supporter of Petraeus, McCain added this fulsome praise: “At a time of grave security challenges around the world, I hope that General Petraeus will continue to provide his outstanding service and leadership to our nation, as he has throughout his distinguished career.”

And Michael O’Hanlon, Brookings’ neocon military specialist who rarely gets anything right, spoke true to form to the New York Times: “The broader nation needs his advice, and I think it’s been evident that people still want to hear from him. … People are forgiving and I know he made a mistake. But he’s also a national hero and a national treasure.”

The “mainstream media” is trapped in its undeserved adulation for Petraeus’s “heroism.” It is virtually impossible, for example, for them to acknowledge that his ballyhooed, official-handout-based “success” in training and equipping tens of thousands of crack Iraqi troops was given the lie when those same troops ran away (the officers took helicopters) and left their weapons behind at the first sight of ISIL fighters a year ago.

Equally sham were media claims of the “success” for the “surges” of 30,000 troops sent into Iraq (2007) and 33,000 into Afghanistan (2009). Each “surge” squandered the lives of about 1,000 U.S. troops for nothing – yes, nothing – except in the case of Iraq buying time for President George W. Bush and Vice President Dick Cheney to get out of town without a clear-cut defeat hanging around their necks.

Many of the supposed successes of Petraeus’s Iraqi “surge” also predated the “surge,” including a high-tech program for killing top militants such as Al-Qaeda-in-Iraq leader Abu Musab al-Zarqawi and the formation of the so-called Sunni Awakening, both occurring in 2006 under the previous field commanders. And, Bush’s principal goal of the “surge” – to create political space for a fuller Sunni-Shiite reconciliation – was never accomplished. [See’s “The Surge Myth’s Deadly Result.”]

And last, it is important to note that David Petraeus does not have a corner on the above-the-law attitudes and behavior of previous directors of the CIA. The kid-gloves treatment he has been accorded, however, will increase chances that future directors will feel they can misbehave seriously and suffer no serious personal consequence.

The virtual immunity enjoyed by the well connected – even when they lie to the FBI or tell whoppers in sworn testimony to Congress (as Director of National Intelligence James Clapper has done) – feeds the propensity to prioritize one’s own personal ambition and to delegate a back seat to legitimate national security concerns – even basic things like giving required protection to properly classified information, including the identity of covert officers.

One might call this all-too-common syndrome Self-Aggrandizing Dismissiveness (SAD). Sadly, Petraeus is merely the latest exemplar of the SAD syndrome. The unbridled ambitions of some of his predecessors at CIA – the arrogant John Deutch, for example – have been equally noxious and destructive. But we’ll leave that for the next chapter.

While the USA is busy killing US civilians and terrorists with its drone program, Russia is set to deploy its own Orlan-10 drones in the oil- and gas-rich Arctic region (reportedly to monitor the climate situation). As SputnikNews reports, Colonel Aleksandr Gordeev stated "the drones' task is to maintain impartial control of the situation in the Russian sector of the Arctic, including the ecological and ice situation in the adjoining sea areas and along the Northern Sea Route." So, passive-agressive? However, Russia also chose this week to release rarely-seen images of a US intelligence satellite which as one analyst notes is provocative (but obscure in its intent other than the growing recognition of US space-based surveillance assets).


#Russia to deploy #Orlan-10 #TUAVs to the #Arctic in May @

— Lowlands Solutions (@LowlandsSN) April 24, 2015


As Sputnik News reports, Russian drones will be deployed in the Arctic and along the Northern Sea Route starting May 1 to monitor the climate situation and the deterioration of Arctic ice, as well as to aid in navigation and search and rescue missions.

The drones — Orlan-10s from the Eastern Military District — will be deployed from the Chukotka Peninsula, which lies just opposite Alaska's Seward Peninsula.


The drone unit's mission will be "managing objective control over the situation in the Russian Arctic," added Gordeev. The UAVs will be delivered via heavy Mi-26 transport helicopters, and the station will be manned by graduates of the Defence Ministry’s remote control aviation center.




The announcement of the creation of the drone unit near the city of Anadyr in November came a few months after Russian President Vladimir Putin ordered the establishment of a separate public body responsible for the implementation of Russian policies in the Arctic and a unified network of naval facilities to host advanced warships and submarines to boost the protection of Russia's interests and borders in the area.



Russia is looking to build up its presence in the oil- and gas-rich Arctic region in accordance with the country's revised military doctrine, signed by President Vladimir Putin in December 2014.

But that was not all that Russia was up to this week... As The Federation of American Scientists reports, a Russian satellite tracking facility in Siberia has produced rarely-seen photographs of a U.S. intelligence satellite.

The U.S. LACROSSE radar satellite was captured in images generated at Russia’s Altay Optical Laser Center (profiled here), apparently between 2005 and 2010.


A selection of images was compiled and analyzed by Allen Thomson.


The images contain enough information (range, angular scale) to perform a bit of technical intelligence (i.e., sophomore high school trigonometry) on the radar antenna size, which is a significant parameter affecting capability,” Mr. Thomson, a former CIA analyst, told Secrecy News.


While provocative, the intent of the imagery disclosure was obscure, he said.


“Why did the Russians release the images?  The US is highly paranoid about releasing resolved images of spysats, ours or others. The Russian paranoia is at least as great, so how did these images get out? What was the purpose?”


The images themselves seem to be mostly just a curiosity. But perhaps they underscore the growing visibility and the corresponding vulnerability of U.S. space-based assets.


“Our asymmetrical advantage in space also creates asymmetrical vulnerabilities,” said Gil Klinger, a defense intelligence official, last year. “Our adversaries recognize our dependence on space and continue to think of ways to respond to our space advantage.”


He testified at a 2014 House Armed Services Committee hearing on U.S. national security space activities, the record of which has recently been published. Space protection, orbital debris, the industrial base and related topics were addressed.

*  *  *

It appears the Russians have been busy.

But one thing did jump out whewn gazing at the space images...


By Chris Martenson My first Uber lift was in South Carolina.  My driver was from Sudan originally, but had emigrated to the US 20 years ago.  Being the curious sort, I asked him about his life in Sudan and why he moved.  He said that he left when his country had crumbled too far, past the…

Perhaps it was inevitable. After all, the term “QEfinity” entered the financial lexicon long ago and there were already quite a few commentators out there suggesting that it may now be too late to remove the punchbowl, meaning an “exit” will not only prove difficult, but may well be impossible. 

Take Makoto Utsumi, who oversaw foreign-exchange policy at the Japanese Ministry of Finance from 1989-1991, for example. Utsumi recently said a BoJ QE exit was out of the question “for the foreseeable future” and went on to note that “even the thought of an exit is a nightmare.” Meanwhile, it’s virtually impossible to say what effect Fed tightening will have in both the Treasury and corporate bond markets given the lack of liquidity in both and then there’s EM where carnage unfolded in 2013 after a certain bearded bureaucrat said the wrong thing about the direction of Fed policy. 

Given all of this, we’re not surprised to learn that in a new paper entitled “Let’s Talk About It: What Policy Tools Should The Fed ‘Normally’ Use?”, the Boston Fed is now suggesting that QE become a permanent tool at the disposal of the Fed. After all, “financial stability” depends on it…

During the onset of a very severe financial and economic crisis in 2008, the federal funds rate reached the zero lower bound (ZLB). With this primary monetary policy tool therefore rendered ineffective, in November 2008 the Federal Reserve started to use its balance sheet as an alternative policy tool when it began the large-scale asset purchases. Now attention is turning to how the Fed should transition back to a more conventional monetary policy stance. Largely missing from these discussions about the Fed's "exit strategy" is a consideration that perhaps it should retain, not discard, the balance sheet tools. 

Yes, oddly missing from the Fed’s exit strategy is the idea that there should be no exit. 

Of course the idea that what was previously “unconventional” policy should now become “conventional” is supported by Fed mission creep because now, the dual mandate has apparently become a “tri” mandate:

Since the Dodd-Frank Act (DFA) has added maintaining financial stability to the Fed's existing dual mandate to achieve maximum sustainable employment in the context of price stability, it might be beneficial to have several tools to achieve multiple policy objectives. An additional consideration is that some of these tools may be needed to stem future crises as a result of the DFA's new limitations on how the Fed can provide liquidity under such adverse circumstances.

The particularly amusing thing here is that if the Fed’s third mandate is promoting financial stability then they’re doing a rather poor job of it so far and asset purchases are the primary reason why. A lack of Treasury market liquidity contributed to last October’s Treasury flash crash and as we’ve pointed out on so many occasions that it now borders on the comical, nothing good can come from sucking every piece of high quality collateral out of the system. Meanwhile, keeping rates low has triggered a bonanza of corporate debt issuance just as the new regulatory regime has ensured that secondary corporate credit markets are just as illiquid as the Treasury market. 

*  *  *

So yes, please retain QE as a permanent policy tool (as we always knew you would). It’s done wonders for demand and financial stability thus far. 

Submitted by Mark St.Cyr,

It’s official: all the markers of manias both past and present have now been surpassed.

NASDAQ™ new highs? Check. All major Indexes both in actual terms as well as adjusted for inflation? Check. Earnings reports being enthusiastically reported as more “beats” than misses? Check. How about employment data? Yep. Within statistically accepted range of near full employment. How about all the macro data? Is it supportive of such a move? Absolutely! And getting better with each release. For Bad is now good, and worse is – excellent!

All of the above sounds great to the uninitiated person on the street. The only problem is as you may now understand the real truth is: that specious (i.e., superficially plausible, but actually wrong) has replaced true/truth – as fact. And in my opinion not just superficially. It now seems how most, if not all financial matters are reported. At all levels.

It is in this context that explains why the average person as well as rudimentary “investor” in some 401K plan is both confused by what they hear, as well as disinterested. The default position when it comes to topics such as these (i.e., data deciphering) is to not pay any mind and just “hope for the best.” There’s no greater example of this than the unopened 401K statement that arrives in the mailbox.

In times of distress, market gyrations, confusion and more. The default thing to do by nearly all “passive investors” is to – not open the envelope. Using this frame of reference it should leave no wondering why channels like CNBC™ aren’t tuning in viewers, but actually turning them off. So let’s take some of the opening paragraph and put the implied references against the true meanings of what has been reported thus far.

The indexes have all once again hit “never before seen in the history of the markets” highs. Once would infer that the economy should then be tearing along at a pace relative to such strong “market” forces. Yeah, not so much.

One would think an “earnings beat” would mean just that: beat because they earned more money than projected. No. You “beat” because of financial engineering. i.e., GAAP vs Non-GAAP. This is where “fake it till you make it” takes on a whole new level of meaning in the corporate world.

Take Amazon for example. Earnings? You mean as in make money over and beyond operating expenses where net profits are the end all be all measurement of success? I would answer that with: “Why start now?” Nearly two decades later since becoming a public company, reporting less than expected losses has now morphed into some meme resembling “They killed it this quarter! They’re raking it in.” But (and it’s a very big but) the story and narrative doesn’t stop there.

Again, nearly two decades later the “analysts” across the financial media are touting why; not only can their stock price go even higher bypassing the Moon, Mars, and any other near galactic measure straight towards Alpha Centauri. It will do this because of the realization the “profits in their retailing efforts aren’t as profitable as their profits in their web services. And that will mean more focus to the web service side.” Wait…What?

First of all one must ask: What profits in retailing? Maybe it’s just me, however, I don’t recall a profitable earnings release in the way I as a businessman understand profits to be. i.e., sale price – minus all costs – resulting in a net profit. All I’ve ever known or heard is, “They only lost X this quarter instead of Y.” And now nearly two decades later the meme is turning to, “Yeah, forget about all that “retailing” stuff. The Cloud is where they’re gonna kill it! Just you wait and see!”

Well, we’ve been waiting two decades for retailing, they’re already a decade into the web service thing, I guess we’ll just have to wait another decade to see. Because if what they reported for “retailing” is true: It’s last twelve months bottom line is now negative $406MM. The worst since 2001. And what did the share price do on all this “bad is now good news” do? You guessed it. Never before seen in the history of the company as well as markets new high. Alpha Centauri – here we come!

This is not to pick on Amazon. As a customer I have nothing but accolades. However, on a stock price and the financial market reporting of that price and how and why it got there? Please, pass the unicorns and rainbows to the next in line. I seem to be a little full. And they do! Going right along dishing it out as in touting next how Facebook™ – is now “killing it!”

Facebook from what I garnered added more “eyeballs” this report than last report. What I didn’t see was based on GAAP numbers was if they made and kept more “net profits” this time than last time. And if “net Income” means anything. Via GAAP Q1-2015 was $512MM. That’s down nearly $200MM from the prior. Or, said more succinctly: nearly a quarter of a BILLION dollars less than the previous report. (I use the BILLION reference because in Silicon Valley, millions is for paupers, Billions is what you need to be garner attention.)

And not to seem like I’m “cherry picking” numbers, for it is true Facebook’s Q4 reports are normally greater than Q1 I’ll use Q1 of 2014. Surely they must be making more money with more eyeballs 12 months later no? No. Q1 2014 $642MM. via reported GAAP.

Wait, that means revenues are over 1/10th of a BILLION dollars less than the prior comp? Yes they are. Unless you want to use Non-GAAP. There you can make $512MM into $1.189 BILLION just by adding some unicorn tears. To me, Silicon Valley’s tagline should resemble something along the lines of: “Hacking – it’s not just for coding anymore.”

And the stock price? Well, it’s still high, but it seems it may be needing some additional rainbow magic before Wall Street finally realizes or further contemplates: If eyeballs are the resource to sell more ads to advertisers. Then why isn’t an increase in eyeballs generating corresponding increases in profits?

Unless, those eyeballs are growing from more unemployed users with more time than money to waste on Facebook. Or worse: All those new eyeballs – are newly employed eyeballs whose job is to “click”, and “follow,” and “like” etc., etc., pages or stories on Facebook. Just something to contemplate. For after all, if “eyeballs” is the true metric of success: Why is Yahoo™ struggling? Or better yet, Alibaba™? Yet, the NASDAQ? Onward towards Titan while singing the line “and the band played on…”

The S&P 500™ and the DJIA™. You guessed it. Here too the phenom of GAAP vs Non-GAAP plays out. One look inside a report or listening to a conference call like that of the bell-weather of global economic health Caterpillar™ and one sees nothing to write home about. Unless you’re writing letters of caution.

However, just like the tech index these are also hitting gravitational release heights. And how is this being accomplished? Again: Easy, bad news is not only considered good. It’s now empirically: excellent! The worse the macro data reporting of the economy in both data as well as meme – the more hardened the notion the Federal Reserve wouldn’t dare raise interest rates this coming June.

You see, we’ve decoupled from anything resembling true economics long ago (which people like myself were and still chastised for even suggesting) and now it’s routine for both the financial, as well as main stream media, to allude that the “fundamentals” for the markets to continue rising has nothing to do with “true financial health and measurements” it’s all about: “whether or not the Fed. will or will not raise rates.”

I guess even they can no longer control themselves from laughing out loud when they have to try to and speak to the meme “This market is rising based on fundamentals.” (I can’t type that myself without snickering)

U.S. Macro data as of today is the worst it’s been since the preceding days of the market crash bottom in early 2009. The markets of today based on data that’s the worst in 6 years – have now nearly tripled! From 700-ish to now over 2100.

Yet, being at this level one would think we’re still proceeding on this “space shot” in a straight line as we’ve been over the last half decade since the market bottomed. No, in some respects we seem caught in the gravitation pull of “reality” that many of the scientists tell us “fundamentally speaking” is just a theory. However, in truth it’s trying to reassert as to prove – it’s the Keynesian mad scientists that are not basing facts within reality.

As we edge higher there’s no acceleration of momentum, just residual. Volumes are not increasing, they’re dwindling. Professional traders and more are leaving the markets. The “pits” at the exchanges that were once the lifeblood of the markets have more in common with pitiful when it comes to describing activity within them. So much so the CME™ closed many in one fell swoop just this year. The S&P large contract pit housed at the CME where everyone references in their mind’s eye when thinking about Wall Street and what takes place in those pits now routinely has less than 75% of the participants interacting. All this when the markets are at the highest. Sorry – something is fundamentally wrong with this picture.

Oh wait, maybe this picture shows the new “fundamentals” of today’s markets. Below is a chart of where we are, how we got here, and how we’ve been able to stay whenever the market has hiccuped. (chart source Bloomberg™ via screenshot at ZeroHedge™)

Screen Shot 2015-04-26 at 11.21.07 AM

Welcome to today’s example of “one picture is worth a thousand words.” Where the new fundamentals are, what we were told, are not. i.e., The only reason why these markets are trading at these levels is based solely on the fundamental fact the Fed. is the one holding it up in its entirety.

It doesn’t take a rocket scientist to look at the above chart to interpret escape velocity based on macro data was rejected and began falling back to ground speed precisely at the time the realization of QE was indeed not only going to end – but did. Only to be saved with the now famous (if not infamous) “stick save” supplied by St. Louis Federal Reserve President James Bullard when he quipped the Fed. was open to initiating another round of QE if needed.

Since then we’ve regained the “umph” needed to overcome stall speed and subsequently every time the rocket boosters seemed to be failing another Fed. official has come out in a press conference, interview, op-ed, ___________(fill in the blank) to state in one form or another “don’t worry, be happy.” And the markets have shrugged off all other implications for bad data and now the interpretation is: Bad is good, and worse is Excellent!

Although, if one is to take a second gander at that chart another funny thing is also revealing itself. For all the talk and now open speculation that we could see a NASDAQ 10K in the not so distant future. Over the last 7 months since that Sept. 2014 peak – we really haven’t gone that much further.

I mean, all these gyrations and we’ve only traveled a mere 100 S&P handles in over 7 months? We used to travel that distance in month! What changed? Did something “fundamentally” shift in the markets to cause such a slowing? Yes it did.

Welcome to the first Qtr. without QE. And so far, it’s been nothing more than questionably pathetic if not out rightly so. And this market bubble has shown the only way its going to remain at these heights for much longer is another infusion of “hot air” from the Fed.

The market just better hope the Fed. doesn’t believe all the financial media hype. Because if they do: a raising of interest rates of just 1/4 of 1% has the implications of taking this hopium filled market – and turning it into a lead balloon filled with cement faster than a HFT can spoof a buy or sell order.


Citi's Matt King once again hits it out of the ballpark.

After laying out the fundamental problems caused by central planning, namely a historic plunge in yields, and a collapse in global growth...


... a decline in consumer spending and a collapse in investment, offset by a surge in buybacks and new debt issuance.


Matt King presents the only response the central banks have: leave investors with nothing to buy.


Which he summarizes in 6 short words.

But how does buying a couple billion in sovereign bonds every month whether in the US, or Japan or Europe translate into record stock prices even as the global economy has not been this bad since the first Great Depression?After all, there are tens of trillions in securities across the globe (not counting the hundreds of trillions in derivatives).

Simple: when you manage a 693x leverage between a sovereign bond entry and a CCC bond exit, it is perhaps far more surprising that the S&P isn't artificial orders of magnitude higher.

From Zero Hedge On Saturday we once again explored the question of whether central banks are creating deflation. The idea that post-crisis DM monetary policy may be causing disinflationary pressures to build is somewhat counterintuitive on its face but in fact makes quite a lot of sense. Here’s how we explained it: The premise is…

Submitted by Chris Martenson via,

My first Uber lift was in South Carolina.  My driver was from Sudan originally, but had emigrated to the US 20 years ago.  Being the curious sort, I asked him about his life in Sudan and why he moved.  He said that he left when his country had crumbled too far, past the point where a reasonable person could have a reasonable expectation of personal safety, when all institutions had become corrupted making business increasingly difficult.  So he left.  

Detecting a hitch in his delivery when he spoke of coming to the US, I asked him how he felt about the US now, 20 years later.  "To be honest," he said, "the same things I saw in Sudan that led me to leave are happening here now. That saddens me greatly, because where else is there to go?"

It’s time to face some uncomfortable ideas about the state of civilization in the United States. This country is no longer the beacon of freedom illuminating a better way for the world. Why not? Because it has ceased to be civilized.

The recent spate of police brutality videos and the complete lack of a useful or even sane response by the police unions is shaping my writing here. But it goes well beyond those incidents and extends into all corners of the lives of US citizens now, as police abuse is only one symptom of a much deeper problem.

What do we mean by "civilized?"  Well, take a look at its official definition and see if you note any descriptors that are lacking in present day US culture:

Civilized adjective

1. Culturededucatedsophisticatedenlightenedhumane All truly civilized countries must deplore torture.

2. Politemannerlytolerantgraciouscourteousaffablewell-behavedwell-mannered


A civilized society, then, is one that is humane at its core, that knows right from wrong, and which does not need to conduct lengthy ‘internal reviews’ to discover if videotaped brutality is indeed showing illegal abuse.

Let’s begin by examining a few recent cases of brutality, so many of which now exist that I have to narrow the field substantially in the interest of brevity.  I'm going to skip over the one where an unarmed black man was shot five times in the back and coldly murdered by the officer in South Carolina, because that has already (and rightly) received a lot of media attention.

So, the first case I'd like to discuss comes to us from San Bernardino CA where a man being served with a warrant for suspicion of identity theft started to flee.  Much to the dismay of the police, the last leg of his otherwise humorous escape plan involved a horse, forcing the cops to huff across the hot, dry desert on foot.

The video eventually shows the fugitive falling off his horse, throwing himself flat on the ground in total submission, and then putting his own hands behind his back. Two officers then approach and, in full view of the news chopper camera circling overhead, proceed to violently kick him in the face and groin, pistol whip him with a taser, pile-drive him with their elbows, and then move aside to make room for the other nine officers that also join in the violent 2 minute long beating:

Aerial footage showed the man falling off the horse he was suspected of stealing during the pursuit in San Bernardino County Thursday afternoon.


He then appeared to be stunned with a Taser by a sheriff's deputy and fall to the ground with his arms outstretched. Two deputies immediately descended on him and appeared to punch him in the head and knee him in the groin, according to the footage, reviewed several times by NBC4.


The group surrounding the man grew to 11 sheriff's deputies.


In the two minutes after the man was stunned with a Taser, it appeared deputies kicked him 17 times, punched him 37 times and struck him with batons four times. Thirteen blows appeared to be to the head. The horse stood idly nearby.


The man did not appear to move from his position lying on the ground for more than 45 minutes. He did not appear to receive medical attention while deputies stood around him during that time.


San Bernardino County Sheriff John McMahon told NBC4 he was launching an internal investigation into the actions of the deputies.


"I'm not sure if there was a struggle with the suspect," McMahon said. "It appears there was in the early parts of the video. What happens afterwards, I'm not sure of, but we will investigate it thoroughly."


Note the lack of civilized responses there from beginning to the end.  A yielding, non-resisting suspect was repeatedly pounded by 11 officers using means that would land you or me in hot water (justifiably) on “assault with a dangerous weapon” charges if we did the same.

Then the beaten man was left on the ground afterwards without any medical attention for 45 minutes. The physical abuse nor the later disdain for the suspect's condition aren't behaviors you find in a civilized society. Successfully apprehending a 'suspected criminal' does not give you free license to mete out a brutal beat-down, at least not if your humanity is intact. But with these officers, that appears to be precisely what happened. The fact that it did is indicative of a culture in distress.

In the next part of this sad drama, the county sheriff had the audacity to say (in an obvious attempt at damage control) that he was ‘not sure’ if a struggle had happened with the suspect, but that it appeared that there had been one.  Apparently, the sheriff needs some training in evidence review (or a new pair of glasses) because there’s no struggle there at all, which is plainly obvious in the video:

Then the sheriff concludes with “what happens afterward, I’m not sure of,…” Again, anybody who viewed the video is very certain of what happened afterwards because it’s completely obvious: the deputies kicked the crap out of a non-resisting suspect.

So obvious that less than 2 weeks after the beating, San Bernadino county hastily agreed to a $650,000 settlement in attempt to very rapidly put the whole thing behind them.

The only legitimate response from the sheriff, to show that the rule of law applies and that he and his deputies have morals and are part of a civilized society, would have been to say something along the lines of, “Assaulting a compliant and non-resisting suspect is never OK, and it is against our internal policies and training as well as the law.  In the interest of complete transparency and fairness, both real and perceived, we’ve asked for an external review which will include citizen participation.  Whether laws are broken by citizens of the police, our department believes 100% in equal application of the law because anything else erodes the basic perception of fairness upon which a civilized society rests.”

Of course, nothing of the sort was said here. Nor is it ever said in other brutality cases, where instead we see the ranks close around the accused cop(s), which unfortunately communicates the impression that one of the perks of being a law enforcement officer is being able to dodge the consequences of the same laws they administer daily.

Here are a few more cases, all demonstrating the same unequal application of the laws:

In this next case, an unarmed, fleeing black male suspect was tackled and pinned on the ground by at least two officers. He then was shot in the back by a 73 year-old reserve deputy who apparently couldn't tell the difference between a revolver and a taser. A 73 year-old whose main qualification for being on the scene seems to have been his prior generous donations to the police department.  

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxTulsa Police Chase And Shoot Eric Courtney Harris


The above video is disturbing for many reasons, but especially because while Eric Harris is dying he says “Oh man, I can’t breathe” to which one of the officer who happens to have his knee firmly on Eris’s head says “Fuck your breath!”

Recall that one of the words used to describe civilized is "humane". Think about how far out of touch with your own humanity you have to be to say that to a dying person. Even if the officer didn't know Harris was dying at the time, he at least knew that he had been shot.  

In another case, a man approaches a car blocking the street and asks for it to be moved.  The violent manner of the officer's response would be a case of road rage if it involved another civilian and be prosecuted as a serious crime with multiple charges.

Man Asks Cop Nicely to Stop Blocking Traffic, So the Cop Beat Him and Stomped his Head

Sept 11, 2014


Sacramento, CA — A Sacramento County Sheriff’s deputy is on paid vacation after a video surfaced showing him stomping on a man’s face and hitting him with his flashlight after tasering him.


Undersheriff Jaime Lewis says that they are investigating themselves after viewing the video.


“There are portions of that video that clearly have caused me concern,” Lewis said. “And that is exactly what has caused the department to initiate an investigation, so we can get to the bottom of it.”


The man being beaten in the video is 51-year-old John Madison Reyes, who said the incident started when he asked the deputy, whose car was blocking the road, to move.


“I asked him kindly to move the car,” Reyes said. “He glared at me and stared at me. And then, I said an expletive, ‘You need to move the car because I can’t get through.’”


"Let's face it, had the subject complied with the officer's directives from the initial contact and beyond, we wouldn't be sitting here talking about this today," Lewis said.


What seems to have happened in the above story is simply that the cop didn't like his authority being challenged, even in a very minor way, and he over-reacted.

The recipient of the beating, Mr. Reyes, was charged with resisting arrest.  How is that even possible?  It seems like there needs to be something you are being arrested for to resist in the first place.  Something for which the officer has probable cause in the first place which you then resist?  How can the only charge be ‘resisting arrest’?

Sadly, many times after a confrontation has become physically violent the one and only charge applied is ‘resisting arrest.’ 

Of course, that’s a mighty convenient charge for some police who escalate a situation first, and then resort to using the charge of resisting arrest because, in the end, that’s the only charge they have. And while it’s not wise to resist arrest, there are hundreds of cases where people claim they weren’t resisting at all, merely trying to protect their heads and faces from heavy blows, while the police were beating them yelling “Stop resisting arrest!” like it was a magic incantation.

As in this case:

Brutal LAPD arrest caught on video; Department investigating cops seen bodyslamming nurse twice during cell phone traffic stop


The Los Angeles Police Department is investigating two officers who were allegedly caught on surveillance camera slamming a nurse on the ground twice — and then fist bumping afterward — during a recent traffic stop.


The two officers pulled over Michelle Jordan, 34, of Sunland, Aug. 21, for allegedly talking on her cell phone while driving in Tujunga, in northeast Los Angeles, the department said.


Jordan pulled into the parking lot of a Del Taco restaurant and got out of her car to confront the officers, cops said.


The taco joint's surveillance video appears to show the officers, both men, yanking the 5-foot-4 inch registered nurse from the open driver's seat and then slamming her on the ground to cuff her.


The duo then yank Jordan to her feet and bring her to the patrol car, where they pat her down.


Moments later, one of the cops slams the married mom to the ground a second time.


After placing her in the cruiser's backseat, the two appear to share a celebratory fist-pound.


Jordan was booked for resisting arrest and later released.


The pictures of the damage to this woman's face are disturbing.  Think about what it would be like to be pulled over for a minor infraction, be yanked from your car, thrown to the ground, handcuffed, stood up, and then violently body slammed a second time.  While she may have been using words that these officers found to be less than respectful of their authority, in a civilized society grown men do not violently assault the unarmed -- especially handcuffed women.  That's just sadistic and has no place in a decent society.

In another case from Baltimore police broke the leg of a man they were arresting, Freddie Gray, cuffed him, and instead of getting him medical help dragged him to a van obviously alive and screaming in pain from the broken leg. By the time that van ride was over, the man was delivered to a local hospital with a broken neck, his spine 80% severed, and he died a short while later. His “crime?” He allegedly “fled unprovoked upon noticing police presence," which, by the way, is not actually a crime, something the Baltimore police were forced to acknowledge in the aftermath of the incident.  The police spokesman, Deputy Commissioner Jerry Rodriguez initially stated that there was “no evidence” of any use of excessive force.  I would counter that any time you shatter a person’s neck after they are cuffed during a van ride, that’s "excessive", by definition.  

Again, the initial response by the police, which began as silence followed by the filing of an initial report that said Mr. Gray was "arrested without incident or force" reveals just how broken our enforcement system and culture really are.

In another recent case a mentally ill woman in Idaho was shot dead by police within 15 seconds of their arrival.  She had a knife, the police got out of their vehicle, walked straight towards her and when she did not immediately comply with their commands, they opened fire.

Something Is Very Wrong

[note: an incomplete statistic was used here and has been removed and replaced with the following]

In the past ten years police in the UK have been involved in 23 total police shooting fatalities.  In the US in 2013 alone there were a minimum of 458 'justifiable homicides' by firearm committed by US police.  I say 'a minimum' because the FBI statistics are woefully incomplete because there is no mandate that police forces report their killings to the FBI so the database is certainly inaccurate on the low side.  But taking that at face value, there is a vast gap between the number of people shot in the UK as compared to the US.  Adjusting for population, US police officers are killing citizens at roughly 40 times the rate of UK police.  40 times!

How can this be? In the UK they’ve got hooligans and yobs, immigrants and poor people. They’ve got drunks and mentally unbalanced people too. And yet they somehow don’t kill people in the fulfillment of their duties as public safety officers.

In this video you’ll see a mentally deranged man outside of Buckingham palace threatening people while wielding knives. He was successfully apprehended alive by a patient and methodical UK police force that did not aggravate, but instead waited for an opening to make their move, which they did quite successfully using a taser instead of guns.

The problem, it seems, is that the US police have been trained to be highly confrontational and to escalate, rather than defuse, any situation. 

Police in the US have shot an individual’s highly trained service dog after showing up at the wrong address, and even a family’s pet pot-bellied pig simply because they ‘felt threatened.’

So the one-two punch here is that cops are trained to be highly confrontational and then to react with force -- oftentimes deadly force -- when they ‘feel threatened.’  See the problem here? It’s pretty easy to end up feeling threatened when you are creating threatening situations.

That’s a recipe for exactly the sort of over-reactive uses of force that are giving us the problems we see today.

An Occupying Force

If you saw the images coming out of Ferguson recently, you may have noticed that the law-enforcement presence did not so much look like police, but an occupying military.  Snipers perched on roofs viewing the crowds through their scopes, tear gas and rubber bullets constantly in use, Humvees, the latest acoustic anti-personnel devices, and officers outfitted with ‘battle rattle’ that even made one Afghanistan vet jealous for its magnificent excess compared to what soldiers were issued in one of the most dangerous regions of the world. 

How is it that a small mid-western city arrayed more hardware against its own citizens than you might find in an active Middle East war zone?  Who really thought that necessary and why?  

Exactly how and when did policing and crowd control in the US slip into a set of methods that match those used by occupying forces -- like those of Isreal -- who subjugate whole populations?

It turns out, by going to Israel and learning Israeli methods of crowd 'control.'

Israel-trained police “occupy” Missouri after killing of black youth

Feb 8, 2015


Since the killing of eighteen-year-old Michael Brown by Ferguson police in Missouri last weekend, the people of Ferguson have been subjected to a military-style crackdown by a squadron of local police departments dressed like combat soldiers. This has prompted residents to liken the conditions on the ground in Ferguson to the Israeli military occupation of Palestine.


And who can blame them?


The dystopian scenes of paramilitary units in camouflage rampaging through the streets of Ferguson, pointing assault rifles at unarmed residents and launching tear gas into people’s front yards from behind armored personnel carriers (APCs), could easily be mistaken for a Tuesday afternoon in the occupied West Bank.


And it’s no coincidence.


At least two of the four law enforcement agencies that were deployed in Ferguson up until Thursday evening — the St. Louis County Police Department and the St. Louis Metropolitan Police Department — received training from Israeli security forces in recent years. 


If the tactics and gear of the police in Ferguson looked military that’s because they were. The purpose of APC’s and m4 assault rifles is to go into dangerous battles and kill the other side first so you can survive.

I believe that one’s training and mindset are critical determinants of what happens next.  It should really not surprise anyone that a militarized mindset accompanied by specialized training and hardware has led to scenes like the one we saw in Ferguson, among many other places over the past several years.

I wanted to find out if the assertion of the above article was true. Had US police agencies really trained with the Israelis?

The answer is yes, beginning over a decade ago. Note that US police have been training for a domestic terrorist threat that has been almost completely non-existent, well below the statistical threshold that would seem to justify such advanced training and tactics:

U.S.-Israel Strategic Cooperation: Joint Police & Law Enforcement Training

Sept 2013


In 2002, Los Angeles Police Department detective Ralph Morten visited Israel to receive training and advice on preparing security arrangements for large public gatherings.  From lessons learned on his trip, Det. Morten prepared a new Homicide Bomber Prevention Protocol and was better able to secure the Academy Awards presentation.


In January 2003, thirty-three senior U.S. law enforcement officials - from Washington, Chicago, Kansas City, Boston and Philadelphia - traveled to Israel to attend a meeting on "Law Enforcement in the Era of Global Terror."  The workshops helped build skills in identifying terrorist cells, enlisting public support for the fight against terrorism and coping with the aftermath of a terrorist attack.


“We went to the country that's been dealing with the issue for 30 years,” Boston Police Commissioner Paul F. Evans said. “The police are the front line in the battle against terrorism. We were there to learn from them - their response, their efforts to deter it. They touched all the bases.”


“I think it's invaluable,” said Washington, DC Police Chief Charles Ramsey about the instruction he received in Israel. “They have so much more experience in dealing with this than we do in the United States.”


Also, in 2003, the U.S. Department of Homeland Security established a special Office of International Affairs to institutionalize the relationship between Israeli and American security officials. “I think we can learn a lot from other countries, particularly Israel, which unfortunately has a long history of preparing for and responding to terrorist attacks,” said Senator Susan Collins (R-ME) about the special office.


Here’s the thing: your chances of dying of ‘terrorism’ on US soil are dwarfed by the chances of dying from practically every other cause of death in the US.  Terrorism simply is not a gigantic and imminent existential threat that requires special hardware and training relationships with nations that practice the tactics and strategies of occupation.

Terrorism is not such a common thing that we need to define our entire crowd control methods around it, but a rare thing, and is really what’s left over after a few individuals feel like every other option of redress has been stripped away.  Which is why it’s practically unheard of in the US, and most other civilized countries.

But domestic US law enforcement agencies have been training and outfitting themselves as if it’s a top threat.  Why is that?

There are not very many reassuring answers to that question.  One is that our law enforcement agencies lack the ability to discern actual threats from imaginary ones.  Another is that they envision a time when some portion of the civilian population feels as if it has lost all hope and options for a better future, and starts resorting to terrorist acts.

Either way, very poor answers.

A Dangerous Job?

One mitigating factor is to note that police have a stressful, dangerous and low paying job.  Erring on the side of personal safety makes sense when looked at this way.

In terms of dangerousness, however, law enforcement doesn't even crack the top-ten list of most dangerous professions:


The death rate for sworn officers is 11.1 per 100,000 (2013 data) for job-related injuries. Fishing is ten times more dangerous. And even the 11.1 rate includes some deaths which were not the result of violent actions committed during an arrest, but things that tend to happen among a force more than a million strong (green circles).


Even if we assumed that half of the reported job-related deaths were homicides, that would make policing about as dangerous as living in an average city (5.5 per 100,000) but seven-fold less dangerous than simply living in Baltimore (35 per 100,000).

So a stressful job yes. An important job, definitely. But not as dangerous as many other occupations, which is relevant context to this story.

Good Policing

I would be remiss to not also point out other examples of great police work.  We need to illuminate both what’s wrong and what’s right.

One of my favorite examples shows Norwegian police handling a belligerent drunk:

Be sure to watch at least the first full minute, and note that this drunk is yelling, cursing, kicking, and generally ‘resisting’ and yet the police involved never rise to the bait, handle him with good manners and like he’s a human being the entire time.  Well done!

This next clip shows a policeman in Ohio refusing to shoot a man wanted on a double murder charge even though he really probably should have and would have been completely justified in doing so:




The man wanted to be shot and killed by the officer who, despite being rushed, and having the man put his hands in his pockets after being warned not to, and even being knocked to the ground at one point, refused to shoot.

That restraint was quite remarkable and showed someone willing to place his own life in danger before committing to take another’s.  He said afterwards that he “wanted to be absolutely sure” before pulling the trigger that it was absolutely necessary.

I do wonder if the two tours the former marine took before becoming an officer had anything to do with his unwillingness to take another life?

How To Fix This

Well I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it.

~ Charlie Munger

I think the solution to reducing episodes of police assaults on citizens is contained within the Charlie Munger quote above.  The incentives have to be aligned.

My solution is simply this: every time a police department loses an excessive force or wrongful death case and has to pay out money, that money should come from their local police union’s pension fund.  And by law, these losses cannot be refilled with taxpayer funds.

Every single time a judgment is made against that department and the union pension is reduced, the retired and currently-serving officers will have to decide for themselves if they should keep the indicted officer or officers on the force who lost the pension all that money. Or decide if training and policies need to be adjusted.

I guarantee you that with the incentive to train and behave properly and lawfully now resting with the police itself, rapid behavior and training modification would result.

Moreover, I see no reason why the citizens of any given municipality should be on the hook for repeated violations by any public servant or office.

For some of the most abusive departments, the amounts are far from trivial.

U.S. cities pay out millions to settle police lawsuits

Oct 1, 2014


The Chicago Sun-Times reported earlier this year that the city has paid out nearly half a billion dollars in settlements over the past decade, and spent $84.6 million in fees, settlements, and awards last year.


Bloomberg News reported that in 2011, Los Angeles paid out $54 million, while New York paid out a whopping $735 million, although those figures include negligence and other claims unrelated to police abuse.


Oakland Police Beat reported in April that the city had paid out $74 million to settle 417 lawsuits since 1990.


And last month, Minneapolis Public Radio put that city’s payout at $21 million since 2003.


Just align the incentives and watch what happens next.  The problem is, the incentives are just completely wrong right now, and taxpayers are footing the bill for repeated and expensive police behaviors. 

That needs to stop if we want to see real change.


The police serve a very important role in society and I want them to be as effective as possible.  They are there to uphold the law and protect the peace, which are extremely important functions.  Unfortunately there are far too many cases where the police have acted as judge, jury and executioner to suggest that there are just a few bad apples.

Instead there’s a pervasive atmosphere of hostility and force escalation better suited to war zones than maintaining civilian order.  The lines have been drawn in many police departments: it’s us vs. them.

Trust in many departments has been utterly shattered within some communities because the police hold themselves to a different standard than they do the populace.  Police commit brazen acts of brutality and get away with it, largely because they self-investigate and/or because the local District Attorney office is unwilling to press charges.

But the recent cases of police brutality are simply a symptom of a much larger problem. Society in the US is breaking down, civility has been lost, and the country is rapidly becoming uncivilized.

This extends within and across all of the most important institutions. Congress is known to work for corporations first and foremost. Democracy itself is bought and sold by the highest bidders. The Federal Reserve protects big banks from the costs of their misdeeds and enriches the already stupidly rich as a side benefit.

DEA agents are caught in Columbia having sex parties with underage girls and drugs, and the worst punishment handed out is a 10 day suspension without pay.  Nobody is even fired, let alone jailed.  

"Crime, once exposed, has no refuge but in audacity".

                 ~ Tacitus, Annals, Book XI Ch. 26

The FBI has just admitted that they had been consistently (and certainly knowingly) overstating forensic lab analysis in ways that favored prosecutors in more than 95% of cases over a period of several decades.  The cases included 32 that resulted in death sentences.  Many people were wrongly convicted, but nobody from the FBI will face any charges and many of the states involved have (so far) decided they won’t be looking into any of the cases to right the wrongs.  The wrongful convictions will stand, an injustice that is incompatible with the concept of being civilized.

The Department of Justice has utterly failed to hold any banks or bankers criminally responsible for any acts despite levying a few billions in fines for crimes that probably netted the banks tens of billions in profits.  For some, crime does pay.

I could go on, but why bother? The pattern is easy enough to see.

The US has lost its way. Fairness, justice, and knowing right from wrong seem to all be lost concepts and the trend has only gotten worse over the past several years.  Without moral bearings, what’s left?

“The only thing necessary for the triumph of evil is for good men to do nothing.”

Edmund Burke

Either the people of the US stand up and resist these accumulating injustices or they will get exactly the sort of government, and law enforcement, they deserve.

In the meantime, the challenge for each afflicted institution is to begin to recognize right from wrong, and in the case of law enforcement agencies, stop pretending like every single one of your million+ officers is a good egg.  We all know hiring is imperfect and mistakes get made.  Own up to them and let those who make serious mistakes experience the consequences.  Rebuild our trust in your necessary and important institution by clearly demonstrating that you know right from wrong wherever it occurs and whoever commits the deed.

If we don't do this, if we allow the current trajectory to build more momentum, the loss of civilized behavior will reach a tipping point from which it will be very hard to return without much hardship, and likely, bloodshed.

In Part 2: Preparing For The Coming Breakdown, we analyze how the boom in prosperity seen over the much of the 20th century is evaporating, and as the pie begins to shrink, the means by which the players compete for their slices becomes increasingly brutish and violent.  

Ask yourself this: If tensions are this bad now, while relatively abundant resources exist, how bad do you think they’ll get during the next economic downturn or financial crisis?

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

by Tren Griffin,

  1. “Nobody can predict interest rates, the future direction of the economy, or the stock market.  Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.” It is far more productive for an investor to focus their time and energy on systems which are potentially understandable in a way which might reveal a mispriced asset. George Soros said once: “Unfortunately, the more complex the system, the greater the room for error.” The simplest system on which an investor can focus is an individual company. Trying to understand something as complex as an economy in a way which outperforms the markets is not a wise use of time and is unlikely to happen.


  1. “The way you lose money in the stock market is to start off with an economic picture. I also spend fifteen minutes a year on where the stock market is going.” and “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.” The media’s objective is to convince you that obsessively following the news cycle is necessary for an investor. In short, the media’s interest is to to convince you to watch their advertising. While you don’t want to be oblivious to the state of the economy, listening to talking head pundits and incessantly following the news cycle is actually counterproductive to profitable investing. Instead, focus on the companies  you chose to follow.


  1. “The GNP six months out is just malarkey. How is the sneaker industry doing? That’s real economics.” The difference between the predictive power of microeconomics and macroeconomics is “night and day” since with the former vastly fewer assumptions are required and the systems involved are far less complex. The best investors make investing as simple as possible, but no simpler.  Lynch is saying he may pay attention to the economics of an industry, but only to understand the economics of the companies he chooses to follow.


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  1. “To make money, you must find something that nobody else knows, or do something that others won’t do because they have rigid mind-sets.” It is mathematically certain that you can’t beat the market if you *are* the market. You must find bets that are mispriced, be right about that mispricing and when you do find a mispriced bet, by definition, your view will be contrarian.


  1. “A share of a stock is not a lottery ticket. It’s part ownership of a business.” Many people love to gamble since it gives their brain a dopamine hit. They gamble even though it is a tax on people with poor math skills. The right thing for an investor to love is the process of investing, not the bet itself.  The right process for an investor is to understand the value generated by the underlying business.


  1. “Investing without research is like playing stud poker and never looking at the cards.” You can’t understand a business and its place in an industry without doing research. And in doing research you must find something that the market does not properly discount into the price of the stock or bond. If you spend more time picking out a refrigerator than researching a stock, you should instead be buying a low fee index fund.


  1. “Owning stocks is like having children—don’t get involved with more than you can handle. The part-time stock picker probably has time to follow 8-12 companies.” The time in any given day, week etc. is a zero sum game. If you work at a day job and you have a life, only so much time is left to follow stocks and bonds.  It is better to be a mile deep in understanding 8-12 companies than an inch deep on many more.


  1. “Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.” Addition, subtraction, multiplication and division is all the math skill you need. Investors should ignore formulas with Greek letters in them.


  1. “People seem more comfortable investing in something about which they are entirely ignorant.” Suspending disbelief about an investment is easier for many people for some reason when you know less rather than more, especially if the story is well crafted and told by the promoter.  When confronted with someone touting a stock, imagine them holding a megaphone at the circus and then think about what they are saying.


  1. “If you can’t convince yourself ‘When I’m down 25 percent, I’m a buyer’ and banish forever the fatal thought ‘When I’m down 25 percent, I’m a seller,’ then you’ll never make a decent profit in stocks.” and “Bargains are the holy grail of the true stock picker. We see the latest correction not as a disaster, but as an opportunity to acquire more shares at low prices. This is how great fortunes are made over time.” Who doesn’t like it when something like a hamburger is cheaper to buy? Stocks and bonds are no different.  Also, don’t put yourself in a position where you may need to sell at the wrong time.


  1. “A market player has 50 percent of his portfolio in cash at the bottom of the market. When the market moves up, he can miss most of the move.” Markets over long period of time inevitably rise. They always have and always will. That is the good news. The bad news is that you can’t “time” when the rise in a market will happen. By trying to “time” the market you can miss a big move up and if you do, your returns will show it.


  1. “Only invest what you could afford to lose without that loss having any effect on your daily life in the foreseeable future.” Nothing is worse than not being able to care for people you love. Don’t take that risk. And don’t put yourself in a position where you are likely to panic more than usual due to the pain of something normal and inevitable (e.g., a 20% correction in the stock market). Peter Lynch said once: “Small investors tend to be pessimistic and optimistic at precisely the wrong times.”

Copyright ©

At the end of last month we noted that stocks were entering a dangerous period: the "buyback blackout" that surrounds earnings. As we've documented exhaustively, stocks have benefited handsomely from the corporate share repurchase bid and so in the absence of demand from cost-insensitive corporate management teams, and with households and institutions both selling as outlined here, the following chart, which shows that equity flows are aggresively negative, comes as no surprise. Having said that, stocks are at record highs begging the question: "who is buying?"

From BofAML:

Big decoupling in recent weeks between US equity flows and prices (new highs today –...correction risks will grow in absence of fresh inflows in coming weeks.


We might ask the following: is there someone (or some central planning agency) out there buying ES or spoofing to push the market higher without ever actually buying anything? One never knows — perhaps Kuroda's plunge protection is now operating outside of Tokyo.

Via Doug Ross at DirectorBlue blog,

In 2010, when Barack Obama said, "I do think at a certain point you’ve made enough money," he definitely wasn't referring to the Clintons.

Because it wasn't enough for Bill Clinton to sell sensitive missile technology to the Red Chinese for campaign donations. It wasn't enough for Hillary Clinton to sell America's most valuable nuclear technologies to the Russians for "contributions" to her family's personal piggy bank.

That piggy bank, otherwise known as "The Clinton Global Graft Initiative", had an interesting way of doling out the "contributions" it received.

The Clintons are a malignant tumor on the body politic. They have a history of doing anything for money -- including selling out their own country -- and when it comes to their personal bank accounts, there's apparently never enough zeroes.

Hat tip: @amr033.

Over the past year, special-operations forces have landed in 81 countries.



These days, the sun never sets on America’s special-operations forces. Over the past year, they have landed in 81 countries, most of them training local commandos to fight so American troops don’t have to. From Honduras to Mongolia, Estonia to Djibouti, U.S. special operators teach local soldiers diplomatic skills to shield their countries against extremist ideologies, as well as combat skills to fight militants who break through.

President Barack Obama, as part of his plan to shrink U.S. reliance on traditional warfare, has promised to piece together a web of such alliances from South Asia to the Sahel. Faced with mobile enemies working independently of foreign governments, the U.S. military has scattered small, nimble teams in many places, rather than just maintaining large forces in a few.

The budget for Special Operations Command in Tampa, Fla., which dispatches elite troops around the world, jumped to $10 billion in the fiscal year that ended on Sept. 30, from $2.2 billion in 2001. Congress has doubled the command to nearly 70,000 people this year, from 33,000 in fiscal 2001. The Army, Navy, Marine Corps and Air Force provide further funding.

Navy SEALs and Army Green Berets, for example, are stationed in the Baltics, training elite troops from Lithuania, Estonia and Latvia for the type of proxy warfare Russia has conducted in the Crimea and eastern Ukraine.

But the vast majority of special-operations missions involve coaxing and coaching foreign forces to combat extremists the U.S. considers threats.

U.S. special operators are encouraged to learn local culture, language and politics as they report on a country’s vulnerability to extremists. “This isn’t spying—this is armed anthropology,” said David Maxwell, a former Special Forces colonel now at Georgetown University.

Source: The Wall Street Journal

Submitted by Tom Engelhardt via,

Dear Grandson,

Consider my address book -- and yes, the simple fact that I have one already tells you a good deal about me. All the names, street addresses, email addresses, and phone numbers that matter to me are still on paper, not in a computer or on an iPhone, and it’s not complicated to know what that means: I’m an old guy getting older. Going on 71, though I can hardly believe it. And that little book shows all the signs of where I’m headed. It wasn’t true a few years ago, but if I start flipping through the pages now, I can’t help but notice that the dead, with their addresses and phone numbers still beside them, are creeping up on the living, and that my little address book looks increasingly like a mausoleum.

Age has been on my mind of late, especially when I spend time with you.  This year, my father, your great-grandfather, who died in 1983, would have been 109 years old.  And somehow, I find that moving. I feel him a part of me in ways I wouldn’t have allowed myself to admit in my youth, and so think of myself as more than a century old.  Strangely, this leaves me with a modest, very personal sense of hope. Through my children (and perhaps you, too), someday long after I’m gone, I can imagine myself older still.  Don’t misunderstand me: I haven’t a spiritual bone in my body, but I do think that, in some fashion, we continue to live inside each other and so carry each other onward.

As happens with someone of my age, the future seems to be foreshortening and yet it remains the remarkable mystery it’s always been.  We can’t help ourselves: we dream about, wonder about, and predict what the future might hold in store for us.  It's an urge that, I suspect, is hardwired into us.  Yet, curiously enough, we’re regularly wrong in the futures we dream up. Every now and then, though, you peer ahead and see something that proves -- thanks to your perceptiveness or pure dumb luck (there’s no way to know which) -- eerily on target.

The Future Foreseen

Back in 2001, before I even imagined a grandson in my life, I had one of those moments (and wish I hadn’t).  It was sometime just after the 9/11 attacks when, nationwide, Americans were still engaged in endless rites in which we repeatedly elevated ourselves to the status of the foremost victims on the planet, the only ones that mattered.  In those months, you might say, we made ourselves into Earth’s indispensible or exceptional victims.

In that extended moment of national mourning (combined with fear bordering on hysteria), the Bush administration geared up to launch its revenge-fueled global wars, while money started pouring into the national security state in a historically unprecedented way.  It was a time when the previously un-American word “homeland” was being attached to what would become a second defense department, secrecy was descending like a blanket on the government, torture was morphing into the enhancement of the week in the White House, assassination was about to become a focus (later an obsession) of the executive branch -- and surveillance?  Don’t even get me started on the massively redundant domestic and global surveillance state that would soon be built on outright illegalities and rubber-stamp legalities of every sort.

In October 2001, I had no way of grasping most of that, but it didn't matter.  I peered into the future and just knew -- and what I knew chilled me to the bone.  I had mobilized decades earlier as part of the antiwar movement of the Vietnam era, which was in its own way a terrible time, but when I looked at where our country seemed to be heading, as the president promised to kick some ass globally and American bombs began to fall on Afghanistan, I had no doubt that this was going to be the worst era of my life.

I wasn’t, of course, thinking about you that October and November.  You were then minus 11 years old, so to speak.  I was, however, thinking about your mother and your uncle, my children.  I was thinking about the world that I and my cohorts and George W. Bush and Dick Cheney and George Tenet and Donald Rumsfeld and the rest of that crew were going to leave them.

In a quiet way I had done good work -- so I felt -- since demobilizing (like so many Americans) from the Vietnam era.  In my spare time as a non-academic, I had written a very personal history of the Cold War of which I was proud.  I had been a book editor for two publishing houses, specializing in bringing into the world works by what I used to call “voices from elsewhere” (even when they came from here), including, to name just two, Chalmers Johnson’s Blowback and Eduardo Galeano’s Memory of Fire trilogy.

But when I somehow stumbled into the future in all its grim horror, more of that work didn’t seem like an adequate response to what was coming.  I had no sense that I could do much, but I felt an urge that seemed uncomplicated: not to hand your mother and uncle such a degraded country, planet, new century without lifting a finger in opposition, without at least trying.  I felt the need to mobilize myself in a new way for the future I’d seen.

At that point, however, my knack, such as it was, for previewing the years to come failed me and I had no sense of what to do until TomDispatch more or less smacked me in the face.  (But that’s a story for another day.)  This April, more than 13 years after I first began sending missives to the no-name listserv that turned into TomDispatch, it’s clear that, in my own idiosyncratic way, I did manage to mobilize myself to do what I was capable of.  Unfortunately, I’d have to add that, all this time later, our world is a far more screwed up, degraded place.

A Fragmenting Reality

Stretch anything far enough and it’ll begin to tear, fragment, break apart.  That, I suspect, may be a reasonable summary of what’s been happening in our twenty-first-century world.  Under stress, things are beginning to crack open.  Here in the U.S., people sometimes speak about being in a Second Gilded Age, a new era of plutocracy, while our politics, increasingly the arena of billionaires, seem to second that possibility.  Looked at another way, however, “our” Second Gilded Age is really a global phenomenon in the sense that ever fewer people own ever more.  By 2016, it is estimated that 1% of the people on this planet will control more than 50% of global wealth and own more than the other 99% combined.  In 2013, the 85 richest people had as much wealth as the poorest 3.5 billion, while in certain regions inequality seems to be on the rise. (Whether China and India are major exceptions to this is an open question.)  Dark money is rampant not just here, but globally.

Though you don’t know it yet, you’re already living in an increasingly lopsided world whose stresses only seem to be multiplying.  Among other things, there is the literal fragmentation going on -- the collapse of social order, of long established national units, even potentially of whole groupings of states.  Astonishingly enough, from Ukraine to Greece, Spain to France, that mood of fragmentation even seems to be reaching into Europe.  Across much of the Greater Middle East and parts of Africa, fragmentation has, of course, been the story of our moment, with nations collapsing, wars endemic, extremism of every sort on the rise, and whole populations uprooted, in exile, under almost inconceivable pressures -- and for much of this, I’m sad to say, our country bears a painful responsibility.

In these years, I wrote repeatedly (not to say repetitiously) on the subject; about, that is, a group of mad American visionaries who had dreams of establishing a Pax Americana in the Greater Middle East by force of arms and then lording it over the world for generations to come.  In the name of freedom and democracy and with a fundamentalist belief in the transformational power of the U.S. military, they blithely invaded Iraq and blew a hole in the heart of the Middle East, from which the fallout is now horrifically apparent in the Islamic State and its “caliphate.”

And then, of course, there was our country’s endless string of failed wars, interventions, raids, assassination campaigns, and the like; there was, in short, the “global war on terror” that George W. Bush launched to scourge the planet of “terrorists,” to (as they then liked to say) “drain the swamp” in 80 countries.  It was a “war” that, with all its excesses, quickly morphed into a recruiting poster for the spread of extremist outfits.  By now, it has become so institutionalized that it wouldn’t surprise me if, in your adulthood, Washington were still pursuing it no less relentlessly or unsuccessfully.

In the process, the president became first a torturer-in-chief and then an assassin-in-chief and, I’m sorry to tell you, few here even blinked.  It’s been a nightmare of -- to haul out some words you’re not likely to learn for a while -- hubris and madness, profits and horrors, inflated dreams of glory and the return, as if from an earlier century, of the warrior corporation and for-profit warfare on a staggering scale.

All of this happened in a country that still bills itself as the wealthiest and most powerful on the planet (though that power and wealth have proven ever harder to apply effectively) and all of it happened, despite obvious and honorable exceptions, without much opposition.  If this is a Second Gilded Age -- .01% of Americans, 16,000 families, control 11% of all wealth (as they last did in 1916) and 22% of all household wealth (up from 7% three decades ago) -- it is also, in the words of historian Steve Fraser, an “age of acquiescence.”

This has been true for the return of plutocracy, as well as for the growth of a national security state that has, like those billionaire plutocrats, gained power as the American people lost it.  If that state within a state has a motto, it might be this singularly undemocratic one: Americans are safest and most secure when they are most ignorant of what their government is doing.  In other words, in twenty-first-century America, “we the people” (a phrase that I hope lasts into your time) are only to know what their government does in their name to the degree that the government cares to reveal it.

That shadow government could never have gained such power if it hadn’t been for the trauma of 9/11, the shock of experiencing for one day a kind of violence and destruction that was common enough elsewhere on the planet, and the threat posed by a single phenomenon we call “terrorism.”  The Islamic extremist groups that come under that rubric do indeed represent a threat to actual human beings from Syria to Pakistan, Somalia to Libya, but they represent next to no threat to what’s now called the American “homeland.”

Of course, some whacked-out guy could always pick up a gun and, inspired by a bizarre propaganda video, in the name of one extreme organization or another, kill some people here.  But mass killings by those with no ideological animus are already, like death-by-toddler, commonplace in this country, and no one thinks to organize trillion dollar “security” systems to prevent them.

That the fear of this one modest danger transformed the national security state into a remarkable center of power, profits, and impunity with hardly a peep from "we the people" has been a kind of bleak miracle of our times.  What were we thinking when we let them spend something like a trillion dollars a year on what was called “national security” in order to leave us in a world that may have little security at all?  What did we have in mind when we let them fund their blue-skies thinking on the weaponry of 2047, instead of on the schools, energy sources, or infrastructure of that same year? I could pile up such questions endlessly, but if what we ceded to them is still of interest to you 20 or 30 or 40 years from now, and you have the luxury of looking back on our times, on the origins of your troubles, I’m sure you’ll find a clearer view of all this in the histories of your moment.

I have no way of imagining what the United States will be like in your adulthood and yet I can sense that this country is changing in unsettling ways.  It’s being transformed into something that your great-grandfather would have found unrecognizably un-American.  If we can’t yet speak of “fragmentation” here, phrases like “political polarization” and “gridlock” are already part and parcel of our new billionaire way of life.  What exactly all this is leading to, I’m not sure, but it doesn’t look either familiar or good to me.  It certainly doesn’t look like the American world I’d want to turn over to you.

America on the Couch

You haven’t set foot in school, barely know how to use one of those ubiquitous silver scooters, and can still embrace the magical thinking of childhood -- of announcing, for instance, that you’re “hiding,” even in plain sight, and then assuming that you can’t be seen.  So I know that it’s a little early to bring up the seemingly unhinged nature of the affairs of grown-ups.

Still, if this country of mine, and someday yours, could be put on the couch, I suspect it would, in layman’s terms, be diagnosed as “disturbed” (on an increasingly disturbed planet).  Worst of all, we can evidently no longer see what actually threatens us most, which isn’t a bunch of jihadis, but what we are doing to our ourselves and our world.

Put another way, if we’re not significantly threatened by what we’ve dumped all our money and energy into, that hardly means there are no threats to American life.  In fact, I haven’t even mentioned what worries me most when I think about your future: the increasing stress under which life here and elsewhere is being placed by the exploitation and burning of fossil fuels.

In any case, I had the urge to put all this “on the record,” though I have no way of knowing whether that record has any permanence, whether in the world of 2047 you’ll even be able to access what I’ve written.  In other words, I have no idea whether you’ll ever read this.  I do fear, however, that if you do, it will be from a more fragmented, unhinged, stressed-out version of the planet we’re both on today, and I’m aware that our responsibility was to provide you and all other children with what you minimally deserve -- a decent place to grow up.

For that record, then, I want to say that, despite my own best (if modest) efforts, I feel I owe you an apology.  In ways I find hard to express, I’m sorry for what is and what may be.  It’s not the country I imagined for you.  It’s not the world I wanted to leave you.  It’s not what you deserve.

Nonetheless, I still have hopes for you and your moment.  As a wonderful writer of my time once pointed out, the darkness of the future is a kind of blessing.  It always leaves open the possibility that, against the madness of the moment, the genuine decency, the lovability I see in you, that anyone can see in just about any child, has a shot-in-the-dark chance of making a difference on our planet.

And more specifically, however much this may be an “age of acquiescence” when it comes to wealth and war, it hasn’t proved so on the subject that matters most: climate change.  Against the forces of genuine criminality and wealth, despite a tenacious denial of reality funded by companies that have profited in historic ways from fossil fuels, a movement has been forming in this country and globally to save humanity from scouring itself off the planet.  From pipelines to divestment, its strength has been rising at the very moment when the price of alternative energy systems is falling rapidly.  It’s a combination that offers at least a modicum of hope against the worst pressures to fragment and, in the end, simply destroy this planet as a welcoming place for you and your children and their children.

So let me just end this way: someday in the distant future, I hope you’ll read this letter and that, given the ingenuity of our species, given the grit to resist madness, given whatever surprises the future holds, you’ll smile indulgently at my worst fears.  You’ll assure me -- or at least whatever trace of me is left in you -- that I had a typically human inability to imagine the unpredictable future, and that in the end things never measured up to my worst fears.  I hope, despite what we didn’t do, that you have the opportunity for a life of wonders, the kind that everyone on this planet deserves.

Your loving grandpa,


by Michael Batnick, The Irrelevant Investor

At this point you’re probably tired of all the speculation about whether the Fed will raise rates and when. I know I am, for the last eight quarters I’ve been receiving emails describing “how to play this rising rate environment.” I view this as a huge distraction and think this sort of debate is best left to the economists.

Interest rates are a key input to some of the most important valuation models so they are absolutely a critical part of the puzzle. However, so are GDP growth rates, unemployment and housing. Is it wise to make major investment decisions based on our GDP forecasts? James Osborne pointed out that what’s going on now is like this great Peter Lynch quote, but for bonds: “far more money has been lost preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” How many people have been overweight short-duration bonds for the last two plus years?

Interest rate risk is real, but what is just as real that we hear little about are the advantages to rising rates. This gives investors the ability to reinvest coupons at a higher rate. As you can see below, the ability to do just that did not destroy bond returns during the last five rate hikes.

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Another very important thing to keep in mind is that stocks will always have a higher probability for major drawdowns. Bonds just have not historically crashed the to the same degree that stocks have. The worst nominal three-year return for long-term government bonds was -18%, for stocks it was -82%.


Now look at the chart again with the drawdowns from stocks included.


All the hemming and hawing over how to protect yourself from rising rates seems silly when this is put into context. Does this mean that stocks are not exposed to interest rate risk or that inflation can’t eat into bond returns? Of course not, there are always risks to non risk-free assets. The point is that making major changes to your allocation based on what might or might not happen and the unknown affects that come along with it usually do not work in your favor.

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